Abstract
In this chapter, an attempt is made to find out the important factors determining profitability of life insurance companies in India and examine the role of efficiency discussed in the previous chapter. Towards this objective, panel data models are employed to examine the efficiency–profitability relationship. The model employs return on assets as the dependent variable, which is a proxy for profitability of the life insurers and a set of independent variables, including two industry-specific factors like Herfindahl–Hirschman Index (HHI)/CR5 and PE/pure technical efficiency (PTE), three firm-specific variables like ‘size’, ‘leverage’ and ‘risk’ and two macroeconomic factors like ‘GDP and inflation’. The data set includes a panel of 13 life insurance companies for the period 2002–2003 to 2014–2015. The panel regression is estimated by both the fixed-effects and random-effects models to find the determinants of profitability. However, Hausman’s specification test recommends fixed-effects model to be the appropriate model. The results of fixedeffects model suggest that leverage and size of the firm and two macrovariables, GDP and inflation, are significant determinants of profitability, whereas ‘underwriting risk’, market structure (HHI/CR5) and efficiency (TE/PTE) are not significant determinants of profitability.
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Notes
- 1.
IRDAI Annual Report 2012–2013, page no. 27.
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Parida, T.K., Acharya, D. (2017). Life Insurance in India: Efficiency and Profitability. In: The Life Insurance Industry in India. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-10-2233-3_3
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DOI: https://doi.org/10.1007/978-981-10-2233-3_3
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