Abstract
The South African insurance sector is regarded as a key pillar of the country's financial system as it serves as a custodian in stabilising the financial system as a whole. Empirical studies have undertaken to evaluate the factors of financial performance in the insurance sector in other countries, but there has been little study on such analyses in South Africa. This prompted an investigation of the drivers of financial performance in South Africa's insurance sector by utilising the panel data regression analysis. Given the wide pool of life insurance companies within the insurance sector, this study sampled five life insurance companies that were listed on the Johannesburg Stock Exchange (JSE) between 2010 and 2021. The study used return on assets (ROA) as proxy for financial performance. Company size (SIZ), company age (AGE), liquidity (LIQ), inflation rate (INF), unemployment rate (UNEMP), interest rate (INTR) and GDP growth (GDP) were among the drivers examined.
The World Bank and the audited financial statements of the listed companies were used to collect data for the investigation. The data collected was analysed using descriptive statistics and trend analysis.
According to the study's findings, company size has a significant but negative relationship with ROA. The negative relationship indicates that larger insurance companies may be inefficient, and that their size does not necessarily provide them with a competitive advantage in terms of improving performance. The age of the company suggests that this has a favourable and significant impact on ROA. The favourable relationship implies that ROA increases with the age of the company.
Liquidity is found to have a positive but insignificant impact on the financial performance measured by ROA. This implies that the companies’ ability to cover their short-term liabilities is not an important factor in determining their overall financial performance. Lastly, the study reveals that inflation rate has a positive and significant impact on the financial performance of South African life insurance companies listed on the JSE.
Keywords
Financial performance; drivers of financial performance; insurance companies in South Africa; insurance sector