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The determinants of life insurance companies profitability in South Africa: new evidence from a dynamic panel threshold estimation technique

Sylvester Senyo Horvey (Wits Business School, University of the Witwatersrand, Johannesburg, South Africa)
Jones Odei-Mensah (Wits Business School, University of the Witwatersrand, Johannesburg, South Africa)
Albert Mushai (School of Business Sciences, University of the Witwatersrand, Johannesburg, South Africa)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 4 January 2024

587

Abstract

Purpose

Insurance companies play a significant role in every economy; hence, it is essential to investigate and understand the factors that propel their profitability. Unlike previous studies that present a linear relationship, this study provides initial evidence by exploring the non-linear impacts of the determinants of profitability amongst life insurers in South Africa.

Design/methodology/approach

The study uses a panel dataset of 62 life insurers in South Africa, covering 2013–2019. The generalised method of moments and the dynamic panel threshold estimation technique were used to estimate the relationship.

Findings

The empirical results from the direct relationship reveal that investment income and solvency significantly predict life insurance companies' profitability. On the other hand, underwriting risk, reinsurance and size reduce profitability. Further, the dynamic panel threshold analysis confirms non-linearities in the relationships. The results show that insurance size, investment income and solvency promote profitability beyond a threshold level, implying a propelling effect on life insurers' profitability at higher levels. Below the threshold, these factors have an adverse effect. The study further points to underwriting risk, reinsurance and leverage having a reduced effect on life insurers' profitability when they fall above the threshold level.

Practical implications

The findings suggest that insurers interested in boosting their profit position must commit more resources to maintain their solvency and manage their assets and returns on investment. The study further recommends that effective control of underwriting risk is critical to the profitability of the life insurance industry.

Originality/value

The study contributes to the literature by providing first-time evidence on the determinants of life insurance companies' profitability by way of exploring threshold effects in South Africa.

Keywords

Citation

Horvey, S.S., Odei-Mensah, J. and Mushai, A. (2024), "The determinants of life insurance companies profitability in South Africa: new evidence from a dynamic panel threshold estimation technique", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-08-2022-1225

Publisher

:

Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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