Determining the Factors Affecting the Financial Performance of Insurance Companies Operating in Elementary Branches in Turkey with Panel Data Analysis

Abstract

Purpose – In this study, it is aimed to determine the factors that affect the profitability performance of insurance companies operating in the non-life insurance sector in Turkey in the period of 2010-2020 by using dynamic panel data analysis. Design/methodology/approach – In the study, a balanced panel is created by employing the data of 28 non-life insurance companies operating in Turkey. A linear regression model is estimated to determine the factors affecting the profitability performance of insurance companies and the two-stage system GMM estimator developed by Blundell-Bond (1998) is used as the estimator. Financial performance is measured with two alternative variables, return on assets (ROA) and return on equity (ROE). Findings – According to the analysis results of ROA model; the one-year lagged return on assets ratio, company size, return on investment ratio, and the return on assets of non-life insurance companies are significant and positive; It has been found that the liquidity ratio, operating expenses, leverage ratio and loss premium ratio affect the return on assets significantly and negatively. According to the analysis results of ROE model; one-year lagged return on equity and company size significantly and positively affect the return on equity of non-life insurance companies; It is also found that the capital adequacy ratio, the loss premium ratio, the dummy variable representing the BIST status, and the foreign dummy variable have a significant and negative effect on the return on equity. Discussion – In order to increase the financial performance in the insurance sector in Turkey, it is thought that insurance companies should follow policies to increase the ratios of the variables that affect the profitability performance positively, by keeping the variables that negatively affect the profitability performance under control. In addition, it is thought that the production of premiums will increase by conducting country-wide studies to create insurance awareness in Turkey and by making tax reductions for other insurance products by the state, as in private pensions.