An Empirical Study to Determine Firm-Specific Factors Affecting Profitability in the Turkish Insurance Sector

Abstract

Purpose- Profitability is of vital importance for insurance companies to grow, develop and compete. Profits obtained in the insurance sector are of great interest to insurers, investors, shareholders and regulatory authorities. In addition, profitability is an important indicator used in risk management and investment decision-making processes. The purpose of this study is to examine the firm-specific factors affecting profitability in the Turkish insurance sector. Design/methodology/approach – In order to achieve the purpose of the study, panel data regression analysis was conducted with quarterly data covering the period of May 2014 - December 2023 of 32 insurance companies (29 non-life insurance, 3 life insurance) operating in Turkey. In the study, return on assets and return on equity ratios were used as representatives of the profitability variable. Firm-specific factors were size, current ratio, expense ratio, leverage ratio, capital adequacy, and loss premium ratio were used as independent variables. Findings- According to the findings of the study, size and capital adequacy affect the return on assets positively, while the leverage ratio affects the return on equity negatively. However, other findings reveal that other variables do not have any effect on the return on assets or equity. Discussion- The evidence obtained as a result of the study shows that it may be beneficial for companies that want to increase their profitability in the Turkish insurance sector to increase their capital and assets and reduce their liabilities.