Analysis of factors affecting profitability of insurance companies in Turkey: Panel data approach

Profitability is important for insurance companies as it is indicator of whether they are able to continue their activities and fulfill their obligations to policyholders. In recent years, economic conditions all over the world and the market conditions peculiar to Turkey has been causing volatility in profitability of insurance companies. The aim of this study is to find out most important firm-specific and macroeconomic variables affecting profitability of insurance companies in Turkey considering the differences of life and non-life sectors. The study for life insurance companies covers the period between 2006 and 2017 for 16 life insurance companies. ROA and ROE are used as measures of profitability. According to the dynamic panel data model results, lagged value of ROA and ROE, premium growth rate, age, GDP growth rate, interest rate and pension activity have positive impact on profitability while expense ratio, leverage ratio and liquidity have negative impact. The study for non-life insurance companies covers the period between 2006 and 2017 for 21 companies. ROA is used as measure of profitability. According to the fixed effects panel data model results, size, liquidity, investment yield, age, GDP growth rate and interest rate have positive impact on profitability while premium growth rate, loss ratio, leverage ratio and solvency have negative impact.