Abstract:
Insurance-specific risk includes challenges and uncertainties specific to the operations
and functioning of insurance companies. The study therefore investigates the effect of
these insurance-specific risks on the profitability of listed insurance companies in Sri
Lanka over 11 years (2012-2022) with a sample size of 27 firms. Three variables, such
as reinsurance, technical provisions, and underwriting risks, have been used to measure
insurance-specific risk as independent variables. The Return on Equity (ROE) and Re turn on Assets (ROA) were used to measure firm performance as the dependent variable.
The study is based on the Ex-Post Facto Research Design, which uses data already col lected. The study used secondary data from their annual reports. The results of the fixed
effect regression model showed that the technical provision risk and reinsurance risks
had a negative and significant impact on ROE, while the underwriting risk had a nega tive and insignificant impact on ROE. The study concludes that the best model for the
evaluation of Insurance firm performance is ROE rather than ROA. Due to the argu ments, ROE and ROA are both considered performance indicators where ROA is not
significant with variables. The study recommends that insurance companies in Sri Lanka
should make sufficient provision for outstanding claims by conducting an adequate as sessment of their liabilities and also taking into account experience to develop a com prehensive procedure for effectively monitoring and controlling their outstanding
claims. Further, listed insurance companies in Sri Lanka will consider their reinsurance
policies and risk retention ratios and listed insurance companies need to enhance their
ability to cover most incurred claims by themselves.
