The insurance sector, banking sector and other remaining sectors play an important role in the economy. Without them, there won't be any financial and economic growth. Our focus, in this study, is on the insurance sector which is highly supervised in Mauritius and around the world. The insurers pay for specified loss of the insured. There are 22 insurance companies in Mauritius. 13 general and 8 long term insurance companies were providing their services to the Mauritian society as from 31st December 2011, according to the Financial Services Commission Mauritius annual report 2011.
However due to the financial crisis in 2008, there has been an economic downturn. Stock markets have fallen and financial intermediaries have collapsed. Financial institutions such as insurance companies were affected by this economic downturn.
The aim of this study is to assess the profitability of the insurance sector in Mauritius, even during the economic downturn. As objectives, the author will review literatures and annual reports of the insurance sector. Moreover, the author will define the methodology of the research. Secondary data will be collected in order to be used in the chosen econometrics models. Then, there will be an analysis and a presentation of the findings. Finally, some appropriate recommendations will be made in context of the study. This research should be useful to insurance analysts, investors, students and others interested in the insurance industry.
The research question is "How far has the economic crisis affected the profitability on the insurance sector in Mauritius?"
A Brief Literature Review
Insurance companies help businesses and individuals in difficulties. It is important to have a continuous analysis on the performance and profitability of this particular sector.
There are many ways to measure profitability, which are return on invested capital (ROIC), return on equity (ROE) and return on assets (ROA) (Nguyen 2006). Many authors have studied on the determinants of insurance profitability in the past decades. Hifza Malik (2011) made use of ROA (return on assets) and five independent variables such as age of company leverage ratio, loss ratio, company size and volume of capital to measure the profitability of the insurance sector. The author concluded through his findings that there is no relationship between profitability and age of the company and there is a direct relationship between profitability and size.
Chen et al. (2009) studied the factors determining profitability of insurance companies and the findings stated that an increase in equity ratio lowered the insurance profitability hence there is a negative relationship between equity ratio and profitability.
Sloan, A and Conover, J. (1998) deduced that functional status of insurers donot affect the profitability of being insured but public coverage have significant impact on profitability of insurance companies. Chen and Wong (2004) concluded that size, investment and liquidity are the important factors that determine the financial position of insurance companies.
Naveed Ahmed, Zulfqar Ahmed, Ahmad Usman (2011) used independent variables such as size, profitability, age, risk, growth and tangibility while ROA (return on assets) is taken as dependent variable. The results of OLS regression analysis concluded that leverage, size and risk are more important than ROA (return on assets) because ROA statistics resulted in an insignificant relationship with profitability, growth and liquidity.
Proposed Methodology
The author will chose six insurance companies for this study which will be used for analysis over a period of 6 years as from 2006 to 2011. Secondary data will be collected from financial statements such as balance sheets and profit and loss accounts, which will be available at the Registrar of companies and some on their own websites. These data will be used to compute some ratios such as the gross profit margin, the net profit ratio, the return on capital employed, return on asset and some debts ratio.
Moreover, econometrics modelling such as the regression model and the time series model will be used in this study. Sampling will be done in terms of size of the insurance companies. There will be no use of surveys, interviews and questionnaires as this is more of a quantitative research.
Time Frame
A time frame is very important for the management of a dissertation. It is the period during which the project will be undertaken. The diagram below represents the different chapters to be completed for this research as from September 2012 to March 2013.
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This shady square represents the time taken to complete a chapter
Expected Output
Expected output will be an analysis of the financial life of ten insurance companies. This analysis will provide a statistical report on the overall performance of the insurance sector in Mauritius. Ratios which will be used in this research, will calculate the profitability and solvency situation of the insurance companies.
