Profitability determinants of life insurance companies in the Republic of Serbia

Abstract

Background: Based on the results of research on the influence of certain internal and external factors on the profitability of insurance companies in the countries in Europe, America, Asia and Africa in the 21^st century which were published in a significant number of scientific and professional papers, the present study analyses insurance companies in Serbia in the period from 2015 to 2021. We chose this analysis bearing in mind the previous negative experiences and expressed distrust in the financial system, which greatly affected the readiness of policyholders to invest in life insurance products, as well as affecting significantly the development of life insurance in Serbia.

Purpose: The aim of the paper is to present the business results of the insurance companies on the Serbian market in the analysed period and to determine which business performance the management of an insurance company should pay attention to in order to ensure positive business results.

Study design/methodology/approach: We applied a fixed effects model on the nine selected variables. In the model, return on assets (ROA) is used as a dependent variable, while operating margin, expense ratio, investment ratio, growth rate of written premium of a company, company size, log (financial leverage), log (liquidity ratio), and market share are independent variables.

Findings/conclusions: The results of the research indicate that there is a statistically significant and positive impact of operating margin and liquidity ratio on ROA, and statistically significant but negative impact of expense ratio and financial leverage on ROA.

Limitations/future research: The limitation of our profitability analysis is that we were unable to analyse the impact of individual life insurance products on profitability. Bearing in mind numerous and significant social and economic changes over the last two years, the directions of our future research will be focused on their impact on the business operation of insurance companies.