Reinsurance Utilisation and Performance of Non-Life Business in The Nigerian Insurance Industry:

A Mixed Methods Approach

Abstract

Reinsurance arrangement is fundamental to insurance companies’ operations because it serves as a major risk management mechanism often used to cushion loss experience. Despite the benefits of reinsurance to insurance companies, scholars from recent school of thought had queried its use. The thrust of their argument is that reinsurance utilisation may be costly, uneconomical, and on the long run erodes insurers’ performance. This among others provides need to investigating the impact of reinsurance utilisation on the performance of non-life business in the Nigerian insurance market. This study employed mixed method research design, a pragmatist paradigm that allows combination of qualitative and quantitative approaches within different phases of the research process. While the quantitative study made use of financial performance measures through data obtained from the annual accounts of all the forty one (41) non-life insurance companies operating in Nigeria from 2006 to 2015, the qualitative study measured the non-financial performance through semi-structured interview from heads of reinsurance department of non-life insurance companies in Nigeria. The study used profitability PT (ROA and ROE) as surrogates of financial performance while reinsurance dependence RD (RCR and RDCP) was used to denote reinsurance utilisation. For the quantitative approach, longitudinal descriptive research design was employed while the qualitative employed exploratory research design. The quantitative study adopted regression analysis using logarithmic transformation of model while the qualitative study adopted thematic content analysis. The findings of the study established statistical significant influence between dependent variable (performance) and independent variable (reinsurance utilisation) since the p-value of the partial regression coefficients is less than 0.05. The qualitative results validated the findings of the quantitative study. It is therefore recommended that non-life insurance companies in Nigeria should develop other risk management mechanisms apart from reinsurance protection and at the same time improve their overall performance (both financial and non financial). If these are pursued, it will simultaneously increase their retention threshold and risk appetite and on the long run reduce the rate at which reinsurance will be utilised.