Underwriting Capacity, Carbon Footprint and Performance of Quoted Insurance Firms in Sub-Saharan African Countries

Abstract

In this study, the effects of underwriting capacity and carbon footprint on the financial performance of listed insurance firms in selected sub-Saharan African countries was investigated. It is argued in the study that both internally controlled factors (underwriting capacity) and factors that are external to the insurance industry (carbon footprint) generate or intensify risks faced by the insurance firms. The study employs secondary data collected from the sampled insurance firms' annual audited financial statements. Data used involves forty-five (45) insurance firms in eight (8) selected sub-Saharan African countries for the period of 2010 to 2019. To present a robust outcome in the relationships, a dynamic estimation procedure was adopted based on System Generalized Method of Moments estimation technique using dependent variables (Return on Asset, Return on Equity and Tobin’s Q), explanatory variables (shareholders fund, underwriting profit, reserves, earning asset ratio, gross premium, the ratio of ceded reinsurance and Carbon dioxide emission) and moderating variables of firm’s size, economic growth and inflation rate. The results from the study reveal that the pattern of effects of underwriting capacity or carbon footprints differ in terms of the factors considered or the measurement used for a performance indicator. In particular, the study found that shareholders' funds, underwriting profit, reserves, earning asset ratio and gross premium written exert significant effects on the performance of the insurance firms, although the effects vary depending on whether Return on Asset, Return on Equity or Tobin's Q is used as a performance indicator. The study also finds that the level of carbon footprint in the economy exerts significant negative effects on all the performance indicators of insurance firms. The study recommends optimal risk and shareholder's fund management strategies, as well as sustainable insurance procedures.