Do underwriting profit factors affect general insurance firms’ profitability in South Africa?

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This research paper examines the correlation between underwriting profit factors and the overall profitability of publicly traded general insurance companies operating in South Africa. The study analyzed a sample of 36 insurers, considering their quantifiable markets and accessible financial data from 2008 to 2019. Employing signal correlation analysis, the investigation explored the associations between various financial indicators and Return on Assets (ROA). The results revealed negative correlations between ROA and the logarithms of total investment (TI), shareholder funds (SF), and underwriting profits (UWP), with correlation coefficients of –0.4500, –0.3365, and –0.4050, respectively. These findings indicate that as TI, SF, and UWP increase, there is a tendency for ROA to decrease for general insurance companies in South Africa. Furthermore, a positive relationship was observed between the earning-asset ratio and ROA. This suggests that as the earning-asset ratio rises, the ROA of general insurance firms in South Africa tends to improve, indicating a potentially favorable impact on profitability. The significant findings of this study emphasize the importance of prioritizing effective risk management practices within insurance firms. By implementing these measures, such as minimizing the likelihood of claims and ensuring accurate reflection of assumed risks in premium charges, insurance companies can maintain positive underwriting profit. This, in turn, has the potential to enhance their overall profitability.

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    • Table 1. Variables’ description
    • Table 2. Descriptive statistics
    • Table 3. Correlation result on the impact that underwriting profit has on the overall profitability of general insurance firms in South Africa
    • Table 4. Panel result of the impact that underwriting profit has on the overall profitability of general insurance firms in South Africa
    • Conceptualization
      Thabiso Sthembiso Msomi
    • Data curation
      Thabiso Sthembiso Msomi
    • Formal Analysis
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    • Funding acquisition
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    • Investigation
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    • Methodology
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    • Project administration
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    • Resources
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    • Software
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    • Supervision
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    • Validation
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    • Visualization
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    • Writing – original draft
      Thabiso Sthembiso Msomi
    • Writing – review & editing
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