Monetary Policy and Return on Equity of Quoted Insurance Firms: A Time Series Study from Nigeria
The financial system is the transmission channel of monetary policy. This study examines the effect of monetary policy on the performance of insurance firms in Nigeria from 1990 – 2017. The objective is to investigate the existing relationship between monetary policy instruments and the performance indicators of insurance companies. Secondary data were sourced from Stock Exchange factbook, Central Bank of Nigeria (CBN) Statistical Bulletin. Multiple linear regressions were formulated to examine the effect of the independent variables on the dependent variable. Return on equity was modeled as a function of treasury bill rate, monetary policy rate, interest rate, growth of money supply and exchange rate. R2, T-Statistics, β Coefficient, F-Statistics and Durbin Watson were used to examine the extent to which the independent variables affect the dependent variables while augmented dickey fuller unit root test, granger causality test, cointgration test and error correction models was used to ascertain the dynamic relationship between monetary policy variables and return on equity of the insurance firms. Findings revealed that, all the explanatory variables have positive effect on return on equity except treasury bill rate. The unit root test found that the variables are stationary at first difference, the cointgration test found the presence of long run relationship while the granger causality test found a uni-directional causality. The study concludes that monetary policy has moderate effect on the return on equity of the insurance firms. We recommend that management of insurance companies should devise measures of managing the negative effects of the monetary policy instruments to enhance the performance of the insurance companies.
Adebiyi, M. A., (2006). Financial Sector Reforms and the Transmission Mechanism of Monetary Policy in Nigeria. A Vector Auto-regression Mechanism, China Finance Research Network (CFRN). 1(2),178-190.
Adefeso, H.A. & Mobolaji, C., (2010). The fiscal-monetary policy and economic growth in Nigeria: Further empirical evidence. Pakistan Journal of Social Sciences, 7(2): 137-142.
Ajayi, S.I., (2005). An economic case study of the relative importance of monetary and fiscal policy in Nigeria. Bangladesh Economic Review, 2(2), 559-576.
Bernanke, B., J. Boivin. J., & Eliasz V. W.,(2005). Measuring the effects of monetary policy: A factor-augmented vector autoregressive (favar) approach. The Quarterly Journal of Economics, 120(1), 287-422.
Berument, H., & Dincer, N., (2008). Measuring the effects of monetary policy for turkey. Journal of Economics Cooperation, 29(1), 83-110.
Chukwulozie, O.E., (2006). Life insurance as a source of long time savings in Nigeria: Regulator’s Perspective. CBN publication. 30(1), 20-31.
Daniel, M., & Tilahun, A. (2013). Firm specific factors that determines Insurance companies performance in Ethiopia. European Scientific Journal, 9 (1), 134-153
Dube, M. M., and Saka (2017). An Analysis of Factors Affecting the Performance of Insurance Companies in Zimbabwe. Journal of Finance and Investment Analysis, 6(1), 45-69.
Folawewo, A. O., and Osinubi, T. S., (2009). Monetary policy and macroeconomic instability in Nigeria : A rational expectation approach. Journal of Social Sciences, 12(2), 93-100.
Frimpong, N.W., & Omar, O.E., (2007). Life insurance in Nigeria: An application of the theory of reasoned action to consumers’ attitudes and purchase intension. The Service Industrial Journal. 27(7), 936-976.
Ganev, G., M. Krisztina, R. Krzysztof & Prsemyslaw,W., (2002). Transmission mechanism of monetary policy in central and eastern Europe. Centre for Social and Economic Research (CASE)(Report No. 52).
Gonga, M. A., & Sasaka, P. S. (2017). Determinants of financial performance of insurance firms: a survey of selected insurance firms in Nairobi county. The Strategic Journal of Business & Change Management. 4(4), 123-143.
Hadush, G. (2015). Determinants of Profitability of Insurance Companies in Ethiopia: AnEmpirical study, Master’s Thesis, AAU.
Hailu, Z., (2007). Insurance in Ethiopia, Historical development present status, and future challenges. Master Printing press, Addis Ababa.
Hanna, M. (2015). Determinants of insurance companies’ profitability in Ethiopia, Master’s Thesis AAU.
Hawariyuni, W., (2006). The determinants of demand of Syarikat Takaful Malaysia Berhad (STMB): autoregressive distributive lag (ARDL) Approach of Co integration.
Hifza, M. (2011). Determinants of insurance companies’ profitability: an Analysis of Insurance sector of Pakistan. Academic Research International, 1(3), 178-189.
Hwang, T., & Gao, S., (2003). The determinants of the demand for life insurance in an emerging economy – the case of China. Managerial Finance, 29 (5/6),.82 – 96.
Kahn, M., K. Shmuel & Oded,S., (2002). Real and nominal effects of central bank monetary policy. Journal of Monetary Economics (49), 1493-1519.
Kozak, S. (2015). Determinants of Profitability of Non-Life Insurance.Companies in Poland during Integration with the European Financial System.
Lee, C.H., Wong, A.K., & Chen, R., (2001). Age, period, and cohort effects on life insurance purchases in the U.S. The Journal of Risk and insurance. 68(2), 303-327.
Malik, H., (2011). Determinants of insurance companies’ profitability: An analysis of insurance sector of Pakistan. Academic Research International. 1(3), 65-82.
Mistre, S. (2015). The Determinants of Profitability on Insurance sector: evidence from Insurance Companies in Ethiopia, MSc. thesis AAU.
Molho, L. E., (2007). Interest Rate, Saving and Investment in Developing Countries. IMF Staff Paper, 83(1), 90-116.
Moullec, L.E., Kucinskience, M., & Ulbinaite, A., (2013). Determinants of insurance purchase decision making in Lithuania. Inzinerine Ekonomika-Engineering Economics. 24(2), 144-159.
Niño Datu(2016). How do insurer specific indicators and macroeconomic factors affect the profitability of insurance business? A panel data analysis on the Philippine Non-life Insurance market
Oke, O.B., Ideji, O.J., & Joseph, I.A., (2010). The determinants of life insurance consumption in Nigeria: A co-integration approach. International Journal of Academic Research. 2(4), 109-123.
Öner Kaya (2013). Capital Adequacy in the Insurance Business and Assessment of Turkish Insurance Sector within the Scope of Solvency II. Ph.D. Thesis, Gazi University, Ankara,
Onoh, J. K. (2002). Dynamics of Money Banking and Finance in Nigeria. An emerging market. Astra Meridian Publishers, Aba, Nigeria.
Onyeiwu, C., (2012). Monetary policy and economic growth of Nigeria. Journal of Economics and Sustainable Development, 3(7), 62 -70.
Ornella M. L.Anderloni (2014). Non-life Insurance Economic performance an empirical investigation. Journal of economics and management, 18 (2),16-27.
Pervan, M., & Pavić, K.T., (2010). Determinants of Insurance Companies’ Profitability in Croatia. The Business Review Cambridge, 16(1), 231-238.
Rafiq, M.S. & Mallick,S.K., (2008). The effect of monetary policy on output in emu: A sign restriction approach. Journal of Macroeconomics 30: 1756-1791.
Sojic, M., & Djurdjevic, L., (2008). .Monetary Policy Objectives and Instruments Used by the Privileged National Bank of the Kingdom of Serbia (1884-1914).
Starr, M., (2005). Does money matter in the cis? Effects of monetary policy on output and prices. Journal of Comparative Economics 33: 441-461.
Suheli Reshid (2015). Determinants of Insurance Companies in Ethiopia, MSc Thesis, AAU.
Tavlas, G., H., & Stockman, A., (2008).The Classification and Performance of Alternative Exchange-Rate Systems. International journal of money and banking 5(7) 130-152.
Ward, D. & Zurbruegg,R., (2002). Law, Politics and Life Insurance Consumption in Asia. Geneva Papers on Risk and Insurance. 27; 395-412.
Yana, S. (2010), Factors that determined firm performance of New Zealand listed companies, MBUS thesis
Yugi, L, (2007). Determinates of Banks profitability and its implication on risk management practices panel evidence from the UK, the University of Nottingham.
Yuvaraj and Abate G. (2013). Performance of Insurance Companies in Ethiopia, International Journal of Marketing. Financial Services and Management research ,3(1),12-31.
Copyright (c) 2018 Macfubara,Minafuro Suzane ., Norteh Dumbor ., Gberesuu,Barida Barry
This work is licensed under a Creative Commons Attribution 4.0 International License.