Arthavaan Vol 6 Dec 2023 is available in print also

Arthavaan, Vol 6, Issue 1, December 2023

Impact of Financial Risks on Financial Performance of Private Life Insurance Companies in India: An Empirical Study
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Dr. Rachna Mahalwala, Professor, Bhagini Nivedita College, University of Delhi, 

Dr. Sonika Sharma, Associate Professor, Shaheed Bhagat Singh College, University of Delhi, 


Abstract

Several  financial  risks  are  inherent  in  the  business operations  of  insurance  companies  which,  if  not managed properly, may have an adverse impact on the profitability of these companies. Thus, the aim of the present study is to examine the impact of financial risks on the financial performance of the insurance companies in India taking 23 private insurance companies as a proxy for the insurance sector of the Indian economy. The study took secondary data of insurance companies for  the  sample  period  of  eight  years  from  2013-14 to  2020-21  and  implemented  panel  data  analysis technique  to  run  regression  taking  return  on  assets/return on equity as dependent variables for measuring financial  performance  and  capital  management  risk, solvency risk, underwriting risk and liquidity risk as independent  variables  measuring  financial  risks  of insurance companies along with two control variables, namely, size of the company and investment income. The  results  of  the  study  revealed  a  clear  significant impact of capital management risk on both return on assets and return on equity and a significant impact of underwriting risk and liquidity risk on return on equity. The study could not establish a significant impact of solvency  risk  on  financial  performance  in  contrast to  some  previous  studies.  The  study  purports  that insurance companies can enhance their profitability by effectively managing the financial risks in business.

Keywords:

Return on Assets, Return on Equity, Panel Data Analysis, Hausman Test

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