ISSN: 2455-0353
Dr. Rachna Mahalwala, Professor, Bhagini Nivedita College, University of Delhi,
Dr. Sonika Sharma, Associate Professor, Shaheed Bhagat Singh College, University of Delhi,
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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