Financial Success in Cambodia's Insurance Industry
Dr. DBA, Business Science Institute
Thesis supervisor : Prof. Marco Heimann
The insurance industry in Cambodia contributes only 0.93% to the country's GDP, with low insurance coverage among the population. Some insurance companies are facing financial difficulties and the research aims to investigate the reasons behind it. The study aims to identify the factors affecting financial performance of insurance companies in Cambodia and how the country's context affects it. The objectives of the research are to suggest regulatory and financial management improvements and provide an appropriate model for future studies. The research is significant for top and middle management in insurance companies and other researchers.
The most significant factors in the financial performance of insurance companies in Cambodia are company size, leverage, premium growth, capital volume, underwriting risk, liquidity, and the macroeconomic factors such as GDP and inflation. These findings suggest that policymakers, insurance regulators, and insurance companies ought to focus on these factors when seeking to improve the financial performance of insurance companies in Cambodia.
Table 1 illustrates steps that the government, regulators, and insurance companies can take the to improve the financial performance of insurance companies in Cambodia.
Overall, this study is a first step towards better understanding the factors that contribute to the financial success of insurance companies in Cambodia and will hopefully help to contribute to creating the right products to protect and save people from future financial losses.
For the study it was imperative to have a comprehensive understanding of the determinants of insurance firm performance. The academic foundations of the DBA extensively review empirical articles of the factors that impact insurance firm performance and conceptualize the model. This covers key topics such as financial performance, economy growth, ROA and ROE, company size, and capital structure choices. The DBA puts forth several theories to provide insight into the topic under discussion. One such theory is the agency theory, as proposed by Jensen and Meckling (1976). Additionally, the DBA presents relevant empirical findings, such as the factors affecting the financial performance of Asian insurers, as documented by Renboa and Kie (2004). These insights help to provide a comprehensive understanding of the subject matter at hand. From the impact of GDP on insurance profitability to the relationship between company size and performance, this text provides a comprehensive overview of the key factors that impact insurance firm performance. Additionally, I provide a clear explanation of the use of ROA and ROE as indicators of financial performance and profitability, and how they are used to measure the success of an insurance firm. Finally, I highlight the conflicting views of different academics on the impact of leverage on firm value and risk, providing a balanced and thorough perspective on the subject.
The research method used in this study is a quantitative approach utilizing 11 years of panel data from 2009 to 2019, obtained from registered insurance companies in Cambodia and the World Bank website. The data was analyzed using descriptive statistics, Pearson correlation analysis, and multiple linear regression analysis through the statistical program "EViews 9." The study applied panel data techniques including the fixed effect model and random effect model. The fixed effect model assumes individual attributes do not change over time, while the random effect model assumes the constants as random values for each section. Econometric regression analysis of the fixed-effect model revealed that independent variables including company size, leverage, the volume of capital, premium growth, underwriting risk, and GDP had a significant effect in explaining the ROA and ROE of the financial performance of insurance companies in Cambodia.
Further reading and viewing
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Renboa C. & Kie A. W. (2004). The Factors That Influence Asian Insurance Companies’ Financial Health, 469-499 in the Journal of Risk and Insurance, vol. 71, no. 3.
Insurance regulator of Cambodia website (Irc.gov.kh)
Insurance association of Cambodia (iac.org.kh)