The Impact of Risk Management on the Financial Performance of the General Insurance Companies in Bangladesh
Dr. Md. Jamil Sharif, Roksana Akter Lily, Dr. Mohammad Moniruzzaman
Department of Accounting & Information Systems, University of Dhaka
Email: jamilais9003@du.ac.bd
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Abstract
Objective: Proper risk management abilities are the keys to financial success of any company. The purpose of this study is to explore the relationship between risk management activities and the financial performance of listed general insurance firms in Bangladesh.
Methodology: To investigate the impact, secondary data have been collected from the annual reports of the 42 insurance firms listed in the DSE for a five-year period (2017–2021). ROA, the depended variable has been used as a proxy of the financial performance, while risk management performance of the firms was analyzed using credit risk, market risk, operational risk, liquidity risk, underwriting risk, solvency risk management capacity of the companies separately and aggregately.
Findings: The regression result shows that solvency risk management has significant positive impact on financial performance while credit risk, operational risk and underwriting risk management activities also have positive impact on firm performance. In addition, while the risk management has been considered in a holistic approach considering all the risk management tools in aggregate, the regression analysis reveals that comprehensive risk management initiatives show significantly positive effect on firm performance of insurance firms.
Practical Implications: This study underscores the need for effective risk management strategies within companies to boost their financial results.
Originality/Value: Very few papers in Bangladesh have explored this area in Bangladesh specially in insurance sector. Findings of this study in the context of Bangladesh contribute to the literature gap and help the management to take necessary initiatives to improve performance.
Limitations: Selecting short time period for analysis and using ROA as the only dependent variable for performance measurement are the major limitations of this study.
