Determinants driving Takaful and cooperative insurance financial performance in Saudi Arabia

Abstract

Purpose This paper aims to examine the effect of insurance specific characteristics, corporate governance and risk reporting attributes, Shari’ah board and inflation rate on the financial performance of Takaful and cooperative insurance industries. Design/methodology/approach Based on a dynamic panel generalized method of moment’s system estimation, the author investigates determinants of financial performance as measured by the net premium written, earning ratio and profit margin. Findings Company size, insurance penetration, risk reporting and board size significantly explain the financial performance of both types of insurance companies. The effect of Shari’ah board and capital intensity on the financial performance of Takaful insurance is overall positive. The non-executive directors may negatively affect the financial performance. Additionally, positive relationship was also found between inflation rate and financial performance of cooperative insurance. Research limitations/implications The typical shortcomings of a content analysis-based research apply to the measurement of operational risk reporting variable. Some modifications need to be made if it were to be used for exploring the financial performance of other Islamic financial institutions. The structural model used in this paper can be used as a generic platform to develop a specific framework for other types of organizations. Practical implications Some suggestions may be functional for Islamic insurance regulatory authorities to intensify the transparency, and for insurers to channel an additional source of investment funding toward economic sectors. Originality/value The present study seeks to fill a demanding gap in the literature by providing new empirical evidence on the factors that influence the financial performance of the Islamic insurance sector. Moreover, the paper tries to distinguish and identify the determinants of the performance for Takaful and cooperative insurance companies operating in Saudi Arabia.

Measuring the Managerial Efficiency of Insurance Companies in Saudi Arabia: A Data Envelopment Analysis Approach

“…Present research contributes to DEA and managerial efficiency by identifying the clear-cut market leader in terms of managerial efficiency. Consistent with recent research on efficiency of insurance companies in KSA (Akhtar Muhammad, 2018;Almulhim, 2019;Benyoussef & Hemrit, 2019;Hemrit, 2020), our findings earmarked the companies that are highly efficient in managerial efficiency. The major take-away from the current study could be summarized as follows.…”

“…However, in the last decade, researchers have also focused on measurement of efficiency in the insurance sector (Akhtar Muhammad, 2018;Masud, Rana, Mia, & Saifullah, 2019;Al-Amri, 2015;Almulhim, 2019;Barros et al, 2014;Eling & Luhnen, 2010;Hwang & Tong-Liang, 2006;Mandal, 2014;Nourani et al, 2017) as well. Most recent studies in KSA insurance sector (Akhtar Muhammad, 2018;Almulhim, 2019;Benyoussef & Hemrit, 2019;Hemrit, 2020) evaluated the general, pure and technical efficiencies of insurance companies operated in the kingdom. But it seems that managerial efficiencies of insurance firms still need to be explored.…”

Ownership type, business model, market structure, and the performance of Takaful and conventional insurance companies in Malaysia

“…However, total assets (Table 4, models 1 and 2) are negatively and significantly related to the NPE and investment incomes, indicating companies with larger assets underperform the smaller companies. This contradicts the economies of scale, where larger firms are more likely to perform better (Ansah-Adu et al, 2012;Hemrit, 2020). The results are partially consistent with (Akotey et al, 2013), who found that investment income is negatively related to total assets, and they suggested that when the management is not efficient in underwriting and managing the premiums, the assets of firms are financed by the money supposed to be invested.…”

“…We use two dependent variables to compare the performance of insurance and Takaful companies. First, the net premium earned is used in the literature to measure the performance, and it indicates the premium earned as the time of policy passes (Hemrit, 2020;Hussein et al, 2014). All premiums paid by the policyholders are part of earned profit if these premiums have not filed claims.…”

The Impact of the Industrial Revolution 4.0 on the Insurance Industry and Whether of the Assets and Investments Play a Role to Investment Yield?

“…Well in this Takaful, the funds deposited will still belong to the participant and the company will only manage it. In this case, it is clear that the role and Islamic insurance companies are quite a lot starting from administrators, risk managers, as well as managing funds to be invested (Hemrit, 2020…”