FIRM-SPECIFIC FACTORS AND CORPORATE SOUNDNESS OF NIGERIAN INSURANCE COMPANIES: DO RELEVANCE AND FAITHFUL REPRESENTATION MATTER?
Keywords:
Firm-specific factors, Corporate soundness, Relevance and faithful representation, Insurance companies, IFRS reportingAbstract
The case of corporate soundness of Nigerian insurance companies being threatened as reflected in some momentum of corporate failures, seemingly technical insolvency and constraints in settling policyholders’ claims should be a source of worry. This study, therefore, examined the impact of firm-specific factors on the corporate soundness of listed insurance firms in Nigeria. This was done in the context of switch to International Financial Reporting Standards (IFRS) believed to be deep-rooted in “relevance” and “faithful representation” qualitative characteristics. Using insurer-level data of 22 listed insurance firms manually extracted over the period 2007-2023, data analysis was performed using Driscoll and Kraay’s Estimator with capacity to correct heteroscedastic, serially correlated and cross-sectional dependent residuals. The findings showed that 6 out of 10 firm-specific factors examined are favourable to the improved financial standing in terms of soundness as measured by Z-score. These factors are share of premium ceded to reinsurance, premium retention, premium to surplus ratio, capital adequacy, loss ratio and level of profitability. Claims growth and insurer’s size are unfavourable while concluding evidence cannot be made regarding insurance premium growth and insurer’s age. However, during IFRS, insurer’s soundness was subject to improvement via reduced claims growth and loss ratio and somehow upward growth in insurance premium only. This suggests that favourable IFRS reporting impact reflected in few of the factors, indicating that there is low progressive institutional change in corporate reporting practices of insurance firms in Nigeria. This situation requires that relevant regulators increase their level of oversight in ensuring that there is a true and favourable reflection of IFRS reporting in the financial soundness of Nigeria insurance firms.
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