ABSTRACT

This study aimed at investigating the factors that mostly affect financial performance of
Bangladesh General Insurance Companies. The study population consisted of 12 insurance
companies' enlisted at Dhaka stock Exchange during the period (2012-2015). The data
collected was analyzed by using a number of basic statistical techniques such as VIF, T-test and
Multiple-regression. The results showed that the following variables (Leverage, liquidity, size,
age, company size) have a positive and negative statistical effect on the financial performance
of Bangladesh General Insurance Companies. The researcher recommended that a high
consideration of increasing the company assets will lead to a good financial performance and
there is a significant need to have an experience company to earn a viable financial position.

1. INTRODUCTION
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Insurance is a form of risk management, used to hedge against the risk of a contingent loss. It
involves the transfer of the risk of potential loss from one entity to another, in exchange for a risk
premium. Therefore, the insurance sector fosters financial stability by enabling economic agents
to undertake various transactions with the facility of transfer and dispersion of risks. The role of
insurance as a financial intermediary is particularly important in countries like Bangladesh with
low levels of financial penetration. Insurance companies play a large role in the service-based
economy. The financial guarantee services that insurance companies provide, are now being
integrated into the wider financial industry. Non-life insurance companies (both private and
public) provide fire, marine, accident, causality and many other forms of insurance. In order to
track their financial performance, one crucial measure monitored is profitability of the institution.
The financial performance of companies including insurance company is a subject that has
attracted a lot of attention, comments and interests from financial experts, researchers, the
general public and the management of corporate entities. Yet, selecting out the most successful
firms has always proved to be a difficult task to many as a firm may have a high level of
profitability, but at the same time be in a very bad situation regarding its liquidity. The Financial
performance of a firm can be analyzed in terms of profitability, dividend growth, sales turnover,
asset base, capital employed among others. However, there is still debate among several
disciplines regarding how the performance of firms should be measured and the factors that
affect financial performance of companies. A single factor cannot reflect every aspect of a
company performance and therefore the use of several factors allows a better evaluation of the
financial profile of firms.
Companys performance is evaluated mainly in three dimensions. The first dimension is
companys productivity, or processing inputs into outputs efficiently. The second is profitability
dimension, or the level of which companys earnings are bigger than its costs. The third
dimension is market premium, or the level of which companys market value is exceeding its
book value.
This multidimensional view of performance implies that different models or patterns of
relationship between corporate performance and its determinants will emerge to demonstrate
the various sets of relationships between dependent and independent variables in the estimated
models.
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2. OBJECTIVE OF THE STUDY

This study tries to investigate the weakness in the overall financial performance of insurance
companies. The study's main objective then could be summarized in identifying the factors
affecting Bangladesh General insurance companies' financial performance. Therefore, this
study seeks to demonstrate the following statements:

To present an overview of General Insurance Companies of Bangladesh.

To appraise the performance of selected General Insurance Companies of Bangladesh
To recommend remedial measures for the development of selected General Insurance
Companies of Bangladesh.

3. AIM AND OBJECTIVE

The main aim of this study is to investigate the factors that mostly affect financial performance
of General Insurance Companies of Bangladesh. This aim will be achieved by the following
objectives:
To identify the effect of Leverage, Age, Size, liquidity on the financial performance of General
Insurance Companies of Bangladesh.
To provide some conclusions and recommendations to deal with variables that affect financial
performance In order to enhance their company financial performance.
The aim and objective of the report is mainly to serve the purpose of our course requirement.

4. SCOPE AND METHODOLOGY OF THE STUDY

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The study has been carried out mostly on the basis of secondary data to evaluate the
performance of selected General insurance Companies of Bangladesh. The selected life
insurance companies are Agrani insurance company limited, Bangladesh general
insurance company (BGIC), Asia Insurance Limited, Continental Insurance Ltd. (CIL),
Dhaka Insurance Limited, Eastland Insurance Company Limited (EICL), Global Insurance
Co., Green Delta Insurance Co, Karnaphuli Insurance Co., Merchantile Insurence Co.,
Nitol Insurance Co., Republic Insurance Co.
Others relevant data and information has been extracted from Stock Exchanges, Annual Reports
of different insurance companies of Bangladesh, Bangladesh Securities and Exchange
Commission and web sites of relevant insurance companies of Bangladesh etc. The study also
incorporates existing literature and relevant articles on the performance of insurance. In this
article we analyzed four years data i.e. 2012-2015 of selected General insurance companies of
Bangladesh. The analysis of the data collected from financial statement followed a number of
basic statistical techniques. Descriptive statistics (mean and standard deviation) and inferential
statistics (Pearson correlation and multiple-regression) were used to analyze data. A multiple
linear regression model was used to test the research hypotheses at 0.10 level of significance
(90% confidence level). The multiple regression model used in this study is given as:
Y (ROA) = +1x1+ 2x2+ 3x3+ 4x4+
Where,
Y= financial performance measured by Return on Asset (ROA)
= Constant
1 4 = the slope which represents the degree in which financial performance changes as the
independent variable change by one unit variable
Dependent variable = Profitability (ROA)
Independent variable:
x1=leverage
x2 = liquidity
x3 = companys size
x4 = companys age
= error term
5. LITERATURE REVIEW
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5.1 Concept of Financial Performance

There are various measures of financial performance. For instance return on sales reveals how
much a company earns in relation to its sales, return on assets explain a firms ability to make
use of its assets and return on equity reveals what return investors take for their investments.
Companys performance can be evaluated in three dimensions. The first dimension is
companys productivity, or processing inputs into outputs efficiently. The second is profitability
dimension, or the level of which companys earnings are bigger than its costs. The third
dimension is market premium, or the level at which companys market value is exceeds its book
value (Walker, 2001). Cohen, Chang and Ledford (1997) measured accounting returns using
Return on Assets (ROA). They indicated that return on assets (ROA) is widely used by market
analysts as a measure of financial performance, as it measures the efficiency of assets in
producing income. The most used accounting measures of financial performance is Return on
Assets (ROA) (McGuire et al., 1988; Russo and Fouts, 1997; Stanwick and Stanwick, 2000;
Clarkson et al., 2008), Return on Equity (ROE) (Bowman and Haire, 1975), and Return on Sales
(ROS) (Stanwick and Stanwick, 1998). Thus, the study used return on assets (ROA) as a
measure of financial performance.
5.2 Leverage
Leverage refers to the proportion of debt to equity in the capital structure of a firm. The financing
or leverage decision is a significant managerial decision because it influences the shareholders
return and risk and the market value of the firm. The ratio of debt-equity has implications for the
shareholders dividends and risk, this affect the cost of capital and the market value of the firm
(Pandey, 2007). Gupta et al (2010) cited some studies showing contradictory results about the
relationship between increased uses of debt in capital structure and financial performance.
Ghosh, Nag and Sirmans (2000), Berger and Bonaccorsi di Patti (2006) reported a positive
relationship between leverage and financial performance, while Gleason et al (2000), Simerly
and Li (2000) showed negative relationship between financial performance and leverage level.
Similarly, Zeitun and Tian (2007) found that debt level is negatively related with financial
performance. Several researchers have studied firms debt use and suggested the determinants
of financial leverage by reporting that firms debt-equity decision is generally based on a tradeoff between interest tax shields and the costs of financial stress (Upneja & Dalbor,
2001).According to the trade-off theory of capital structure, optimal debt level balances the
benefits of debt against the costs of debt (Gu, 1993) hence, use of debt to a certain debt ratio
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results in higher return on equity, however, the benefit of debt would be lower than the cost after
this level of capital structure. In other words, the more a company uses debt, the less income
tax the company pays, but the greater its financial risk. Based on the trade-off theory for capital
structure, firms can take advantage of debt to make a better return on equity.
Thus the study hypothesizes that;
H01: Leverage has no significant effect on the Financial Performance (Return on assets)
of General insurance companies of Bangladesh.
5.3 Liquidity
The International Financial Reporting Standards (2006) define liquidity as the available cash for
the near future, after taking into account the financial obligations corresponding to that period.
Liargovas and Skandalis, (2008) argues that firm can use liquid assets to finance its activities
and investments when external finance are not available. On the other hand, higher liquidity can
allow a firm to deal with unexpected contingencies and to cope with its obligations during
periods of low earnings. Almajali et al (2012) found that firm liquidity had significant effect on
Financial Performance of insurance companies. The result suggested that the insurance
companies should increase the current assets and decrease current liabilities because the
positive relationship between the liquidity and financial performance. In contrast to the above
reasoning, based on a theoretical model by Jovanovic (1982) suggested that a moderate
amount of liquidity may propel entrepreneurial performance, but that an abundance of liquidity
may do more harm than good. Therefore, they concluded that the effect of liquidity on firms'
financial performance is ambiguous.
Thus the study hypothesizes that;
H02: Liquidity has no significant effect on the Financial Performance (Return on assets)
of General insurance companies of Bangladesh.

5.4 Company size

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Previous studies in finance have shown that company size can predict the future stock price
(Simerly & Li, 2000). For instance, Hvide and These (2007) in their study concluded that larger
firms have better performance. Flamini et.al (2009) suggested that bigger firms are more
competitive than smaller firms in harnessing economies of scale in transactions and enjoy a
higher level of profits. Athanasoglou et al., (2005) assert that increase in company size
increases the performance of the bank. Almajali et al (2012) argued that the size of the firm can
affect its financial performance. However, for firms that become exceptionally large, the effect of
size could be negative due to bureaucratic and other reasons (Yuqi 2007).
Thus study hypothesizes that;
H03: Company size has no significant effect on the Financial Performance (Return on
assets) of General insurance companies of Bangladesh.
5.5 Companies age
Examining the relation between firm age and financial performance would seem to be relevant
for both theory and practice. If performance declines as firms grow older, it could explain why
most of them are eventually taken over (Loderer, Neusser, and Waelchli, 2009). Age could
actually help firms become more efficient. However, old age may also make knowledge,
abilities, and skills obsolete and induce organizational decay (Agarwal and Gort, 2002).
Sorensen & Stuart (2000) argued that companies age affect the firms performance. They
further argued that organizational inertia operating in old firms tend to make them inflexible and
unable to appreciate changes in the environment. Liargovas and Skandalis (2008) reported that
older firms are more skilled since they have enjoyed the benefits of learning and not prone to
the liabilities of newness, hence they have a superior performance. Loderer et al, (2009) found a
positive and significant relationship between the age of a company and profitability. Malik (2011)
in his Pakistan study found that there is significantly positive relationship between company size
and profitability.
Thus the study hypothesized that;
H04: Company age has no significant effect on the Financial Performance (Return on
assets) of General insurance companies of Bangladesh.

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AN OVERVIEW OF THE SELECTED GENERAL INSURANCE COMPANIES OF

BANGLADESH
6.1 Agrani insurance company limited

Agrani Insurance Company Limited was incorporate as a public limited company under the
company Act, 1994 and registration from the chief controller of insurance, government of
Bangladesh on 3 April 2000 with a paid-up capital of tk.60 million. The present authorized
capital of the company is tk. 500 million while paid-up capital has increased to tk.253.65 million.
The company was listed with Dhaka stock exchange limited on 5 march 2005.
The board of Agrani Insurance Company ltd. Has been constituted with 15 directors, 11 sponsor
director, 2 director from public shareholders and 2 independent directors.
Agrani insurance company ltd.is one of the general company of Bangladesh having a network of
35 branches in all important places throughout the country employing a full time workplace of
421 persons.it underwriters all classes of general insurance and enjoys reputation second to
none. apart from the traditional covers such as fire, accidents, motor, marine, marine hull,
personal accident ,group hospitalization, workmens compensation, burglary, cash in sale, it also
transacts non-traditional covers such as machinery breakdown and loss of profits following
machinery breakdown ,contractors all risk, erection all risks and bankers blanket bond policy.
6.2 Bangladesh general insurance company (BGIC)
Bangladesh general insurance company Ltd. or BGIC Ltd. is the first general insurance
company in Bangladesh in the private sector. BGIC was incorporated as a public limited
company and started business on 29 July, 1985 with an authorized capital of Tk. 100 million
divided into 1,000,000 ordinary shares of Tk. 100 each. The company runs the business
operation under the supervision of board of Director and legal frame work of the insurance Act,
1938 and the insurance rules, 1958 as an amended from time to time. Its initial paid up capital
was Tk 30 million. In May 1989, the companys paid up capital was increased to Tk. 60 million
by offering Tk.30 million worth of share for public subscription, the paid-up capital was increased
to Tk. 72 million in 1998, and by December 2008, BGICs paid up capital stood at Tk. 176.97
million. BGIC is listed with both Dhaka and Chittagong stock exchanges. In December 2008, the
numbers of shareholders of the company was 7,708, who held 1,769,705 shares. BGIC has
since developed substantially with all the strengths and details prudently essential of an
insurance company. It is primarily staffed with professionals of longest experience, qualified

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insurance technocrats of highest order of international repute and a team of highly educated
and skilled personnel of commendable status. The equity structure of the company was
carefully selected, not only for the financial benefit, but to support the growth of a dynamic
company with the goal a major player both in the domestic and international insurance markets.
The company ownership is prudently distributed to sponsor Director 22.94%, public Director
1.64%, and Institutions 14.67% and 60.75% General public shareholders.
6.3 Asia Insurance Limited
Asia Insurance limited is a general insurance company. A public limited company incorporated in
Bangladesh under the companies Act 1994 from Register of joint stock companies and
registered with insurance development and regulatory authority government of the peoples
republic of Bangladesh. Its operation started from 30 April 2000.chairman of the insurance
company is Yusuf Abdullah Harun. There are 21 branch offices. The principal bankers
Southeast bank limited.
To be one of the leading Insurance Company in the country providing integrated insurance
service in the non-life sector having special track record of prompt customer service and speedy
claim settlement. Mission of the company is Enhance profitability through customers
satisfaction, Create shareholders value, to continue commitment to excellence. Objectives of
the company is To meet customers demand with Utmost effort, To ensure maximum protection
of shareholders investment, To provide secured employment environment, To develop
corporate culture and promote good governance, To maintain transparency in disclosures.
6.4 Continental Insurance Ltd. (CIL)
Continental insurance ltd. Is one of leading and fast growing Non-life Insurance Company in
Bangladesh. The vision and objectives have been set to give a Brand New Experience in
General Insurance. It should be mentioned that Continental Insurance Limited has taken out
necessary Re-Insurance protection from Foreign Re-Insurer and also Sadharan Bima
Corporation for the full protection of risk of our all Clients property and interests. Listed in
the Dhaka & Chittagong Stock Exchange in 2008.
With the approval of the Government of Bangladesh M/s. Continental Insurance Ltd. Started
underwriting of all classes of general insurance business such as Marine, Fire, Burglary, Motor,
Engineering, Aviation (Hull) and Miscellaneous insurance in the private sector with effect from
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12.12.1999 and by now it has been able to earn the confidence of remarkable portion of the
insuring community by virtue of which it is enjoying the 5 th position amongst the private sector
general insurance companies in the country. That this Company is well equipped with a team of
technically qualified professionals. Within the frame-works of existing tariff, this Company
Charges the most economic and competitive premium rate ensuring Maximum Protection at
Minimum Cost. It also provides its clients with necessary technical assistance, consultancy
service and advice free of cost whenever called for. CIL takes utmost care in handling and
settling claims with due promptitude with a view to give timely indemnity to the unfortunate
members of the clientele.
6.5

Dhaka Insurance Limited

Dhaka insurance limited provides general insurance products in Bangladesh. The company
covers various risk insurance, such as fire and allied, flood, cyclone, marine cargo and hull,
motor, personal accident, workmens compensations, engineering and specialized, poultry farm,
dread disease, and overseas medical risk insurance, as well as burglary, cash in safe, cash on
counter, cash in transit, etc. It also offers professional indemnity, industrial all risks, erection all
risks, and contractors plant and machinery policies. The company was formerly known as The
Loyeds Insurance Company Limited and changed its name to Dhaka Insurance Limited in May
2006. Dhaka Insurance Limited was founded in 2000 and is headquartered in Dhaka,
Bangladesh.
6.6 Eastland Insurance Company Limited (EICL)
East insurance company limited is a first generation general insurance company was
incorporated on November 5, 1986 as a public limited company under the Companies Act 1913
(at present 1994) with the vision to be one of the premier non-life insurance companies in
Bangladesh. It obtained the Certificate of Registration for carrying on insurance business from
the Chief Controller of Insurance on November 22, 1986. The company started its business with
a paid up capital of Tk. 30.00 million against authorized capital of Tk. 100.00 million being
sponsored by a group of renowned business personalities and reputed industrialists of the
country having involvement in diversified business.
Meanwhile, both authorized and paid up capital of the company have been enhanced to Tk.
1000.00 million and Tk. 594.92 million respectively as on December 31, 2015. EICL floated
Initial Public Offerings (IPO) in 1994. The shares of the company are listed with both the
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bourses of the country under A category issue. EICL received AA (Double A) Surveillance
Rating (Stable outlook) from CRISL based on
Its sound financial performance and claim paying ability. The Company has been operating its
business with a network of 27 branches in different districts of the country. The company earned
gross premium of Tk. 820.46 million in 2015 against Tk. 700.45 in 2014 .The Company made
underwriting profit of Tk.20.66 million and profit after tax (PAT) of Tk. 120.24 million in FY 2015.
The company has been carrying on its business from its Head Office located at 13, Dilkusha
C/A, Dhaka-1000.
Mr. Mahbubur Rahman, Chairman is an eminent business personality in Bangladesh. He is the
President of International Chamber of Commerce (ICC) Bangladesh, Chairman Bangladesh
International Arbitration Center (BIAC), Member Business Advisory Council (BAC) of the United
Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), Bangkok,
Member, Board of Governors, Institute of Business Administration (IBA), University of Dhaka,
Member of the Board of Bangladesh Open University (BOU) and Dhaka Stock Exchange
Limited. He is the former Chairman of National Bank Ltd. and National Bank foundation, former
President of Federation of Bangladesh Chamber of Commerce & Industry (FBCCI) and Dhaka
Chamber of Commerce & Industry (DCCI). Besides, he is associated with host of Social
Organizations at home and abroad.
Management team consists of a group of experienced professionals and is headed by Mr. Arun
Kumar Saha as the Managing Director & CEO, with over 33 years of experience in the
insurance industry. Mr. Saha started his career with Sadharan Bima Corporation as Trainee
Officer in 1981. He worked in Underwriting, Claim, Re-Insurance, and Export Credit Guarantee
& Administration Department from 1981 to 2011. He retired from SBC as General Manager.
6.7 Global Insurance Co.
Global Insurance Limited (GIL) is one of the leading private non- life insurance Company of the
Country. GIL was incorporated on April 23, 2000 as a public limited company under the
Companies Act, 1994, with a paid up capital of BDT 60.00 million only. The shares of the
company are listed on the Dhaka Stock Exchange as a publicly traded company in 2005. At
present, the company has been operating its business through 23 branches located at different
strategically important areas of Bangladesh. Stepping on its 16th birthday, Global Insurance
Limited has now become a big family of 18 respected board members, 06 dedicated senior
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management members, 315 committed staffs, numerous valued clients and thousands of
esteemed shareholders with a paid up capital of BDT 270.56 million.
With the slogan, Symbol of Security and Peace during the last 16 years, GIL has been helping
people at the time of need; taking all the steps when needed and has been proud to be a
partner in progress. As an experienced insurer, GIL has been operating as a financially strong
and stable general insurance company. The company has sound reinsurance arrangements,
and leverages its local and international reinsurance programmes to underwrite all types of
general insurances, at all levels from small business to very big business. Hence GIL has
achieved an excellent market reputation with the leading position in the non- life insurance
business industry of the country.
Sound risk management has always been at the heart of management. This discipline aided the
management in managing various risks incorporated with insurance business efficiently since
the year of its inception. To coup with the challenge of 21 st century, GIL has taken initiative to
fully computerize its operation by the end of 2011. It will enhance its servicing capacity upto
international level.
As a corporate body, GIL has strong commitment towards the society. Management believes
that some philanthropic activities for the society will uphold the image of GIL. Besides Sound
risk management, the company concentrates on health care, cultural activities, sports and game
etc. GIL achieved remarkable improvement in all these areas.
6.8 Green Delta Insurance Co
Green Delta Insurance Company Limited (GDIC) is one of the leading private nonlife insurance
companies in Bangladesh. GDIC was incorporated in December 14, 1985 as a public limited
company, under the Companies Act 1913 and its operation started on 1st January 1986, with a
paid up capital of BDT 30.00 million.
Now, Green Delta Insurance Company Ltd. is amassed more than BDT 807 million with a credit
rating of AAA and ST1 as the first Insurance Company in Bangladesh. Green Delta is also the
1st Insurance Company in Bangladesh to have equity partnership with International Finance
Corporation (IFC) of World Bank Group. With a presence in the strategically important parts of
the country, which includes 39 branches, Green Delta Insurance Company has established its
prominent presence with equity participation in Delta BRAC Housing Ltd., Progressive Life
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Insurance Co Ltd, United Hospital Ltd. Fin Excel Ltd. and BD Venture Ltd. Green Delta Capital
Ltd., Green Delta Securities Ltd., Professional Advancement Bangladesh Limited and GD Assist
Limited are four of the direct subsidiaries. GDIC provides stock brokerage services through
Green Delta Securities Ltd. (GDSL) and Investment Banking services through Green Delta
Capital Ltd.(GDCL). Professional Advancement Bangladesh Limited provides international
standard professional trainings, in collaboration with CII, UK and GD Assist Limited is the
Official

Representative of Malaysia Healthcare Travel Council in Bangladesh promoting

Malaysia Healthcare Tourism.

Under the charismatic leadership of Mr. Nasir A Choudhury, Advisor and Ms. Farzana
Chowdhury, Managing Director and CEO, Green Delta Insurance Company Ltd. has been
leading the winds of change

in the insurance industry of the country in terms of service

standard, innovative products and legislative restructuring. After a glorious journey of 3 decades
in the Insurance sector, Green Delta Insurance Company Limited has now become a big family
of visionary board members, 600+ committed staff, numerous valued clients and thousands of
esteemed shareholders. By now, Green Delta has been able to uphold the brand image as a
prompt claim settler, superior service provider, and diversified product supplier almost like a
one stop solution provider in the nonlife insurance sector in the country.
6.9 Karnaphuli Insurance Co.
Karnaphuli Insurance Company Limited was incorporated on 23 rd November 1986 as a public
limited company under the companies act 1913, obtained the certificate of Registration, for
carrying on general Insurance Business from Controller of Capital Issues on 23 rd November,
1986. Being sponsored by a group of renowned business personalities, reputed industrialists
and Journalist of the country. The Company started its commercial operation on 25 th November,
1986.
Karnaphuli Insurance Company Limited is a first generation and top-tier nonlife insurance
company. The Company has been maintaining strong capital base, ethical business standards,
corporate culture and corporate governance, superior underwriting skills and dynamic
investment management since its inception
Karnaphuli Insurance Co. Ltd. With a network of 27 branches covering strategic financial
centers of Dhaka, Chittagong, Rajshahi, Khulna, Barisal, Shylhet, Rangpur and Bogra & some
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important district town has been providing whole hearted services to the doorsteps of the
clients. It has active presence in capital market. The Company is always eagerly ready to fulfill
the needs of all its clients with high profitability & balanced growth. Karnaphuli Insurance Co.
Ltd. Has earned excellent market reputation and absolute confidence of its valued clients.
6.10 Merchantile Insurence Co.
The company covers industrial all risk policies, property & marine insurance, personal accident
insurance, motor insurance, car insurance, 14sunami & earthquake insurance, business
interruption & machinery breakdown insurance, health insurance including overseas mediclaim
insurance.It has started its operation in May 5,1996
6.11 Nitol Insurance Co.
Nitol Insurance Company Limited is a Public Limited Non-Life Insurance Company. It is
incorporated in Bangladesh on October 04, 1999 as a public Limited Company under the
companies Act, 1994 to transact all classes of non-life insurance business.
6.12 Republic Insurance Co.
Republic Insurance Company Limited (RICL) is one of the reputed and well established general
insurance companies in the countrys private sector. Republic Insurance Company Limited has
been incorporated on 18.05.2000 as public limited company under the companies act 1994 with
a paid up capital of Tk.6.00 crore. In the Year 2008 Republic Insurance Company Limited has
been enlisted with Dhaka Stock Exchange and Chittagong Stock Exchange as public listed
company. At present paid up capital of RICL stands at Tk. 25,15,59,000. It joined the fraternity of
insurance in Bangladesh under insurance act 1938 to transact all classes of general insurance
business i.e. Fire, Marine Cargo, Marine Hull, Motor, Engineering, Miscellaneous, Burglary,
Cash in Safe, Cash in Transit, Cash on Counter, Fidelity Guaranty. Workmens Compensation
etcetera since inception of the Company. The Company has been operating its business
through 29 Branches located all over Bangladesh.
7.

Performance Evaluation, Findings and Data analysis

7.1 Data analysis and Research Findings

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Depend on the study model the regression analysis was used to investigate the impact of
independent variables on dependent variable. The following explain the method used for
calculating dependent and independent variables:
A measure was used to evaluate the financial performance that is the Return on assets (ROA):
ROA is one of the most widely used financial models for performance measurements and it was
developed by Dupont in 1919. ROA determines a firms ability to make use of its assets
(Tangen, 2003). One of the previous studies (Agiomir giannakis, et al. 2006) has used ROA as a
measure of financial performance.

Leverage as measured by the ratio of total debt to equity (debt/equity ratio)

Liquidity ratio measured by the ratio of current assets to current liabilities

Size as measured by the Total Assets

Age as measured by the number of years since establishment

Financial performance was measured by ROA

The analysis of the data collected from Bangladesh General insurance companies financial
statement will follow a number of basic statistical techniques in order to identify and interpret the
ratings of respondents such as means, standard deviations, T test for independent variable,
The degree of criticality of each factor is to be analysed by using a content analysis approach.
To answer the study questions and hypothesis the following statistical methods will be used:

For subject of response description means and standard deviation will be used

For hypothesis testing multiple linear regression method will be used

Table 1 Correlation Statistics

The section presents study data analysis and research findings. First, the descriptive statistics
and correlation results are presented in table 1. The study reported that ROA was 9.36%,
leverage was 16.74% debt against equity (mean=0.1674), Liquidity was 8.41 current assets
over current liabilities of firms and a company size of 65.00 and that firms had an average of

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20.50 years of operation from the year of incorporation. The analysis also indicated that liquidity
and company size had a significant positive correlation with the financial performance of firms
(ROA). However, there was negative correlation between size and financial performance (ROA).
Table 1 Correlation Statistics
Mean
ROA
Age
Leverage
Size
Liquidity
ratio

0.0936
20.50
0.1674
65.00
8.41

Standard
ROA
Age
Leverage Asset
Liquidity
Deviation
ratio
0.09
1.00
7.69
0.33
1.00
0.07
0.11
0.01
1.00
75.00
-0.06
0.52
0.43
1.00
8.35
0.43
0.00
0.24
0.37
1.00

7.2 The Result of Hypothesis Testing

To test multiple regression models, it is necessary to assess whether the collected data violate
some key assumptions of regression models because any assumption violations can result in
distorted and biased research results (Hair et al. 1998). These assumptions include
Multicollinearity and Normality:
Multicollinearity can be controlled by two ways: tolerance values and values of variance inflation
factor -VIF (Hair et al. 1998). High degrees of Multicollinearity can result in both regression
coefficients being inaccurately estimated, and difficulties in separating the influence of the
individual variables on the dependent variables (Hair et al. 1998). Any variables with a tolerance
value below 0.10 or with a value above 10.0 of VIF would have a correlation of more than 0.90
with other variables, indicative of the Multicollinearity problem (Hair et al. 1998). Results in the
table below (2) shows that Tolerance for all independent variables is more than 0.10 and
Variance Inflation Factor- VIF for the independent variables is less than the limited valued 10.0,
so as a result we can say there is no Multicollinearity between the independent variables.
Fitness of the model: the linear regression analysis of the original model reveals that the Rsquare of the model is 0.62. This means the model explains 62% of the variance in the
dependent variable (table 3).

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Table 2 Tolerance and Variance Inflation Factor-VIF

VIF
Intercept
Age
Leverage
Asset
Liquidity ratio

1.56
1.34
2.07
1.23

Findings in table 3 below indicated that 61.63% variation of financial performance (ROA) is
predicted by joint contribution of leverage, liquidity, company size, and company age (R2 =
0.6163). The rest of 38.37% is explained by other variables that were not included in this
research model. The estimated equation for multiple linear regression-models is:
Hypothesis 1
There is no significant effect for Leverage on Financial Performance (Return on assets) of
Bangladesh General Insurance Companies. Using multiple regression to test the previous
mentioned hypothesis, it was found that calculated t =1.09 (greater than the tabulated value of t
= 1.08) and a significance level of (0.10).The null hypothesis was rejected. Thus, the leverage
which was considered as one of the important factors has an impact on financial performance
for insurance company. The result suggested that the insurance company should increase its
concentration on borrowing and debt department and at the same time should be careful about
this.
Hypothesis 2
There is no significant effect for liquidity on Financial Performance (Return on assets) of
Bangladesh General Insurance Companies. Since calculated t equals 2.54 (greater than the
tabulated value of t = 1.98), with a (0.10) significance level, the null hypothesis was rejected. It
found that there is significant statistical impact of liquidity on Financial Performance of insurance
companies. The result suggested that the insurance companies should increase the current
assets and decrease current liabilities because the positive relationship between the liquidity
and financial performance.
17 | P a g e

Hypothesis 3
There is no significant effect for Size on Financial Performance (Return on assets) of
Bangladesh General Insurance Companies. As shown in table (3), calculated t equals -2.43
(less than the tabulated value of t = 1.98). So the null hypothesis was accepted. So that the size
for insurance companies was considered not an effective factor that impact on financial
performance. The result suggested that the companies shouldnt increase their assets volumes
in order to increase their financial performance because the negative relationship between size
and financial performance.
Hypothesis 4
There is no significant effect for Age on Financial Performance (Return on assets) of
Bangladesh General Insurance Companies. Ho4 was accepted since the calculated t equals
2.58(greater than the tabulated value of t = 1.98), with a .10 significance level. It found that the
age of company has effect on financial performance. The result suggested that the new
insurance companies should pay attention to age because of the positive relationship between
age of company and financial performance.
Table 3 Multiple Regression Results
Regression Statistics
Multiple R
0.79
R Square
0.62
Adjusted R
Square
0.40
Standard Error
0.07
Observations
12.00
ANOVA

Regression
Residual
Total

Intercept

df
4.00
7.00
11.00

SS
0.05
0.03
0.08

Coefficien
ts
-0.13

Standa
rd
Error
0.09

MS
0.01
0.00

t Stat
-1.53

F
2.81

Pvalue
0.17

Significa
nce F
0.10

VIF

Sxj

18 | P a g e

Age
Leverage
Asset
Liquidity ratio

0.01
0.35
0.00
0.01

0.00
0.32
0.00
0.00

2.58
1.09
-2.43
2.54

0.04
0.31
0.05
0.04

1.56
1.34
0.00
1.23

7.69
0.07
74.00
8.35

8. Findings Discussion
After testing the hypothesis and analyzing the data, it was found that:
Leverage has a significant statistical impact on Financial Performance of insurance companies.
which stated that an increase in the leverage has a positive impact on their performance. In
alignment with most previous studies, it was that high leverage might be beneficial, because it
can improve managerial incentives and force them to invest optimally. On the other hand, highly
leveraged firms may confront aggressive strategies from their less leveraged rivals and lose
market share in an oligopoly product market.
Liquidity has a significant statistical impact on Financial Performance of insurance companies.
Since liquidity measures the ability of managers in insurance companies to fulfill their immediate
commitments to policyholders and other creditors without having to increase profits on
underwriting and investment activities and liquidate financial assets. This reasoning therefore
implies that high liquidity obviates the need for management to improve annual operational
performance. Furthermore, high liquidity could increase agency costs for owners by providing
managers with incentives to misuse excess cash flows by investing in projects with negative net
present value and engaging on excessive perquisite consumption.
Size has no a significant statistical impact on Financial Performance of insurance companies.
Furthermore, the size for insurance companies was considered not an effective factor that
impact on financial performance. The result suggested that the companies shouldnt increase
their assets volumes in order to increase their financial performance because the negative
relationship between size and financial performance.
Company age has significant statistical impact on Financial Performance of insurance
companies. As a result, an older, well-established company is likely to be more proficient in
gathering, processing and releasing information when needed because of learning experience
which result in high financial performance.
19 | P a g e

10. Recommendations
After the research findings the following reachable recommendations were presented for this
study:
Great attention should be paid to leverage. Companies that are highly leveraged may be at risk
of bankruptcy if they are unable to make payments on their debt; they may also be unable to
find new lenders in the future. On the other hand, leverage can increase the shareholders'
return on their investment and make good use of the tax advantages associated with borrowing.
The finding regarding age has a good indicator for new entrants to insurance industry that the
age of the company has influence on its good performance. With the old companies experience
employees also engaged with the company which may include experienced analyst who has the
capability to manage the finance efficiently.
10. Conclusion
In present insurance is too much important to the business and individual sector. Most of the
companies provide more or less same services. For this reason the competitions increasing day
by day between the insurance companies. On the other hand some new insurance companies
are going to start businesses in the competent market. BGIC need to develop their some
productive sectors. In present, a company cannot establish properly without developing
information technology. People search their desires requirement through Internet so, insurance
companies need to develop Web address to increase both foreign and local investors. So we
have discussed about both the problem and prospects of insurance business in Bangladesh.
The progress of insurance business depends on the progress of economic condition .Insurance
business also faces many problem. So if we develop economic condition as well as overcome
the problems, it will help a lot to flourish this business in our country.

20 | P a g e

11. References
1. Neelam C. Gulati and C.M. Jain (2011), Comparative Analysis of the Performance of All
the
2. Players of the Indian Life Insurance Industry. VSRD- International Journal of Business &
Management Research, Vol. 1 (8).
3. Grace, F. M. and S. G. Timme. (1992), An Examination of Cost Economics in the United
States Life Insurance Industry. Journal of Risk and Insurance 59, 72103.
4. Reza, S.M and Iqbal, M.M (2007), Life Insurance Marketing in Bangladesh. Daffodil
International University Journal of Business and Economics, Vol. 2, No. 2.
5. B. Charumathi (2012), On the Determinants of Profitability of Indian Life Insurers An
Empirical Study. Proceedings of the World Congress on Engineering, Vol I, U.K.

21 | P a g e

6. Cummins, J. D. and H. Zi. (1998), Comparison of Frontier Efficiency Models: An

Application to the U.S. Life Insurance Industry. Journal of Productivity Analysis 10, 131152.
7. Fecher, F., D. Kessler, S. Perelman and P. Pestieau (1993). Productive Performance of
the French Insurance Industry. Journal of Productivity Analysis 4, 7793.
8. Quazi Sagota Samina (2012), Investment Portfolio of Insurance Companies in
Bangladesh: A Study on Selected Insurance Companies of Bangladesh. World Journal
of Social Sciences, Vol. 2. No.7.
9. Nabila Zaman (2012), Scope for Micro Health Insurance (MHI) in Bangladesh for lowincome household. Bangladesh research Publications Journal, Vol. 7, Issue. 4.
10. Moghadam, K.H, Atefi, Z., Barati, P., Omidi, M. and Zoghi, A. (2012). Performance
Comparison of Insurance Companies. Interdisciplinary Journal of Contemporary
Research Business, Vol. 4, No.7.
11. Mehariand, D. and Aemiro, T., (2013). Firm Specific Factors that Determine Insurance
Companies Performance inEthiopia. European Scientific Journal, vol.9, No.10.
12. Almajali, Y.A. and Al-Soub, Y.Z (2012). Factors Affecting the Financial Performance of
Jordanian Insurance Companies Listed at Amman Stock Exchange. Journal of
Management Research, Vol. 4, No. 2.
13. Greene, W. H. (2004). Profitability and Efficiency in the U.S. Life Insurance Industry.
Journal of Productivity Analysis.
14. Myers, D., Smith, C.W. Jr (1988), Ownership structure across lines of property-casualty
insurance. Journal of Law and Economics, Vol. 31.
15. Malik, H.(2011), Determinants of Insurance Companies Profitability: An Analysis of
Insurance Sector of Pakistan. Academic Research International, vol.1

Tables 1
Company Profile (Data file)
Company name

ROA

Age

Leverage

Liquidity
Asset ratio

Agrani Insurance Co

0.08

16.00

0.09

23

4.64

Asia Insurance LTD

0.10

31.00

0.11

59

2.66

Bangladesh General Insurance Co

0.05

16.00

0.25

62

5.04

Continental Insurance Ltd.

0.09

8.00

0.15

26

25.62
22 | P a g e

Dhaka Insurance Ltd.

0.06

16.00

0.25

55

2.94

Eastland Insurance Co.

0.36

30.00

0.24

76

20.72

Global Insurance Co.

0.04

16.00

0.25

24

3.44

Green Delta Insurance Co

0.04

30.00

0.25

295

18.24

Karnaphuli Insurance Co.

0.04

30.00

0.09

47

4.46

Merchantile Insurence Co.

0.11

20.00

0.11

50

1.10

Nitol Insurance Co.

0.09

17.00

0.09

31

9.89

Republic Insurance Co.

0.07

16.00

0.13

27

2.21

Table 2

ROA
Age
Leverage
Asset
Liquidity
ratio

Mean
0.09
20.50
0.17
65.00

Liquidi
Standard
Levera
ty
Deviation
ROA
Age
ge
Asset
ratio
0.09
1.00
7.69
0.33
1.00
0.07
0.11
0.01
1.00
75.00
-0.06
0.52
0.43
1.00

8.41

8.35

0.43

0.00

0.24

0.37

1.00

Table 3

ROA
Mean
Median
Mode
Standard

0.09
0.08
#N/A
0.09

Age

Leverage
20.50
16.50
16.00
7.69

0.17
0.14
0.25
0.07

Asset
65.00
49.00
#N/A
75.00

Liquidity
ratio
8.41
4.55
#N/A
8.35
23 | P a g e

Deviation
Minimum
Maximum
Count

0.04
0.36
12.00

8.00
31.00
12.00

0.09
0.25
12.00

23.00
295.00
12.00

1.10
25.62
12.00

MS
0.01
0.00

F
2.81

Significan
ce F
0.11

t Stat
-1.53
2.58
1.09
-2.43
2.54

P-value
0.17
0.04
0.31
0.05
0.04

Table 4
Regression Statistics
Multiple R
0.7850
R Square
0.6163
Adjusted R
Square
0.3970
Standard Error
0.0673
Observations
12.0000
ANOVA

Regression
Residual
Total

Intercept
Age
Leverage
Asset
Liquidity ratio

df
4.00
7.00
11.00
Coefficie
nts
-0.13
0.01
0.35
0.00
0.01

SS
0.05
0.03
0.08
Standard
Error
0.09
0.00
0.32
0.00
0.00

VIF
1.56
1.34
0.00
1.23

24 | P a g e

Sxj
7.69
0.07
74.00
8.35