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This paper examines the relationship between profitability, reinsurance and leverage level
of private sector non-life stock insurers of Pakistan. The value and significance of reinsurance
and leverage levels is analyzed by observing their nature and benefits to the insurer, insurance
industry and for financial system as a whole. The study further assesses whether the profitability
of the non-life insurance companies dependent on the reinsurance operations and leverage
level or not. Secondary data is taken from the annual financial reports of insurance companies
over the period of 10 years from 2002-2011. A panel data regression model, Random Effect
Model is used which reveals that the profitability is positively related with reinsurance
utilization. The leverage levels have a significant negative impact on the profitability. However,
the increased dependence on reinsurer decreases the profitability and hence the risk of
insolvency may increase. Majority of the insurance companies in order to increase their
underwriting capacity and to stabilize their earnings depend a lot on reinsurance and leverage,
and this extensive use exposes them to the potential risk of insolvency.
Hafiza Tahoora Iqbal, Mobeen Ur Rehman, Syed Jawad Hussain Shahzad. (2014) Analysis of Change in Profitability due to Reinsurance Utilization and Leverage Levels: Evidence from Non-Life Insurance Sector of Pakistan, Journal of Independent Studies and Research-Management, Social Sciences and Economics, Volume-12, Issue-1.
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