Abstract:
1. Introduction
Reinsurance is the process through which insurance companies transfer a
portion of their risk portfolio to another entity, known as a reinsurer. This
study aims to examine the impact of reinsurance on the financial
performance of general insurance companies in Sri Lanka.
2. Research Methodology
The study has taken seven general insurance companies regulated by the
Sri Lanka Insurance Regulatory Commission (IRCSL) from 2014 to 2023 as
the sample. A quantitative research approach and descriptive research
design were employed. Using secondary data from annual reports and
IRCSL publications, panel data regression was conducted in STATA. Both
fixed effect and random effect models were applied, with the Hausman test
confirming the fixed effect model as the best fit for the research.
3. Findings and Discussion
The study's findings indicate that only the Reinsurance Dependence Cede
Premium (RDC) and the Net Retention Ratio (NRR) statistically impact the
Return on Assets (ROA) of general insurance companies in Sri Lanka.
Conversely, the Premium Cession Ratio (PCR), Combine Ratio (CR), and FS
do not statistically affect ROA in these companies.
4. Conclusion and Implications
The study finds that Reinsurance Dependence Cede Premium (RDC) and
Net Retention Ratio (NRR) significantly boost the financial performance of
general insurance companies in Sri Lanka, while Premium Cession Ratio
(PCR), combined ratio (CR), and Firm Size (FS) do not. This indicates that
market conditions may play a larger role, highlighting the need to optimize
reinsurance strategies to meet regulatory and market demands.
