Principal component analysis in determining representative financial ratios within non-life insurance sector in Serbia-Reference-Cited by-同舟云学术

Principal component analysis in determining representative financial ratios within non-life insurance sector in Serbia

Published:2021 Issue:6-7 Volume:69 Page:306-317
ISSN:0353-443X
Container-title:Ekonomika preduzeca
language:en
Short-container-title:Ekonomika preduzeća

Author:

Vasić Vladimir,Kočović Jelena,Koprivica Marija^ORCID

Abstract

The paper deals with the application of principal component analysis in determining financial ratios that are representative within non-life insurance sector. Starting from many financial indicators found in the literature in the field of insurance, the purpose of the study is to identify a smaller set of ratios that are most relevant for assessing the financial position and performance of non-life insurance companies in Serbia with a minimum loss of information. On the basis of financial reports of nonlife and composite insurers in the period 2010-2019, we calculated 38 financial ratios, grouped into seven categories (capital adequacy, asset quality, reinsurance risk and performance, adequacy of technical reserves, profitability, liquidity and management soundness). Using parallel analysis and Velicer's minimum average partial test, we found that it is possible to explain 85% of variability of the initial set of ratios with six financial ratios. The obtained results can be used for the purposes of efficient financial analysis of individual insurance companies and the entire nonlife insurance sector in Serbia.

Publisher

Centre for Evaluation in Education and Science (CEON/CEES)

Link

https://scindeks-clanci.ceon.rs/data/pdf/0353-443X/2021/0353-443X2106306V.pdf

Reference30 articles.

1. Armeanu, D., & Lache, L. (2008). Application of the Model of Principal Components Analysis on Romanian Insurance Market. Theoretical and Applied Economics, 6(523), 11-20;

2. Arterton, A. J., Dean, J. W., Michaelides, N., Silverman, A. H., Vince, A. R. (1993). What ratios really matter? General Insurance Convention 1993, Institute and Faculty of Actuaries;

3. Das, U., Davies, N., & Podpiera, R. (2003). Insurance and Issues in Financial Soundness. IMF Working Paper, No. 03/138, 1-43;

4. De, A., Bandyopadhyay, G., & Chakraborty, B. N. (2011). Application of the Factor Analysis on the Financial Ratios and Validation of the Results by the Cluster Analysis: An Empirical Study on the Indian Cement Industry. Journal of Business Studies Quarterly, 2(3), 13-31;

5. Dimitropoulos, P. E., Asteriou, D., & Koumanakos, E. (2010). The relevance of earnings and cashflows in a heavily regulated industry: Evidence from the Greek banking sector. Advances in Accounting, 26(2), 290-303;