EFFECT OF BOARD RISK COMMITTEE ATTRIBUTES ON THE FINANCIAL PERFORMANCE OF NIGERIAN INSURANCE COMPANIES

Abstract

Purpose: Given the importance of insurance companies to the national economy and the fact that sound financial performance is essential for them to play their stated roles, it is therefore useful to examine the effect of risk committee attributes on the financial performance of insurance companies in Nigeria from 2016 to 2022.   Theoretical reference: Agency theory is incorporated in this study because ERM places significant responsibility on the board of directors and its delegates such as risk committees, thereby reducing agency costs. The theory underscores the need to promote sustainable growth and corporate governance.   Method: The sample was however limited to the 20 companies that consistently published annual reports for the 7-year study period spanning 2016 to 2022. Using the expo facto research design and the census sampling technique, the study made use of descriptive and inferential statistical techniques, while multiple regression (pooled, fixed effects and random effects models) was used to determine the significance of the effect of risk committee size, independence, and diligence (which are the independent variables), and firm size (the control variable) on loss ratio, (the dependent variable)   Results and Conclusion: The multiple regression analysis showed a negative but statistically insignificant relationship between risk committee size and financial performance measured as loss ratio.  Risk committee independence and risk committee diligence on the other hand were positively related to loss ratio although the results were also statistically insignificant.  However, the results showed a positive and statistically significant relationship between firm size and loss ratio. Thus, the study concludes that the risk committee attributes, size, independence and diligence do not have a significant effect on loss ratio.   Implications of research: The practical implication of these findings is that insurance companies need to critically evaluate the structure and workings of their board risk committees to determine which attributes best contribute to their risk management and financial goals.  However, given that none of the risk committee predictor variables showed a significant effect on loss ratio, there is a need to recommend a minimum committee size of five and initiatives to improve deliberations at meetings.   Originality/Value: While a plethora of studies have been carried out to examine the effect of the characteristics, structure, or attributes of a risk committee on a company’s financial performance, the vast majority of them have been done on either banks specifically, or financial institutions in general.  Only a few of the studies have specifically considered insurance companies. Fewer yet have studied the entire population of insurance companies with most preferring to limit their studies to listed insurance companies.  Moreover, none of these studies has measured financial performance from the standpoint of loss ratio which is a measure of the insurance company’s capacity to pay claims.  This study thus fills a gap in the literature by not only addressing this all-important function of insurance but also contributing to the relative dearth of studies that use the insurance industry as a domain.