The Determinants of Profitability of Insurance Companies: Evidence from Developing Countries

The purpose of this study was to determine what makes Palestine and Jordan insurance businesses more profitable. From 2011 to 2021, a linear model linking insurance firm profitability and performance factors was estimated using balanced panel data from 27 insurance businesses operating in Palestine and Jordan. Liquidity, cash flow ratio, leverage, size, revenue growth, tangibility, and loss ratio were internal variables, while the gross domestic product and inflation were external factors. The cash flow ratio and size have particularly positive influence on insurance companies operating in Palestine and Jordan. In contrast, the loss ratio has a considerable negative impact, whilst other variables have little significance. The findings support the premise that significant cash flows can be used to finance profitable projects if the agency problem is well controlled by debt or a good governance system. These results indicate that encouraging insurance business mergers will increase their size and performance. Improving company governance is also essential for controlling agency issues and enhancing performance. Future research should explore a variety of characteristics, including governance structure and Insurtech solutions, in order to investigate the profitability aspects of insurance companies.