Mfon Sampson Ukpong, John Olakunle Folarin


This study is an attempt to investigate the relationship between financial risk and the valuation of life insurance companies in Nigeria. Financial risk being the risk organizations are exposed to in financial markets is represented by liquidity risk and interest rate risk while the value of the life insurance industry is assessed through the return on equity and the combined ratio. The authors seek to achieve two objectives which are to determine the relationship between changes in interest rate and the combined ratio and to investigate the relationship between liquidity risk and the return on equity of life insurance companies in Nigeria. The expost facto research design is adopted for the study and biannual data is sourced from Nigerian Insurers’ Association (NIA), CBN Statistical Bulletin and World Bank database spanning through 2008 – 2017. Descriptive statistics, stationarity tests, and cointegration tests are carried out on the data to test the suitability of the data. Hypothesis are tested through regression analysis which reveals that whereas there is a significant relationship between interest rate risk and the combined ratio, there is no significant relationship between liquidity risk and the return on equity. It is therefore recommended that life insurers should adopt a risk-based approach in their operations to enhance the value of the sector. An effective inculcation of appropriate risk management practices would help the insurer to identify internal and external risks which are likely to pose challenges to the value of the life insurance industry.

JEL: G22; E43

Article visualizations:

Hit counter


liquidity risk, interest rate, return on equity, combined ratio, life insurance, Nigeria

Full Text:



Ali, F. (2006). Credit Risk Management: A Survey of Practices. Managerial Finance, 32(3), 227-233

Amaya, P. & Memba, F. (2015). Influence of Risk Management Practices on Financial Performance of Life Assurance Firms in Kenya: A Survey of KISII County. International Journal of Economics, Commerce and Management, United Kingdom, 3(5), 978-996

American Academy of Actuaries (2000). Report of the Life Liquidity Work Group of the American Academy of Actuaries. Boston: MA

Balcombe, J. (2011) Life Insurance Company Valuations and Interest Rates. Valuation of Insurance Companies

Barlett, D., Kelliher, P., Chaplin, M., Dowd, K. & O’Brien, C. (2005). Liquidity Management in UK Life Insurance: A Discussion Paper

Brewer, E., Carson, J., Elyasiani, E., Mansur, I. & Scott, W. (2007). Interest Rate Risk and Equity Values of Life Insurance: A Garch-M Model. The Journal of Risk and Insurance, 74(2), 403

Cakici, N. & Topyan, K. (2014). Book-to-Market Ratio, Risk and Return in Asian Emerging Markets, 121-133

Chang, V. & Tsai, J. (2014). Quantile Regression Analysis of Corporate Liquidity: Evidence from the U.S. Property-Liability Insurance Industry. The Geneva Papers on Risk and Insurance – Issues and Practice, 39(1), 77-89

Chen, S., Chang, T., Hui-Kuang Yu, T. & Mayes, T. (2005). Firm Size and Book-to-Market Equity as Risk Proxy in Investment Decisions. Management Research News, 28(4), 1-24

Cummins, D. & Philips, R. (2009). Capital Adequacy and Insurance Risk-Based Capital Systems. Journal of Insurance Regulation, 28(1), 25-72

Cummins, D., Weiss, M., Xie, X. & Zi, H. (2010). Economics of Scope in Financial Services: A DEA Efficiency Analysis of the US Insurance Industry. Journal of Banking and Finance, 34(7), 1525-1539

Dempsey, M. (2010). The Book-to-Market Equity Ratio as a Proxy for Risk: Evidence from Australian Markets. Australian Journal of Management, 35(1), 7-21

Doherty, N. & Singer, H. (2002). The Benefits of a Secondary Market for Life Insurance Policies. The Wharton Financial Institutions Centre Working Paper

Dorfman, M. (2005) Introduction to Risk Management and Insurance (8th ed.) New Delhi, Prentice-Hall of India Private Limited.

Eling, M. & Schmeiser, H. (2010). Insurance and the Credit Crisis: Impact and Ten Consequences for Risk Management and Supervision. The Geneva Papers, 35, 934-948

Freeman, R. (1984). Strategic Management: A Stakeholder Approach. Boston, MA: Pitman.

Harris, T., Estridge, J. & Nissim, D. (2008). ModelWare’s Approach to Intrinsic Value: Focussing on Risk-Reward Trade-Offs. Equity Valuation, Models from Leading Investment Banks. Wiley Publishing, 193-252

Horcher, K. (2005). Essentials of Financial Risk Management. New Jersey: John Wiley & Sons Inc.

Ironkwe, U. & Ossat, A. (2019). Risk Asset Management and Financial Performance of Insurance Companies in Nigeria. International Journal of Advanced Academic Research Accounting Practice, 5,4

Li, D., Moshirian, F., Nguyen, P. & Wee, T. (2007). The Demand for Life Insurance in OECD Countries. Journal of Risk and Insurance, 74(3), 637-652

Liu, J., Nissim, D & Thomas, J. (2002). Equity Valuation Using Multiples. Journal of Accounting Research, 40, 135-172

Magaezi, J. (2003). A New Framework for Measuring the Credit Risk of a Portfolio Institute for Monetary and Economic Studies (IMES), 1-45.

Mwangi, A. (2010). The Effect of Risk Management Practices on the Financial Performance of Commercial Banks in Kenya. MBA Project, University of Nairobi.

Myers, S. & Read, J. (2001). Capital Allocation for Insurance Companies. Journal of Risk and Insurance, 68(4), 545-580

Ngerebo-A, T. (2012). The Impact of Insurance Risk Management on Fixed Capital Formation in Nigeria. International Journal of Development and Economic Sustainability, 1(4), 1-13

Nissim, D. (2010). Analysis and Valuation of Insurance Companies. Centre for Excellence in Accounting and Security Analysis.

Nissim, D. (2010). Relative Valuation of US Insurance Companies. Working Paper. Columbia Business School.

Nissim, D. & Penman, S. (2001). Ratio Analysis and Equity Valuation: From Research to Practice. Review of Accounting Studies, 6, 109-154

Omasete, C. (2014). The Effect of Risk Management on Financial Performance of Insurance Companies in Kenya. M.Sc. Research Thesis University of Nairobi

Saunders, A. & Cornett, M. (2008). Financial Institutions Management: A Risk Management Approach, McGraw-Hill, Irwin.

Saunders, A. & Marci Millon, C. (2009). Interest Rates and Security Valuation. Financial Markets and Institutions. Boston: McGraw-Hill Irwin

Shiu, Y-M. (2006). Corporate Liquidity: Evidence from the United Kingdom Life Insurance Industry. Applied Economic Letters, 13, 993-998

Siba, A. (2012). Relationship between Financial Risk Management and Financial Performance of Commercial Banks in Kenya. MBA project, University of Nairobi.

Soekarno, S. & Azhari, D. (2009). Analysis of Financial Ratio to Distinguish Indonesia Joint Venture General Insurance Company Performance using Discriminant Analysis. The Asian Journal of Technology Management, 2(2)

Sonjai, K. (2015). Liquidity Risk in Life Insurance. Actuary India Magazine.

Wilper, A. et al., (2009). Health Insurance and Mortality in US Adults, American Journal of Public Health, 99(12)



  • There are currently no refbacks.

Copyright (c) 2020 Mfon Sampson Ukpong, John Olakunle Folarin

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.

Copyright © 2017-2023. European Journal of Management and Marketing Studies (ISSN 2501 - 9988) is a registered trademark of Open Access Publishing GroupAll rights reserved.

This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and  Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.