Research purpose: The study covers the investigation into the major determinant of capital structure using Toda Yamamoto (Augmented VAR model) and standard VAR and VECM for the effects of capital structure on the insurance firm’s performance.
Methodology: Based on the aforementioned, a purposive random sampling method of each component part of the insurance industry totaling four across this spectrum was gathered; General Insurance (NEM Insurance), non-general (life) (African Alliance Insurance), Composite Insurance (AXA Mansard), and Reinsurance Company (Continental Reinsurance) categories were selected as the study sample frame with an extracted data from their respective approved audited financials online, spanning from 2013 to 2022. The study try to investigate the role of five (5) INSURANCE characteristics items i.e. Risk premium, Tax ,Asset tangibility, Size and Reserves on Capital structure and then its effects on the firm's performance.
Findings: The study revealed that risk premium, Tax and Asset tangibility has a negative relationship with the capital structure with high statistical significance except for Asset tangibility. While Reserves and Size exhibit a significant positive relationship. The findings on the effects of capital structure on insurance company performance on the other hand shows that Liquidity and Capital structure does not matter in the short run and not statistically significant at 5% and 10% interval except for Risk factor only that’s positively related. While in the long run both capital structure and risk factor exhibited a significant positive relationship with insurance firm’s performance and liquidity posited a negative significant relationship.
Recommendations: The Researcher thereby recommended an effective and efficient financial planning strategy that will ensure adequate provisioning for reserving and optimal investment allocation that would guarantee other income that could withstand any catastrophe losses for a strong solvency position.
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