Capital Market Investment and Profitability of Insurance Companies in Nigeria: An Empirical Analysis from 1998 – 2024

Abstract:

The research investigates the effect of capital market investments on profitability of insurance companies for the period 1998-2024. The independent variables are: investment in government securities, stocks and bonds, real estate and mortgages, while the dependent variable is profitability measured using return on assets. The research makes use of secondary data obtained from the CBN statistical bulletin. The data are analyzed using econometric techniques: unit root test, cointegration test and Error Correction Model. The analysis indicates that investments in government securities, stocks and bonds have positive and significant relationships with insurance companies’ profitability, while investments in real estate and mortgages did not significantly affect insurance profitability. The R-square indicates that a greater percentage of insurance profit is explained by the variables. The study concludes that insurance companies investments in government securities and stock/bonds have yielded improved profitability for the industry while their investments in real estate and mortgages did not have significant effect on their profitability. The implication of these findings is that prudent allocation of insurance funds across capital market instruments can enhance investment income and improve the financial performance of insurance companies. The research recommends that insurance companies in Nigeria should increase the volume of their investment in the capital market as this will lead to more investment returns which improve their overall profitability.