Determinants of Sustainable Profitability of the Serbian Insurance Industry: Panel Data Investigation

Željko Vojinović, Sunčica Milutinović, Dario Sertić and Bojan Leković
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Željko Vojinović: The Faculty of Economics in Subotica, University of Novi Sad, 24000 Subotica, Serbia
Sunčica Milutinović: The Faculty of Economics in Subotica, University of Novi Sad, 24000 Subotica, Serbia
Dario Sertić: Milenijum Insurance, 11070 Belgrade, Serbia
Bojan Leković: The Faculty of Economics in Subotica, University of Novi Sad, 24000 Subotica, Serbia

Sustainability, 2022, vol. 14, issue 9, 1-22

Abstract: This paper aims to investigate the main drivers of sustainable profitability trends in the Serbian insurance industry over the years 2008–2019 (inclusive). Our study is motivated by the fact that insurance companies contribute to economic growth, and thus it is essential to understand the factors that contribute to their financial strength and stability. We use a set of standard panel regression models, including the mixed-effects model, followed by a more robust GMM estimation to uncover the linkage between selected micro-specific, macroeconomic, and institutional factors, and return of assets (ROA) and return on total premiums (ROTP). The present paper constitutes a significant contribution to the existing literature on the account of its comprehensiveness both in terms of the institutional datasets that we use, and in terms of the methodologies we apply (in particular, mixed effects and the generalized method of moments (GMM)). The estimated parameters are model-specific, and we find that firm size, GDP, the population growth rates, political stability, and the degree of specialization (in some empirical models) all lead to higher profitability. On the other hand, we observe that excessive risk-taking and inflation (in some specifications) are inversely related to profitability. Finally, we note that regulatory quality, average wage, and life expectancies are found to be not statistically significant. Accordingly, we argue that a profitability-centric managerial strategy should be based on expanded market share and stringent risk management protocols. At the macro level, we conclude that pro-growth and pro-population policies, combined with a well-oiled institutional setting that ensures political stability, constitute the best possible prescription for strong operational performance and profit sustainability in the Serbian insurance industry.

Keywords: insurance industry; profitability determinants; panel data estimation; GMM (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:14:y:2022:i:9:p:5190-:d:801889

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