RISK MANAGEMENT TECHNIQUES AND FINANCIAL PERFORMANCE OF INSURANCE COMPANIES

Kokobe Seyoum Alemu*1    Gemechu Dugasa 2

 

 

1 Ambo University, Ethiopia

2 Commercial Bank of Ethiopia, Ethiopia.

 

 

 

 

 

 

ABSTRACT

Keywords:

Insurance Company; financial performance; risk management; Ethiopia

 

Risk if not well managed could lead to collapse for most organizations especially those whose core business deals with day to day handling of risk. This  involves  identifying  and  analyzing  risks, developing and implementing risk handling techniques and monitoring the progress of these in order to  avoid  and/or  reduce  the  impact  of  risk  on  the  financial  performance  of  the  firm.  The study used both primary and secondary data. Primary data was collected through questionnaires and Secondary data was collected from yearend financial report of the selected company. The result from regression analysis shows that risk management practice and financial performance are not correlated. This opens a door for other problem on the application of the management techniques.

 

 

 

 Publisher All rights reserved.

 

 

 

 

 

 

 

 

 

INTRODUCTION

 

Due to globalization and intense competition, risks are increasing and risk management is becoming an integralpart for the success of almost every organization, especially for the insurancesector because of theirhigh-risk businesses, as the risks are associated with every client in the business and their own risk. Insurance companies are in the core business of managing risk. The companies manage the risks of both their clients and their own risks. This requires an integration of risk management into the companies’ systems, processes and culture. The riskmanagement process consists of a series of steps, which are establishing the context, identifying, analyzing,assessing, treating, monitoring and communicating risks, which allow continuous improvement of decisionmaking(Standards Australia, 1999). By implementing risk management organization can reduce unexpected & costly surprises and effectiveallocation of resources could be more effective. It improves communication and provides senior management aconcise summary of threats, which can be faced by the organization, thus ultimately helping them in betterdecision making.

 

 

LITERATURE REVIEW

In the last decade in Ethiopia insurance market has gone through an important stage of its development and consolidation. And now, it can be said that it has reached at a very pleasing level of development and as such can provide highly qualitative services for the citizen of the country. This is indicated by increased performance from year to year, which has been reflected by the increasing number of contracts and the increased volume of premiums. However it should be mentioned that this sector still has challenges ahead to achieve higher quality services, further increasing security offer and  contemporary products and , especially,  in perfecting methods and risk management, in order to achieve the highest possible performance in business and also the application of international standard in this field. Many companies often establish risk management procedures in their plans for improving the performance and increase the profits. Insurance companies' risk relates to the types of insurance products thecompany writes. Some products have a much lower insurance risk than others while some products have much higher insurance risk. Different documents and guidelines suggested that established risk management practices should be on ongoing basis to bring about improved performance and increase profits.

Several studies draw the link between good risk management with improved financial performances. In particular, Mohsen, et al (2011), Tony et al. (2012) and Mua, et al. (2009) argued that there is a positive and significant relationship between total risk management and company’s performance. Moreover, Smith (1995) and Schroeck (2002) revealed that prudent risk management practices reduce the volatility in institutions’ financial performance, namely operating income, earnings, firm’s market value, share return and return on equity. Schroeck (2002) also indicated that ensuring best practices through prudent risk management result in increased earnings. However, Gordon, et al. (2009) and Gupta (2011) examined the relation of enterprise risk management and performance. They argued that the relation of enterprise risk management and performance is contingent upon some factorssuch as environmental uncertainty, industry competition, firm complexity, firm size, and board of directors’ monitoring. Those studies have made immense contributions to the risk management and financial performance; they were inclined towards the developed countries. However, developing countries received little attention in various literatures on this issue, at the same time majority ofthese studies were in banking industry. Consequently, a designfeature that works well in one country/industry may not be in another.

 

 

RISK MANAGEMENT AND FINANCIAL PERFORMANCE

 

The  main  focus  of  risk  management  has  mainly  been  on  controlling  and  for  regulatory compliance, as opposed to enhancing  financial performance (Banks, 2004). However, this riskmanagement often leads to enhanced financial performance as regulatory compliance and controlof risks enables the organization to save on costs.   Banks  (2004)  further  suggests  that  bymanaging  risks,  the  managers  are  able  to  increase  the  value  of  the  firm  through  ensuring continued profitability of the firm.

Standard  and  Poor’s  (2013)  identifies  poor  liquidity  management,  under-pricing  and  under reserving, a  high tolerance for investment risk, management and governance issues, difficulties related  to  rapid  growth  and/or  expansion  into  non-core  activities  as  main  causes  of  financial distress  and  failure  in  insurance  companies.  It is important that these factors be managed efficiently by insurance companies, to avoid financial failure and bankruptcy to the firm.

 

In the 21stcentury has seen great efforts to risk management. Babbel and Santomero (1996) note that  insurers  should  assess  the  various  types  of  risks  they  are  exposed  to  and  devise  ways  of effectively managing them. They further suggest that insurers should accept and manage at firm level,  only  those  risks  that  are  uniquely  a  part  of  their  services.  This will reduce the risk exposure.  Stulz  (1984)  suggested  that risk  management  is  a  viable  economic  reason  why  firm managers,  might concern themselves with both the expected profit and the distribution of  firm returns  around  their  expected  value,  hence  providing  a  rationale  for  aligning  firm  objective functions in order to avoid risk.

Proper risk management is important in the daily operations of any insurance company to avoid financial losses and bankruptcy.  This is in line with Jolly (1997) contribution that preventinglosses through precautionary measures is a key element in reducing risks and consequently, a keydriver of profitability. The efficiency of risk management by insurance companies will generallyinfluence their financial performance. Gold (1999), asserts that insurance companies could notsurvive with increased loss and expense ratios.  

 

Meanwhile, risk management has been linked with shareholder value maximization proposition.  Ali and Luft (2002), suggested that a firm will only engage inrisk management if it enhances  shareholder  value;  Banks  (2004),  contributed  that  it  is  important  for  each  firm  to  retain  and actively  manage  some  level  of  risk  if  it  is  to  increase  its  market  value  or  if  the  probability  of financial distress is to be lowered; Pagano (2001), confirms that risk management is an important function of insurance institutions in creating value for shareholders and customers.

 

Generally,  company  operations  are  prone  to  risks  and  if  the  risks  are  not  managed  the  firm’s financial  performance  will  be  at  stake.  Firms with efficient risk management structures outperform their peers as they are well prepared for periods after the occurrence of the related risks.  This  study  hopes  to  come  up  with  an  expected  positive  relationship  between  risk management and performance of insurance companies.

 

In the aftermath of global financial crisis and corporate failures, entity stakeholders aredemanding greater oversight of key risks facing the enterprise to ensure that stakeholder value ispreserved and enhanced. One response to these growing expectations is the emergence of a newparadigm known as "Enterprise Risk Management" as an internal control system. At thesame time, organizations have been implementing "Performance Measurement System" as oneof management control systems vital for corporate success. Considering the importance of these twocontrol systems, the possibility of incorporating ERM into the existing performance measurement system needs to be explored. It isexpected that risk management will complement performance measurement system by identifying and mitigating risks in achievingstrategic objectives. Empirical evidence regarding this link in insurance sector is still lacking particularly in Ethiopia, therefore, this paperinvestigated the linkage between risk management and performance. The following paragraphs present few related empirical studies on risk management and organizational performance.

 

A study by Eric (2005) revealed that risk management techniques are applied in the insurance companies of the country, Uganda. The findings on the financial performance of the insurance companies for this study also show fluctuating ratios as measured by ROE. A study by Mohsen, et al. (2011) titled: "Effective risk management and company’s performance: Investment in innovations and intellectual capital using behavioral and practical approach". This research focused on ability of risk management response to out of control market factors to facilitate consistent profitability that leads to improvement in company’s performance. That is an empirical research that investigates the association of total risk management and company’s performance. The 6-year average level of performance for ROA and ROI ratios as dependent variables and total risk management, innovation and market-book ratios as independent variables and firm size and financial leverage are considered as control variables.Their results indicated that positive and significant relationship between total risk management and company’s performance in companies that have invested in research, development and innovations along with companies that have greater level of intellectual capital and industries that have rapid knowledge growth. In addition, their results confirm that the findings of previous researches in terms of functional and practical behaviors approach.

 

A study by Tony, et al. (2012) titled: "Enterprise risk management and business performance during the financial and economic crises". Their research was based on a broader set of performance measures that places it in the middle ground with previous research which had demonstrated non-conclusive results on the relationship between ERM and firm performance. Furthermore, they indicated that more research is needed to investigate the relationship between ERM and firm performance on a much larger sample and for a much longer period of time.

 

Other studies like Mua, et al. (2009); using a sample of Chinese firms, examine the effect of risk management strategy over performance of new product development. Their finding shows that risk management strategies that focus on technological, organizational, and marketing factors, individually and interactively improve the performance of new product development. However, Gordon, et al. (2009) examined the relationship of enterprise risk management and performance. They indicated that the relation is contingent upon five firm-specific factorsnamely, environmental uncertainty, industry competition, firm complexity, firm size, and board of directors’ monitoring. Finally, they stated that for implementing ERM firms should pay attention to the contextual variables that are surrounding the firm. Likewise, Gupta (2011) examines the risk management in Indian companies and explore the reasons for the adoption or lack of adoption of integrated approach to risk management. He shows that even though effective risk management can improve organizational performance, companies do not have adequate infrastructure to implement enterprise wide risk management. He concludes that a deep change in risk perception is required to build up risk culture across business segments and incentivize risk management adoption.

 

 

RISK MANAGEMENT TECHNIQUES

 

Meredith (2004) and Rejda (2003) indicated that insurance companies use various techniques for managing risks. Johnson (2001) alsostated that a company with any degree of risk exposure would develop a philosophy thatexplicitly indicates its approach to riskmanagement techniques. Techniques used to manage risks according to them include:loss prevention and control, loss financing, andriskavoidance.

 

 

LOSS PREVENTION AND CONTROL

 

Kiochos (1997) states that to prevent or to minimize the chance of loss, insurance companies generally advise that some preventive measures be taken. He also commented that insurance companies can only reimburse financial loss but not intangible things such as valuable information and files. Loss prevention refers to the measures that reduce the frequency of a particular loss for example: measures that reduce truck accidents and strict enforcement of safety rules (Rejda, 2003). Insurers generally advise their clients to instill good housekeeping habits in their employees, such as not smoking on the premises or smoking only in designated areas.

 

Insurers also give advice to clients, for example to prevent fire - on fire prevention measures. These advisory services are either for free or are considered as value added service with the insurance package. An experienced insurer also advises on the preventive measures that could be installed in the building (Kiochos, 1997). Rejda (2003), also states that insurance companies can put in place measures that reduce the severity of a loss after it has occurred. Examples include: Installation of an automatic sprinkler systems that promptly extinguishes fire and segregation of exposure units so that a single loss cannot simultaneously damage all exposure units such as having warehouse with inventories at different locations. He further argued that insurance companies should be careful because where a policyholder successfully shows that an insurer breached the covenants of good faith and fair dealing, the insured can receive, all damages caused by the breach (Alexander, et al., 2004). Any ambiguity or uncertainty in a policy or in a choice of wording or in meaning is resolved in favor of the policyholder and against the insurer.

 

Meyer (2000), states that where a policyholder's lack of knowledge could result into loss of benefits under a policy, an insurer is required to bring facts to the insurer's attention and to provide relevant information to enable the insured to take action to secure rights provided by the policy. Therefore, good loss prevention and control practices are thought to enhance insurers' performance.

 

LOSS FINANCING

 

In insurance companies, Alijoyo (2004)indicated that this is a broad category that involves riskretention, risk transfer and diversificationas measures of loss financing.It is primarily concerned with ensuring the availability of funds in the event of losses.

 

(a)Risk Retention

Johnson (2001) asserted that retention is the act of keeping thepossibility of loss with no attempt to transfer that loss to another party. The method isappropriate when the risks of loss or the loss exposure is either too small with littleimpact or too great to be able to do anything with it. Risk retention is regarded as self-insurance.In insurance companies, retention is used with other risk management techniques. For example, most insurance policies include a deductible so that the insuredretains a portion of the loss. Rejda (2003) also asserts that all risks that are not avoided ortransferred are retained.

 

(b)Risk Transfer

Insurance companies use this technique to transfer the exposure of a loss to another person orentity that can be able to bear the loss (Johnson, 2001). Naik (2003) also indicated that insurance companies, transfer risks through insurance and reinsurance diversification and hedging. He agrees with Alijoyo (2004) who asserts that a risk transfer involves causing another party to accept the risk. Reinsurance technique is used by an insurer to retain a bearable part and transfers the remaining part of the risk to the reinsurer who indemnifies him. Both Naik (2003) and Ayali (2000) agreed that using a reinsurance technique, insurance companies can allocate risks to those parties who are most appropriate to bear them. This can reduce losses of the originalinsurer and therefore improve financial performance.

(c)Diversification

Meredith (2004) indicated that this technique is used in spreading or diffusing risk exposures. It is a common technique of risk management that seeks to lower risk by combining exposures that are not related (not correlated) to one another. Diversification has got its foundation in Markowitz 1952 work related to capital marketsportfolio theory which demonstrates how diversification permits the investors who averse to taking risk create portfolios that optimize various levels of risk and return.

 

 

RISK AVOIDANCE

 

Avoidance means that a certain loss exposure is never acquired or an existing lossexposure is abandoned (Rejda, 2003). It is a technique, which implies that the chance of loss is reduced to zero because the loss exposure is never acquired. If insurance companies fail to avoid some of the risks, they can run bankrupt (Kiochos, 1997). Insurance companies therefore apply a system of policies and strategies in order to avoid the risk of bankruptcy provided their resources are applied effectively (Owen, 1995). They can also avoid risks by selling small policies instead of comprehensive one (Pippidis, 2002). Many insurance policies, although surprisingly popular should be avoided because they tend to be very profitable to the insurance companies but they lead to losses especially when claims by clients accumulate. Such policies include; burial, children's life, disability and single disease such as cancer (Rejda 2003). He further indicated that avoidance has two major disadvantages: where the insurance company may not be able to avoid all the risks and it may not being practical to avoid all the losses.Therefore, avoidance may seem the answer to all risks, but avoiding risks also means losing out on the potential gain that accepting (retaining) the risk may have allowed. Not entering a business to avoid the risk of loss also avoids the possibility of earning profits.

 

METHODOLOGY

 

Based on the above discussions we hypothesize that

H1: There is a significant relationship between risk management techniques and the insurers' performance.

Primary data was collected from employees and secondary data was collected from financial statements of selected insurance companies and analyzed using person correlation to check the relation between insurance performance and risk management techniques.

 

FINANCIAL PERFORMANCE OF ETHIOPIAN INSURANCE COMPANIES

In this study, the financial performance is assessed based on ROE and loss ratios. On average, the descriptive statistics show that mean of ROE for twelve years ranges from 0.03408 (2004) to 0.28213 (2010). It is higher for the year 2010 (with mean of 0.28213) followed by 2013(with mean of 0.23053) than other years. Also, for the years under investigation, Ethiopian Insurance Corporation has the highest ROE(with mean of 0.478104 and standard deviation of 0.354784) among all the Insurance Companies being considered and followed by Awash Insurance Company (with mean of 0.235035 and standard deviation of 0.182064). The remaining companies in the sample have lower ROEthat ranges from 0.220983 (NIC) to 0.478104 (EIC) as compared to the average

Table 4.8Correlations matrix of risk management techniques and financial performance

 

ROE

Loss prevention and control

Loss financing

Risk avoiding

Loss ratio

ROE

Pearson Correlation

1

 

 

 

 

Sig. (2-tailed)

 

 

 

 

 

N

12

 

 

 

 

Loss prevention and control

Pearson Correlation

.228

1

 

 

 

Sig. (2-tailed)

.588

 

 

 

 

N

8

8

 

 

 

Loss financing

Pearson Correlation

.120

-.190

1

 

 

Sig. (2-tailed)

.758

.652

 

 

 

N

9

8

9

 

 

Risk avoiding

Pearson Correlation

.792

.238

-.158

1

 

Sig. (2-tailed)

.060

.649

.765

 

 

N

6

6

6

6

Loss ratio

Pearson Correlation

.471

.357

-.603

.111

1

Sig. (2-tailed)

.123

.385

.085

.834

 

N

12

8

9

6

12

 

SUMMARY OF FINDINGS

 

This section presents the results and discussions of the Pearson correlationcoefficients to identify the relationship among the variables of risk management techniques (loss prevention and control, loss financing and risk avoidance) andfinancial performance (ROE and Loss Ratios).

The findings on the financial performance of the insurance companies for periods under investigation (2002-2013) show low general increase ROE ratios. The findings further indicated that ROE ratios were concentrated between0 and 0.3. This indicated low rate of return on shareholders' funds (poor financial performance) in the insurance companies. The findings also indicated a general rise in loss ratios for the insurance companies. This implied that outstanding paid claims were increasing more than the premium earned. The findings are in accordance with Flemings (2000) who argued that higher loss ratios might indicate thatan insurance company may need better risk management techniques to guard against future possible insurance payouts. The results are also consistent with findings of Rejda (2003), Pandey (1996) and Flemings (2000) who asserted that loss ratios and ROE ratios are the best measures of financial performance in insurance companies. They argued that insurance companies should determine and monitor the above ratios so as not to register poor financial performance.

 

Findings from the study indicated a low positive relationship between loss prevention and control technique and ROE (+22.8 percent). It also indicated a moderate positive relationship between loss prevention and control technique and loss ratios (+35.7 percent). ROE and loss ratios are both dimensions of financial performance in this study for the insurance companies. Findings also indicated a low positive relationship between loss financing and ROE (12 percent). Similarly, there is also a low moderate negative relationship between loss financing and loss ratios (-60.3 percent). For the risk avoidance technique and financial performance, the study shows that relationship is positive and strong. i.e.; risk avoidance is strongly correlated with ROE (+79.2percent) and but the relation with loss ratio is weak (+11.1percent).

So, insurance companies should adopt enterprise risk management that is currently the best practice standard and they should also apply risk management techniques effectively so as to improve on their return on equity and reducing loss ratios.

 

 

REFERENCES

ABI (2000): ‘Insurance: Facts, Figures and Trends’, Association of British Insurers

Akkizidis, I and Khandelwal, SK (2007): 'Financial Risk Management for Islamic Banking and Finance' Palgrave Macmillan, First Edition.

Alexander R.(2004): 'A Brief Summary of the General Insurance Law in United States', insurance law journal, vol.8, pp.1-4.

Alijoyo, A (2004): 'Focused enterprise risk management', 1st edition, Indonesia Jakarta.

Al-Tamimi H. and Al-Mazrooei M. (2007): 'Banks’ risk management: a comparison study of UAE national and foreign banks', The Journal of Risk Finance, Vol. 8, No.4, pp. 394-409.

Ariffin N.M. and KassimS. Hj. (2011): 'Risk Management Practices and Financial Performance of Islamic Banks: Malaysian Evidence', 8th International Conference on Islamic Economics and Finance, Sustainable Growth and Inclusive Economic Development from an Islamic Perspective,Qatar National Convention Center-Doha, Qatar 19-21 December 2011.

Ayali N. (2000): 'Using Commercial insurance to avoid project risk', A journal on International financial Law Review, Paper No. 146 (1), pp.50-54.

Beasley, MS, Clune, R and Hermanson, DR (2005): 'Enterprise Risk Management: An Empirical Analysis of Factors Associated with the Extent of Implementation', Journal of Accounting & Public Policy, 521.

Bird, Richard M (2005): 'VAT in Developing and Transitional Economies (DTEs)', International Tax Dialogue, VAT Conference, 15-16 March 2005, Rome

Carol, Sheedy and Elizabeth (2004): 'The professional risk manager handbook: A Comprehensive guide to current theory and best practice' 5th edition. Wilmington: PRMIA Publications.

Chen, R and Wong, KA (2004): 'The Determinants of Financial Health of Asian Insurance Companies', The Journal of Risk And Insurance, Volume 71.

Christopher CD. (2003): 'Coming up Short on Nonfinancial Performance Measurement', Harvard Business Review,81 (11): pp.88-95.

Clark, E and Marois, B (1996): 'Managing Risk in International Business: Techniques and applications', International Thomson Business Press.

COSO (2004): The Committee of Sponsoring Organizations of the Tread way Commission, 'Enterprise Risk Management-Integrated Framework Executive Summary, Available at: <http://www.coso.org/Publications/ERM/COSOERM.pdf>.

Das, Udaibir S, Davies, N and Podpiera, R (2003): 'Insurance and Issues of Financial Soundness', Washington: IMF Working Paper.

Daud, WNWD, Yazid, AS, &Hussin, HMR (2010): 'The Effect Of Chief Risk Officer On Enterprise Risk Management Practices: Evidence From Malaysia', International Business and Economics Research Journal (IBER), Paper No. 9(11).

Dorfman, M (1997): 'Introduction to Risk Management of Insurance', 6th edition, Prentice Hall

Dorfman, MS (2008): 'Introduction to Risk Management and Insurance', 9th edition, USA: Pearson Prentice Hall.

Eldabi, T (2002): 'Quantitative and Qualitative Decision Making Methods in Simulation Modelling', Management Decision, 40(1): pp.64-73

Eric, N (2005): 'Risk Management Techniques and Financial Performance in the insurance sector in Uganda', MSc Thesis, presented at Makerere University.

Ethiopian House of Representatives, (1994): 'Licensing and Supervision of Insurance Business', Proclamation No.86/1994, Berhanena Selam Printing Press, Addis Ababa, 53(46) pp.275-291.

Fabozzi, FJ, and Peterson, PP (2003): 'Financial Management and Analysis'Volume 100, John Wiley & Sons Inc.

Ferreira, G (2006): 'Australian Standard for Risk Management', AS/NZS 4360.

Fleming, M (2000): 'The Determinants of Operational Performance and Mitigating the Risks Associated with the Insurance Market', Applied Financial Economics, 13, 133-143.

Fowler, F (1986): 'Survey Research Methods', 3rd edition, Sage Publication Inc., U.S.

Gordon, LA, Loeb MP, Tseng CY, (2009): 'Enterprise risk management and firm performance: A contingency perspective', Journal of Accounting and Public Policy, Paper, No 28, pp.301–327.

Grace, Martin F and Barth, Michael M (1993): ‘The Regulation and Structure of Nonlife Insurance in the United States’, working papers (WPS 1155), Financial Sector Development Department, World Bank.

Gupta, PK (2011): 'Risk management in Indian companies: EWRM concerns and issues', The Journal of Risk Finance, Paper, No 12 (2), pp.121-139.

Hole, G (2011): 'Levels of measurement in psychological research', handout.

Johns, R (2010): 'Likert Items and Scales: Survey Questions Methods of Fact Sheet', University of Strathclyde.

Jolly, A (2003): 'Managing Business Risk',London: Kogan Page.

Kaplan, RS and Norton, DP (1992): 'The Balanced Scorecard: Measures that Drive Performance' Harvard Business Review, 70(1), pp.71-79.

Kaplan, RS and Norton, DP (2001): 'Transforming the Balanced Scorecard from Performance Measurement to Strategic Management Part I', Accounting Horizons, 15(1), pp.87-104.

Khan, T and Ahmed, H (2001): 'Risk Management: An Analysis of Issues in Islamic Financial Industry', IRTI/IDB Occasional Paper, No. 5.

Kiochos, P (1997): 'Risk Analysis Techniques: Techniques of Actual Studies’, Journal on Disaster Recovery Athens, McGrawhilL Contemporary publications 7(3) 1-4.

Koppel, SO, Grady, F, See, G and Shapland, S (1985): ‘Reserve Principles individual health insurance', Transactions society of actuaries, Volume 37, pp.201-240.

Koul, L (2006): 'Method of Educational Research', Vikas Publishing House, New Delhi.

Liebenberg, AP and Hoyt, RE (2003): 'The Determinants of Enterprise Risk Management: Evidence from the Appointment of Chief Risk Officers', Risk Management and Insurance Review, 6(1), pp.37-52. doi:10.1111/1098-1616.00019/DanaInfo= onlinelibrary.wiley.com

Lozier, E and Stocker, RW (2004): 'Use of alternative risk financing techniques instead of Conventional insurance', the journal on insurance strategies; 33(2), pp.1-3. Data key communications Inc.

McKerchar, M, (2008): 'Philosophical Paradigms, Inquiry Strategies and Knowledge Claims: Applying the Principles of Research Design and Conduct to Taxation’ e Journal of Tax Research, Vol.6 No.1, pp.5-22. 

Meredith, L (2004): 'The Ultimate risk manager', Boston: Communications Group Inc.

Meulbroek, LK (2005): 'Senior Manager's Guide to Integrated Risk Management', Journal of Applied Corporate Finance, 14(4) pp.56-70.

Meyer, L (2000): 'Why Risk Management Is Important for Global Financial Institutions', at the Risk Management of Financial Institutions, United Nations Conference Center Bangkok, Thailand. (September 1, 2000).

Moeller, RR (2007): 'COSO enterprise risk management: understanding the new integrated ERM framework', John Wiley & Sons.

Mohsen, J, Arezoo, AC, and Vahid, B (2011): 'Effective risk management and company’s performance: Investment in innovations and intellectual capital using behavioral and practical approach' Journal of Economics and International Finance, Vol. 3 (15), pp. 780–786, available online at <http://www.academicjournals.org/JEIF> [Accessed 30 December 2012].

Mua, J, GangPengb, Douglas, L MacLachlan (2009): 'Effect of risk management strategy on NPD Performance', Technovation Paper, No. 29, pp.170-180.

Naichiamas, D and Frankfort, C (1996): 'Research Methods in the Social Sciences', 5th edition, CA Arnold, Santa Crux.

Naik, KL (2003): 'Theory and practice of Re-insurance', Journal on business insurance management, Organization for Economic Cooperation and Development, Recommendation on Assessment of Re-insurance companies, available at<http//:www.OECD.org>.

NBE, (2010): 'National Bank of Ethiopia Risk Management Guideline for insurance Companies in Ethiopia' available at http://www.nbe.gov.et/financial/insurer.html, [Accessed 05 November 2012].

Nunnally, C.J. (1978): “Psychometric Theory”, McGraw-Hill, New York, NY. Oldfield, G.S. and Santomero, A.M. 1997, “Risk Management in Financial Institutions”, Sloan Management Review, Vol. 39 No. 1, pp. 33-46.

Ostle, B and Malone, LC (1988): 'Statistics in Research', Iowa State University Press, USA

Owen, G (1995): 'Game Theory', 3rd edition Athens, Academic Press.

Pagach, D and Warr, R (2011): 'The characteristics of firms that hire chief risk officers', Journal of Risk and Insurance,Available athttp://ssrn.com/abstract=1010200

Pandey, IM (1996): 'Financial Management', Vikas Publishing House Private Ltd, New Delhi

Pippidis, M (2002): 'Management of Risks', Insurance journal on risk management, Paper, No 7 (2), pp.3-5.

Ramanadh, K (2006): 'Performance Management in Insurance Corporation', Journal of Business Administration Online, Vol.5 No. 1, pp.7 & 9.

Ratner, B n.d., 'The Correlation Coefficient: Definition', Available at <http://www.dmstat1.com/res/TheCorrelationCoefficientDefined.html>. [Accessed 23 February 2013].

Rejda, GE (2003): 'Principles of Risk Management and Insurance', 8th Edition, Pearson education publishers Inc., New York.

Rochette, M, (2009): 'From risk management to ERM', Journal of Risk Management in Financial Institutions, Paper No. 2(4), pp.394-408.

Saunders, A. and Schumacher, L. (2000): “The Determinants of Bank Interest Rate Margins: An International Study”, Journal of International Money and Finance, Vol. 19, pp. 813-832.

Schroeck, G (2002): 'Risk Management and Value Creation in Financial Institutions', John Wiley and Sons, Inc.

Smith, W (1995): 'Corporate Risk Management: Theory and Practice', The Journal of Derivatives, pp. 21-30.

Stulz, R (2004): 'Rethinking risk management, The Revolution in Corporate Finance', Journal of Applied Corporate Finance, Paper No. 9 (3), pp.8–24.

Swiss, (2003): 'International Association of Insurance Supervisors (IAIS), Newsletter Insurance Company Ratings, Swiss Re, Sigma No.4/2003, Available at <www.info.insure.com, Swiss Re, Sigma No.4/2003, www.thebenefitnetwork.com/insurerratings)>,  [Accessed 30 December 2012].

Taylor R, and Edd, R (1990): ‘Interpretation of the Correlation Coefficient’: A Basic Review JDMS1:35-39 p.36

Thorburn, C (2004): 'A Primer on Non-life Insurance Ratios for Insurance Supervisors', World Bank.

Tony, KQ, Daniel Z and Michael, M (2012): 'Enterprise risk management and business performance during the financial and economic crises', Problems and Perspectives in Management, Volume 10, Issue 3, 2012, available at: <http://businessperspectives.org/journals_free/ppm/2012/PPM_2012_03_Quon.pdf> [Accessed 30 December 2012].

Tufano, P (1996): 'Who Manages Risk? An Empirical Examination of Risk Management Practices in the Gold Mining Industry', The Journal of Finance, Volume 51(4), pp.1097-1137

World Bank, (2009): 'Insurance Governance and Risk Management', Primer Series on Insurance Issue 11, November 1, 2009, www.worldbank.org/nbfi

World Bank and IMF, (2003): 'Handbook of Financial Sector Assessment Published by World Bank and IMF Insurance and Issues in Financial Soundness', Working Paper WP/03/138.

Yang, X (2006): 'Risk Management in Insurance Companies', A dissertation presented in part consideration for the degree of MA in Risk Management.