THE PERSISTENCE OF INSURERS PROFITABILITY

Abstract

Most of the academic researches have analyzed the persistence of profit for the manufacturing and (non-financial) services sector. These studies were mainly conducted in advance market economies. In order to shed some light on the issue of persistence in corporate rates of return, this research aims to examine the persistence of profitability of financial entities i.e. non-life insurance companies operating in an emerging market economy, Croatia. In order to determine persistence of insurers’ profitability, a Markov Chains stochastic process is applied on the profitability classes that were formulated based on the changes of insurers’ ROA (return on assets) indicator during the period from 2002 to 2011. The empirical results showed that profit persistence was more likely to occur within moderate profit classes/states.

Keywords

• Persistence of profitability
• Insurance industry
• Croatia