Measurement of Financial Soundness of Life Insurance Companies in Bangladesh: An Empirical Study

Abstract

Purpose: The study strives to measure insurance companies’ financial soundness in Bangladesh with reference to private sector life insurance companies listed in the Dhaka Stock Exchange (DSE).
Methods: CARAMELS ratio analysis and multiple discriminate analysis (MDA) have been employed to determine the results using secondary data sources collected from annual reports for ten-year DSE listed companies.
Findings: The study identified a satisfactory capital adequacy ratio (CAR) with a decreasing trend. Reinsurance and actuarial ratio indicate that companies hardly participate in reinsurance. In most cases, all selected companies’ expense ratio during the study period is more than the standard (20 %) of the Insurance Development and Regulatory Authority (IDRA). All the selected insurance companies hold more liquid assets than the necessity. Z scores depicted that all the selected companies are potentially sick position in terms of financial health.
Originality/Value: This study measured the financial soundness of life insurance companies in Bangladesh. No in-depth study was conducted in Bangladesh, particularly on measuring the financial soundness of life insurance companies.