İsmail YILDIRIM

Determining the Factors Affecting Liquidity Risk in Insurance Companies: Borsa İstanbul Example

Purpose - Insurance companies face two types of risks when fulfilling their obligations. The first type of risks involves structure-specific risks available in insurance business. Among the insurance risks are death risk, longevity risk, natural disaster risk, premium risk, editing risk, etc. Such risks affect the performance and profitability of insurance companies. The second type of risks involves financial risks. Insurance companies seek to invest the premiums they collected in several investment instruments available for money and capital markets such as securities. Among these instruments are common stocks, debt instrument, exchange, etc. Insurance companies are subject to financial risks due to such instruments they hold. Stock risk, interest risk, exchange rate risk, liquidity risk, etc. are among the risks insurance companies are commonly exposed to. The purpose of this study is to identify the factors affecting the liquidity risk available in insurance companies. Design/methodology/approach – Factors affecting the liquidity risk were intended to be identified using the main variables of liquidity for 5 insurance companies which are listed in Borsa Istanbul Stock Exchange (BIST) with a panel data regression analysis for a period between 2014 and 2020. Results - The results of the analysis showed that the variables of loss ratio and return on equity are negatively correlated with the liquidity risk while variables such as company size and return on assets are positively correlated with the liquidity risk. Discussion - The results of the study show the main indicators that insurance companies should pay attention to in order not to experience a liquidity-based risk. An insurance company that can manage its liquidity risk by taking these key factors into account will have an optimal size of liquidity and at the same time maximize its operating performance.

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