An Empirical Analysis of the Determinants of Capital Adequacy in the Insurance Sub-sector of the Nigerian Economy

Abstract

The paper examines the impact of capital adequacy in the Insurance sub-sector and the growth of the Nigeria economy. It specifically seeks to ascertain the effect of insurance companies capital base and macroeconomic variables on the economy. Data used for the study were extracted from the Central Bank of Nigerias statistical Bulletin (2009). It employed the error correction framework and co-integration techniques to test the relationship between the insurance capital base and macroeconomics variables, also the adopted Granger causality test. Results reveal that political stability may reduce financial distress and bankruptcy while the total investment for the industry will affect insurance companies capital in most developing economies in the period of financial crisis. However, the study also establishes that there is a negative relationship between inflation and insurance companies capital base. The results suggest that the Nigerian government should regulate investment policy while insurance companies regulators should strive to keep inflation at a minimum level, if possible below 5% for them to be more efficient to be globally competitive.