EVALUATING THE EFFECT OF RISK MANAGEMENT PRACTICES ON THE MARKET VALUE OF INSURANCE COMPANIES IN NIGERIA

ABSTRACT This paper examines the effect of risk management practices on the market value of chosen insurance firms in Nigerian. Operationalization Firm value is determined with the help of key financial indicators such as reserves, investment returns, cost of claims, and cost of reinsurance. The study was based on the survey method and was conducted on a sample of 192 participants, which were employees of different departments of Nigerian insurance companies. The relationship between risk management practices and the financial performance variables was studied using descriptive statistics, correlation analysis and multiple regression techniques. The results indicate that there is a statistically significant positive relationship between risk management practices and all the elements of firm value. The correlation analyses reveal significant relationships of risk management and reserves (r = 0.489), investment returns (r = 0.453), cost of claims (r 0.655), and cost of reinsurance (r 0.489) at p = 0.01. The regression analysis also supports the fact that risk management practices explain 23.9% of the variance of reserves, 20.6% of investment returns, 42.8% of cost of claims and 23.9% of cost of reinsurance, which is a significant explanatory power. It is worth noting that the strongest impact was recorded on the cost of claims, which implies that appropriate risk management has a significant effect on minimizing claim-related costs, thus, improving profitability and the value of the firm. The overall relevance of the models (p=0.000) is confirmed by the results of ANOVA and the null hypotheses are rejected, which proves the relevance of risk management practices as predictors of financial performances. The paper found that sound risk management models are key contributors to value creation and financial stability in the Nigerian insurance sector. It suggests that insurers improve the internal risk governance, increase the capacity of the staff in enterprise risk management, and align risk strategies with corporate objectives to enhance performance and confidence of the stakeholders. The study provides value to both the literature and practice of the field in a developing market where there is a dearth of empirical studies on risk management and firm value.