Determinants of Solvency Margins in the Botswana Insurance Industry: A Firm-Level Analysis
Sladen Moyo ORCID ↗
International Journal of Research in Business and Social Science · 2026 · Vol. 15 / Issue 5 · 146-163
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Abstract
In small and emerging markets like Botswana, what drives the financial resilience of non-life insurers? This study takes a closer look at this question, evaluating audited financial statement data from 14 Non-Bank Financial Institutions Regulatory Authority (NBFIRA) licensed insurers across the year 2010–2022 period. The resulting unbalanced panel dataset of 127 firm-year observations in total is used to test ten potential determinants: profitability, underwriting risk, reinsurance dependence, firm size, leverage, liquidity, asset tangibility, premium growth, firm age, and ownership structure. Following diagnostic testing via the F-test, Breusch-Pagan LM test, and Hausman specification test, the Fixed Effects (FE) model was retained as the preferred estimator. As findings, underwriting risk, rather than weakening solvency, showed the strongest positive association with capital adequacy. The most credible explanation for this is regulatory, companies with heavier claims exposure appear to respond to supervisory pressure by holding more capital, not less. Reinsurance dependence, firm size, liquidity, and asset tangibility were also positively significant, highlighting the importance of risk-transfer mechanisms and effective liquidity management. On the other hand, profitability, leverage, growth, and firm age fell short of significance reflecting the structural constraints of a concentrated, domestically oriented market rather than any theoretical irrelevance of these factors. Risk management practices and firm-specific structural characteristics positively influence solvency adequacy among Botswana's non-life insurers instead of profitability or growth considerations. This research adds to the already existing limited empirical evidence of drivers of solvency margins in Botswana and the Sub-Saharan Africa providing useful insights for insurers, regulators, and policymakers seeking to strengthen risk-based supervision and promote the long-term stability of the insurance sector in Botswana.
Keywords: {'name': 'Solvency Margin, Non-Life Insurance, Botswana, Solvency Determinants, Panel Data, Risk-Based Supervision'}
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Sladen Moyo
Ba Isago University
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