Comprehensive Analysis of Credit Risk Determinants in the Egyptian Property and Casualty Insurance Sector: Exploring Macroeconomic, Industrial, and Company Specific Factors

Through risk mitigation, investment encouragement, and financial market stabilization, the insurance sector plays a critical role in promoting economic stability. But there are inherent difficulties in the business, especially when it comes to managing credit risk, which is brought on by things like non-defaulting borrowers, unpaid premiums, and unpaid reinsurance amounts. This study examines how credit risk is affected by macroeconomic, industry-specific, and insurance company specific factors in Egyptian property and liability insurance companies between 2012 and 2022.
In order to examine the relationships between credit risk, which is represented by three components: uncollected premiums, reinsurance, and bonds as dependent variables, and key independent variables like market share, ownership concentration, return on equity, insurance size, premium growth rate, and economic indicators like GDP, inflation, public debt, and unemployment. The study uses a variety of regression models, including pooled, fixed effects, and random effects regressions. Additionally, endogeneity and time persistence in credit risk structures are studied through the use of the Generalized Method of Moments (GMM). The robustness of the dynamic model is validated by the Sargan test and autocorrelation tests (AR (1) and AR (2)) which verify the efficiency of the used tools and the lack of serial correlation.
The findings demonstrate the importance of factors in determining credit risk, including Return on equity (ROE), Premiums growth rate, Insurance Size, Insurance Capitalization, and economic indicators. This study offers insights for credit risk management and strategic decision-making in the insurance industry, furthering our understanding of credit risk in Egyptian markets.