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- No of Pages: 87

- No of Chapters: 05

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Abstract

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Introduction

1.1 BACKGROUND OF THE STUDY



The concept of profit maximization has been a dominant theme in the practices of business from time immemorial. As business enterprises, insurance company have not been an exemption. Through their various investment activities, they have attempted to enhance their profitability and thus perpetrate their existence.

From a broader perspective, insurance companies have been identified as the oldest of non-bank financial institution. Operating on the world’s financial landscape. They constitute a very important segment of the non-bank financial sub-system. In terms of funds mobilized, loans granted and investment made. They finance industries and channel funds to the government for development Coffiong, 2005. In order words, these roles insurance companies assemble various securities and asset that address investor and then manage theme. This therefore leads us to the concept of portfolio management.

Portfolio management consist of three major activities, asset allocation, shift in weighing across major assets classes and security selection within assets classes. Assets allocation can best be characterized as the blending together of major asset classes to obtain the higher long-return at the lowest risk. Managers can make opportunistic shift in assets class weighing in order to improve returns prospects over the long term objectives (farrel, 1993).

It would be instructive to note that although insurance companies are predominantly involved in under writing, this is not their major income earner. As already pointed out, their income also comes from their investment activities. Furthermore, a large proportion of profit of insurance companies in not the result of technical insurance underwriting, but that of return on investment and return on assets. As a result, it is thus positive to observe that the ability of insurance companies to manage effectively and efficiently their investment portfolio should have an effect on their profitability.

Essentially, the investment portfolio of insurance companies is composed of investment classified into those of either short term maturity. The short term investment are those falling due to after one year 9union assurance annual report and accounts, 2005).

Thus, portfolio management entails the management of these component in a way that leads to the actualization of the objectives of profit maximization. The major indicators of profitability are stock price and financial ratios (return on investment, return on assets and return on equity).

The discourse therefore, shall attempt to establish the effect that portfolio management has on the profitability of selected insurance companies in Nigeria.