Document Type : Original Research Paper
Authors
1 , Ph.D. Candidate, Department of Economics, Faculty of Economics and Management, Khomeinishahr Branch, Islamic Azad University, Isfahan, Iran
2 Department Economics, Faculty of Economics and Management, Khomeinishahr Branch, Islamic Azad University, Isfahan, Iran
Abstract
BACKGROUND AND OBJECTIVES: A characteristic of developing countries is resource constraints, particularly foreign exchange resources. Given their production structure and foreign exchange constraints, these countries require appropriate exchange rate policies to mitigate exchange rate volatility and its adverse economic effects. In Iran, economic conditions and sanctions have imposed severe exchange rate fluctuations on the economy in the past decade. Meanwhile, insurance companies, due to the nature of their services and their status as listed entities, are affected by exchange rate fluctuations in multiple dimensions. The insurance sector plays a fundamental role in economic growth, resource allocation, liquidity creation, economies of scale in investments, and loss distribution. The insurance industry is a key indicator of development, especially financial market development, and a major economic institution that supports the activities of other entities. With its extensive human resources and a broad network of branches, agencies, and other insurance units, it holds a significant role in countries' economic development. Indeed, the insurance industry is a subsector of the financial market with broad spillover effects on other markets and should guarantee the health of financial markets and economic activities (Crabbe, 2012). Therefore, this research aims to analyze the effect of exchange rate fluctuations on the profitability of 14 insurance companies listed on the Tehran Stock Exchange during the period 2011-2023.Existing limited research presents conflicting results regarding the effect of exchange rate volatility on corporate profitability, with some researchers finding a significant positive effect and others a significant negative effect. This indicates a lack of consistent evidence, particularly within the insurance industry, on the relationship between exchange rate volatility and profitability. Amoabeng and Yohane (2025), in a study on "The Impact of Exchange Rate Fluctuations on the Financial Performance of Insurance Companies in Zambia," found that while most respondents reported profitability growth over the past five years, exchange rate volatility was perceived as a factor with a moderate impact on financial performance, though 34% considered its impact very significant. Affected areas included profit margins, operational costs, and claim payments. Ramal (2023) examined "The Performance Index of Pakistan's Insurance Industry in Exchange Rate Fluctuations," finding that currency depreciation and other factors arising from exchange rate fluctuations have a primary impact on profitability, and that exchange rate volatility and profitability are inversely related in the top Pakistani insurance companies studied.
Given that Iran's insurance industry also experiences these diverse effects created by foreign exchange fluctuations—while reports show an increasing trend in insurance company profits over the past decade, they do not clearly indicate whether exchange rate volatility has contributed to these profits—this study seeks to provide a precise answer to the question: What is the impact of exchange rate fluctuations on the profitability of insurance companies, particularly those listed on the Tehran Stock Exchange? Furthermore, as insurance companies in general, and listed ones in particular, are affected by these fluctuations in terms of both income and expenses due to the broad scope of their services and their investments in the stock market, analyzing the effect of these fluctuations on their performance, manifested as profitability, is crucial. It is essential for various insurance companies to hedge against these fluctuations to enhance their profitability and prevent a decline in their stock prices and corporate value. Hence, the objective of this research is to analyze the impact of exchange rate volatility on the profitability of insurance companies listed on the Tehran Stock Exchange in Iran.
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METHODS: The purpose of this research was to analyze the effect of exchange rate fluctuations on the profitability of 14 insurance companies that are members of the stock exchange in the period of 2011-2014. In this sense and according to the structure of the data, the panel data method was used and after conducting related tests, the research model was estimated using the random effects method In terms of research method, this study is correlational in nature and content. It utilizes secondary data extracted from the financial statements of insurance companies listed on the Tehran Stock Exchange to conduct correlation analysis. Its reasoning method is inductive-deductive to discover relationships between variables through correlation. Since correlational research is a subset of descriptive research, this study falls into the descriptive research category. Also, due to its use of past data and statistics related to variables, it is ex-post facto. Structurally, the data is panel data, and considering various methods for such data, the analysis is causal and panel-based. Therefore, this research can be considered applied, utilizing economic theories and regularities;. Data analysis was performed using Eviews software.
The statistical population of the study includes insurance companies listed on the Tehran Stock Exchange. A systematic elimination (screening) sampling method was used to select the statistical sample, meaning from among all companies listed on the Tehran Stock Exchange.
FINDINGS: The findings showed that exchange rate fluctuations have a negative and significant effect on the profitability of insurance companies according to their type of activity. Also, macro-economic variables such as inflation and growth of share have a positive and significant effect and internal variables of the company such as the ratio of capital to assets and the ratio of debt to assets and the size of the company have also had a positive and significant effect on the profitability of companies
CONCLUSION: The result shows that the adoption of appropriate currency policies to reduce currency fluctuations can have an increasing effect on the performance of insurance companies
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