The impact of ERM on financial performance of non-life insurance companies in Albania

Abstract

Enterprise Risk Management (ERM) has emerged a significant change starting from the way firms manage their complex portfolio of risks. ERM and capital allocation have gained more attention recently, especially in insurance industry since insurers intend to manage capital costs through risk management. Previous studies have shown that ERM has helped   insurers   in   improving   the   firm’s   value   through   better   risk-based   decision   making   and   capital   allocation.

The study aims to examine whether the implementation of ERM influenced firm value in non-life insurance companies in Albania. The sample of this study is the population itself including all the non-life insurance companies which have implemented ERM. The methodology in this paper includes quantitative methods, using secondary data of ten years, where indicators that measure firm’s value were calculated to detect if they have been impacted from the usage of ERM, taking the year 2015 as the year where these companies implemented ERM in their risk management practices.

The study does not prove that ERM has yet increased the firm’s value, which can be interpreted from the short time horizon, only five years from its implementation, since is proved that the effects of ERM on firm values are detectable in long term.