Impact of Financial Ratios on Financial Performance of Sri Lankan Listed Life Insurance Companies: Comparative Analysis of Stable and Unstable Economy

The primary objective of this research is to examine the impact of financial ratios on the financial performance of Sri Lankan listed life insurance companies during periods of economic stability and instability. The study focuses on six life insurance companies listed on the Colombo Stock Exchange, utilizing quarterly secondary data from 2016 to 2023. The years 2016 to 2018 are considered as a stable economic period, while 2019 to 2023 represent an unstable economy. The analysis employs descriptive statistics, diagnostic tests, and regression analysis to assess the relationships between financial ratios and financial performance, measured by return on assets (ROA). The findings from the fixed effect models reveal that ROA differs significantly between stable and unstable economic conditions. The results indicate that the reinsurance ratio, investment ratio, and solvency margin have a statistically significant influence on ROA, though the magnitude of impact varies across the two economic periods. In contrast, the debt ratio does not show a statistically significant relationship with ROA in either economic condition. This study contributes to the literature by offering insights into how financial ratio dynamics differ under varying macroeconomic environments. It also provides practical implications for insurance firms in managing their financial strategies based on prevailing economic conditions. The findings can assist regulators, policymakers, and industry stakeholders in better understanding risk management and performance evaluation frameworks for the life insurance sector in emerging markets like Sri Lanka.