Determinants driving Takaful and cooperative insurance financial performance in Saudi Arabia

Purpose This paper aims to examine the effect of insurance specific characteristics, corporate governance and risk reporting attributes, Shari'ah board and inflation rate on the financial performance of Takaful and cooperative insurance industries. Design/methodology/approach Based on a dynamic panel generalized method of moment's system estimation, the author investigates determinants of financial performance as measured by the net premium written, earning ratio and profit margin. Findings Company size, insurance penetration, risk reporting and board size significantly explain the financial performance of both types of insurance companies. The effect of Shari'ah board and capital intensity on the financial performance of Takaful insurance is overall positive. The non-executive directors may negatively affect the financial performance. Additionally, positive relationship was also found between inflation rate and financial performance of cooperative insurance. Originality/value The present study seeks to fill a demanding gap in the literature by providing new empirical evidence on the factors that influence the financial performance of the Islamic insurance sector. Moreover, the paper tries to distinguish and identify the determinants of the performance for Takaful and cooperative insurance companies operating in Saudi Arabia.