The effect of comprehensive income volatility on default risk and liquidity risk in Egyptian insurance companies

Abstract EN

We examine comprehensive income (CI) volatility incremental to net income (NI), and the relationship between CI volatility and two types of financial risks; default risk and liquidity risk in insurance companies in Egypt.

Using data for the period 2010 – 2019 for a final sample of 33 companies which represents (84.6% of all insurance companies in Egypt) with 330 observations, results showed that CI is more volatile than NI and that more CI volatility is associated with more default risk and liquidity risk.

Using Multiple linear regression, results show that foreign currency translation (FCT) is the main source of CI volatility in its association with default risk.

Results also show that asset revaluation (AR) is the main source of CI volatility in its association with liquidity risk.

Those results have implications for insurance companies to apply effective strategies to mitigate the volatility of FCT and AR, which has important implications for financial stability and policy formation for regulatory communities.