The aim of this paper is to investigate the influence of market share and diversification on the nonlife insurers’ performance. The underlying relationships have been investigated in different industries and different disciplines (economics, management...), still, no consistency exists either in the magnitude or statistical significance of the relationship between market share (and
diversification as well) on one side and companies’ performance on the other side. Moreover, the direction of the relationship is also somewhat questionable. While some authors find this relationship to be positive, the others reveal its negative association. In order to test the influence of market share and diversification on companies’ performance in Croatian nonlife insurance industry for the period from 1999 to 2009, we designed an empirical model in which we
included the following independent variables: firms’ profitability from previous years, market share, diversification and control variables (i.e. ownership, industrial concentration, GDP per capita, inflation). Using the two-step generalized method of moments (GMM) estimator we found evidence of a positive and statistically significant influence of both, market share and diversification, on insurers’ profitability.