Browsing by Author "Muteru, Milka W."

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    Macroeconomic Dynamics and Profitability of Insurance Firms Listed at Nairobi Securities Exchange, Kenya
    (Kenyatta University, 2024-10) Muteru, Milka W.
    The insurance sector is essential to economic growth, resource allocation, liquidity creation, scale economies in investments, and loss distribution. Kenya’s insurance industry has been growing steadily since 2013, with premium revenue and capital investment increasing. However, Return on Assets has declined over the past four years and reached an all-time low in 2022 compared to the previous five years which was partly attributed to the reforms introduced to cater the impact of Corona virus pandemic on and the need to close infrastructure gaps. The expenditure ratio has increased over the past four years, showing that the general insurance underwriting expenses have gone up without the premiums for those risks being up in line. Firm profitability rises during economic expansions while it falls during recessions. As a result, as gross domestic product grows, firm deposits and loans rise along with interest income and loan losses. The purpose of the study was therefore to examine the effect of macroeconomic dynamics on the profitability of insurance firms listed on the Nairobi Securities Exchange in Kenya. The specific objectives of the study were; to investigate how Exchange Rates affect the profitability of insurance companies that are listed on NSE, to determine how interest rates affect the profitability of insurance companies listed on NSE and to ascertain how inflation affects the profitability of insurance companies listed on NSE. The study was conducted based on the theoretical frameworks of purchasing power parity, deflation, and the balance of payment, the classical theory of interest, and the balance scorecard model. The study employed an explanatory research approach and focused on the six insurance firms that were listed on the NSE. A survey was done to list the insurance companies listed on the Nairobi Securities Exchange in Kenya. The data collecting for this inquiry involved using secondary data sheets. The data was collected from the official audited financial accounts of the insurance companies for the fiscal years 2016 to 2022. The process of data analysis encompassed both descriptive and inferential analysis. The inferential analysis included both correlation analysis and panel regression analysis. The model's predictions were verified by diagnostic testing. The multicollinearity, normalcy, linearity, Hausman test, homoscedasticity, and autocorrelation tests were among them. The research complied with the anticipated ethical standards. The study found that key macroeconomic dynamics had significant impact on the profits of insurance companies listed on the NSE, explaining fifty-seven point seven one percent of the changes in profits. It discovered that while changes in the exchange rate do not significantly affect profits, higher interest rates lead to higher profits, and inflation negatively impacts profits. In view of the findings, the study recommends that insurance company management, should strive to develop robust risk management strategies that can effectively mitigate the impact of macroeconomic dynamics, such as exchange rate fluctuations, interest rate changes, and inflation. Additionally, policy-makers should consider implementing policies and regulations that promote stability and predictability in macroeconomic dynamics. Providing a conducive environment for stable exchange rates, interest rates, and inflation can help insurance firms plan and strategize effectively.
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    Macroeconomic Dynamics and Profitability of Insurance Firms Listed at Nairobi Securities Exchange, Kenya
    (Stratford Peer Reviewed Journals and Book Publishing, 2024-11-04) Muteru, Milka W.; Omagwa, Job
    Kenya’s insurance industry has been growing steadily since 2013, with premium revenue and capital investment increasing. However, Return on Assets has declined over the past four years and reached an all-time low in 2022 compared to the previous five years which was partly attributed to the reforms introduced to cater the impact of Corona virus pandemic on and the need to close infrastructure gaps. As a result, as gross domestic product grows, firm deposits and loans rise along with interest income and loan losses. This study focused on understanding how macroeconomic dynamics affect the profitability of insurance companies listed on NSE in Kenya. It particularly looked into how changes in exchange rates, interest rates, and the overall price rise in the economy (inflation) influence these companies' profits. The study was guided by the theoretical frameworks of purchasing power parity, deflation, the balance of payment, the classical theory of interest, and the balance scorecard model. The study adopted an explanatory research design and targeted the six insurance firms listed on the NSE. The secondary data collection for this study involved the utilization of secondary data sheets. Data was obtained from the official audited financial statements of the insurance firms for the fiscal years 2016 through 2022. Data analysis involved both descriptive and inferential analysis. Inferential analysis incorporated both correlation analysis and panel regression analysis. The study found that key macroeconomic dynamics had significant impact on the profits of insurance companies listed on the NSE, explaining 57.71% of the changes in profits (R-squared = 0.5771). It discovered that while changes in the exchange rate do not significantly affect profits (β = 0.0761, p = 0.5358), higher interest rates lead to higher profits (β = 2.1647, p = 0.0233), and inflation negatively impacts profits (β = -0.3447, p = 0.0011). The study's validity is supported by strong statistical evidence (F-statistic = 21.0100, p-value = 0.0000). It suggests that insurance companies in Kenya should focus on managing risks related to economic changes to improve their financial performance. This research adds to the understanding of how macroeconomic dynamics affect the profitability of insurance firms in the context of the NSE.