Browsing by Author "Ritho, Bonface Mugo"

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    Firm Characteristics, Inflation, Revenue Efficiency and Financial Stability of Insurance Firms in Kenya
    (Kenyatta University, 2024-02) Ritho, Bonface Mugo
    The insurance industry plays a crucial role in fostering the ongoing growth and prosperity of the economy. The insurance sector is accountable for ensuring the ongoing survival of businesses, mitigating the risk associated with financial losses, and striving to eliminate uncertainty for investors. Although the insurance sector serves a vital role, companies within this industry have been facing challenges in preserving their financial soundness. The insurance industry has experienced significant fluctuations in profitability, leading to the placement of several companies under receivership or even their closure. The primary objective of this research study was to evaluate the effect of firm characteristics on the financial performance of Kenyan insurance firms. Additionally, the study assessed inflation as a moderating factor in these relationships, and how the efficiency in generating revenue mediates the link between corporate characteristics and financial stability. This study was supported by a number of theoretical models, such as the Theory of Distress by Wreckers, Capital Buffer Theory, the Pecking Order Hypothesis, Gibrat's Law, Trade-off Hypothesis, Economic Efficiency Theory, Price Theory, and the Resource-Based View Theory. The study employed an explanatory research design and adopted a positivist philosophical approach. The study focused on a specific group of insurance firms, namely the 46 companies that possessed IRA licenses and were actively functioning between 2014 and 2021. The research thesis employed the census approach to examine all 46 insurance firms in Kenya. The research thesis was based on secondary data. Before conducting the inferential analysis, many tests were performed, such as multicollinearity, normality, autocorrelation, homoscedasticity, stationarity, and model definition. The research outcomes were represented using tables, figures, and graphs. The study complied with research ethical norms. The study findings revealed that the use of leverage has a considerable and adverse effect on the financial viability of insurance companies in Kenya. In contrast, the size of the firm had a notable and favourable impact on the financial stability of these companies. The study found that the loss ratio had a strong negative effect on the financial stability of insurance companies in Kenya, while capital adequacy had a notable beneficial impact on their financial stability. The study findings showed that the relationship between firm characteristics and the financial stability of Kenyan insurance companies is not significantly impacted by inflation. Moreover, it is impossible to dispute the idea that revenue efficiency plays no discernible role as a mediator in the connection between these companies' financial stability and their organizational characteristics. Consequently, the study recommends that general insurers in Kenya should reduce their reliance on borrowed funds, raise the scale of their operations, effectively control their loss ratio, and bolster their capital sufficiency in order to improve their financial stability. Nevertheless, it is crucial for them to practice prudence while utilizing leverage, since an excessive dependence on it may endanger their long-term viability. Kenya should also be advised to conform to the standards of the Solvency II framework.
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    The Impact of Loss Ratio on the Financial Stability of Insurance Firms in Kenya
    (Journal of Finance and Accounting, 2023-06) Ritho, Bonface Mugo; Simiyu, Eddie; Omagwa, Job
    The insurance sector is an essential component for the continued expansion and prosperity of the economy. It is the responsibility of the insurance industry to secure the continued existence of enterprises, to disperse the risk that is caused by financial losses, and to work toward eradicating uncertainty in the minds of investors. Despite the important roleof theinsurance sector in the economy, firms operating in this sector have been having trouble maintaining their financial stability. The insurance sector has faced considerable volatility in profitability, resulting in some firms being placed under receivership or even going out of firm. The purpose of this study wasto analyse the effect of loss ratio on financial stability of insurance firms in Kenya. The study was anchored on the Theory of Distress by Wreckers. The research was conducted using an explanatory research design, and the positivist philosophical approach was utilized. The target population for this study consisted of the 46 insurance firms that held IRA licenses and were operating during the time period under consideration (2014-2021). The census method was utilized for the research thesis, which focused on all 46 insurance firms in Kenya. The study usedsecondary data obtained from audited financial statements, which were publicly available on the websites of individual insurance firms. To gather panel data for the study, a secondary data collection template was employed. In order to draw conclusions from the data that was gathered, this study employed both descriptive and inferential statistical methods. The studyemployed a generalized method of moments modelling guided by static panel regression. The data processing was done using the Stata software. The research findings were presented through the use of tables and trend line graphs. The study adhered to research ethics guidelines. The findings of this study showed that loss ratio had a significantnegative influence on the financial stability of Kenyan insurance companies (β = -0.5795373, p = 0.002 < .05).The study concludes that loss ratios and capital adequacy plays a significant role in the financial stability of insurance firms. A lower loss ratio indicates a more efficient underwriting process and risk management, contributing to better financial performance and stability. As a result, the study recommendsthat to enhance their financial stability, general insurers in Kenya should manage their loss ratio.It's also recommended that Kenya should adhere to the principles of the Solvency II framework.
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    Unravellingthe Dynamics: The Effectsof Leverage on the Financial Stability of Insurance Firmsin Kenya
    (Journal of Finance and Accounting, 2023-06) Ritho, Bonface Mugo; Simiyu, Eddie; Omagwa, Job
    Despite the crucial part that the insurance industry plays, firms operating in this sector have been having trouble maintaining their financial stability. The insurance industry has faced considerable volatility in profitability, resulting in some firms being placed under receivership or even going out of firm. The purpose of this study wasto analyse the effect of leverageon financial stability of insurance firms in Kenya. The study was informed byPecking Order Theory. The research was conducted using an explanatory research design, and the positivist philosophical approach was utilized. The target population for this study consisted of the 46 insurance firms that held IRA licenses and were operating during the time period under consideration (2014-2021). The census method was utilized for the research thesis, which focused on all 46 insurance firms in Kenya. The study usedsecondary data obtained from audited financial statements, which were publicly available on the websites of individual insurance firms. To gather panel data for the study, a secondary data collection template was employed. In order to draw conclusions from the data that was gathered, this study employed both descriptive and inferential statistical methods. The studyemployed a generalized method of moments modelling guided by static panel regression. The data processing was done using the Stata software. The research findings were presented through the use of tables, figures, and graphs. The findings of this study showed that leverage significantly and negatively impacted the financial stability of Kenyan insurance firms(β = -3.513831, p = 0.000 < .05).The study concludes that if leverage challenges are not adequately managed, they can have a detrimental influence on the profitability and capital of a particular insurance sector, and in the worst case scenarios, they can even force insurance sectors that are otherwise financially secure to fail. Thestudy recommendsthat the general insurers in Kenya should enhance their leverage in order to strengthen the financial stability of their firms. However, insurance firms should be careful not to leveragethemselves too much, since this can also be damaging to their long-term sustainability.