Firm Characteristics and Financial Stability of Insurance Companies, Kenya
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Date
2025-11
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Kenyatta University
Abstract
The stability of the financial industry, along with the broader health of the national economy, was adversely affected by instability within the sector. Such instability exposed financial companies to numerous disruptions, potentially leading to insolvency and eventual closure due to the high costs involved in maintaining stability in intermediary roles. Insurance companies in Kenya experienced significant challenges to their financial stability between 2018 and 2022, largely linked to inadequate attention to firm characteristics. The study investigated firm characteristics that affect financial stability of insurance companies in Kenya. In particular, it examined how capital adequacy, premium growth, and firm liquidity influenced financial stability. The research also evaluated the moderating effect of firm size on the association between firm characteristics and financial stability. This research was founded on the theoretical framework of agency theory, economies of scale theory, capital buffer theory, and liquidity preference theory. The research was descriptive in nature and targeted all 56 insurance firms in Kenya. The secondary information was sourced using the data provided by the Insurance Regulatory Authority and the financial records of the companies between the years 2018 and 2023. Quantitative research was employed, with descriptive statistics and inferential analysis being applied. Correlation and panel data regression were conducted. The level of significance of the results was 5%. The diagnostic tests were heteroskedasticity, multicollinearity, normality, autocorrelation, stationarity, and the Hausman test to validate the results. Ethical considerations were upheld through the use of authorized data sources, confidentiality of firm records, and compliance with academic integrity standards. The research concluded that capital adequacy (β =0.423, p<0.05) and premium growth (β =0.315, p<0.05) had a positive influence on financial stability whereas firm liquidity (β =-0.278, p<0.05) had a negative impact. Firm size moderated these relationships (β =0.192, p<0.05), improving financial stability. The results emphasized the importance of high capital cushions and premium growth strategies that are sustainable. The results were informative to policymakers, regulators, and insurance companies to improve financial stability with specific strategies aimed at premium growth and liquidity management. The study indicated the direction of future research on other moderating factors and the exterior nomic factors that are having a positive impact on insurance corporations in Kenya
Description
A Project Submitted To the School of Business, Economics & Tourism in Partial Fulfilment for the Award of Degree in Master of Business Administration (Finance) At Kenyatta University. November, 2025
Supervisor
Vincent Shiundu Mutswenje