Market Volatility and Corporate Earnings: Implications for Kenya’s Insurance Sector
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Date
2026-03
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IJARKE
Abstract
The insurance industry represents a critical segment of the non-bank financial system and serves an essential function in promoting economic development across both developing and advanced economies. In Kenya, persistent profitability constraints have weakened sectoral stability, contributing to the failure of at least nine insurers over the past decade and highlighting underlying structural fragilities. This study examines the effect of market risk exposure on the profitability of insurance firms operating in Kenya. The analysis is anchored in Modern Portfolio Theory, Extreme Value Theory, and Institutional Theory, which collectively provide a conceptual basis for understanding risk–return dynamics and organizational responses within regulated environments. Guided by a positivist research paradigm and an explanatory design, the study assessed all 55 insurers licensed by the Insurance Regulatory Authority (IRA) as at 31 December 2022. Secondary data covering the period 2014–2022 were drawn from audited financial reports published by the IRA and the Association of Kenya Insurers, supplemented by macroeconomic indicators sourced from the Central Bank of Kenya and the Kenya National Bureau of Statistics. Descriptive statistics, Pearson correlation, and panel regression techniques were employed to evaluate the relationship between market risk factors and profitability. The empirical results indicate that interest rate risk exerts a positive and statistically significant effect on profitability, whereas inflation risk exhibits a negative but statistically insignificant influence. Foreign exchange risk shows a mixed effect, demonstrating a positive but insignificant relationship with ROE and a negative but insignificant association with ROA. The study recommends that insurers strategically capitalize on interest rate movements through investment in interest-sensitive assets, strengthen inflation-responsive pricing mechanisms, and diversify currency exposures to minimize potential adverse effects on profitability.
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Gitau, K., Kimacia, W., Wamugo, L., & Omagwa, J. (2026). Market volatility and corporate earnings: Implications for Kenya’s insurance sector. International Journal of Accounting, Research and Knowledge Economics (IJARKE), 8(2). https://doi.org/10.32898/ibmj.01/8.2article11