Firm Specific Characteristics and Financial Performance of Life Insurance Firms in Kenya
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Date
2021
Authors
Ratemo, Nyachwaya Isaiah
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Most companies grappled with the aftermath of the global financial crisis resulting in a decline in profitability, measured as return on equity, due to overwhelming debts that burdened and stretched financial resources. Despite growth in gross written premiums, this downward trend was noticeable in returns on equity varying year on year as insurers compete with new and existing players for market share. This study aims to determine the effect of various firm level characteristics such as growth, asset structure and firm size on financial performance of life insurer in Kenya. This research was steered by MM theorem, pecking order theory and static trade off theory. The study employed a longitudinal research design using purposive sampling technique to analyze secondary data of a sample size of twelve life insurers from 2011 to 2016. The data was sourced from annual reports of the insurance regulator obtained from their website. The study used a regression model to estimate the influence of growth, asset structure and firm size on life insurance firms’ financial performance. Diagnostic tests were carried out to test for model specification test, normality, heteroscedasticity, multicollinearity and autocorrelation. Data analysis applied both descriptive statistics to describe the measures of central tendency and inferential statistics to test the researcher’s hypothesis respectively. Correlation analysis was used to determine the nature and magnitude of the relationship among study variables. Regression analysis determined the influence of explanatory variables on the dependent variable. Growth and size affected ROE positively leading to improvement in profitability. On the other hand, asset structure shows different effect that a unit increase affects financial performance negatively by decreasing ROE. It is suggested that investors utilize the research findings to select successful insurance firms in order to make sound investment decisions and increase their wealth. To protect their risk, policyholders should select insurance firms with large portfolios. Businesses that have been in existence for a long time have been shown to be more secure than freshly registered insurance companies
Description
A Research Project Submitted to the School of Business in Partial Fulfilment for the Award of Degree of Master of Business Administration (Finance Option), Kenyatta University, July 2021
Keywords
Firm Specific Characteristics, Financial Performance, Life Insurance Firms, Kenya