Effects of Actuarial Function on the Financial Performance of Private Health Insurance Providers in Kenya

Abstract

The study sought to establish the effect of Actuarial Function on the financial performance of health insurance providers in Kenya. Actuarial function is a fulfilment of the requirement of EU, article 48 of the Solvency II Directive. International Association of Insurance Supervisors (IAIS) describes actuarial function as a structure of operational and oversight controls focused on making technical provisions and expressing judgement on underwriting policy and reinsurance arrangement (IAIS, 2015). The study first established whether health insurance firms had adopted the actuarial function and the year of such establishment for each firm. Financial performance was measured using Underwriting Profit for medical business, Return on Assets (ROA) and Solvency. Financial data for 3 years pre and post adoption of each firm was obtained for the purpose of the study. The study population comprised of 21 insurance firms offering health insurance of which a census was carried out. The study used secondary data being the financial results for each company as published IRA. Dates of adopting actuarial function was obtained by calling head of actuarial function in each of the companies. From the data analysis, it was confirmed that the combination of the three indicators of firm performance (Return on Assets, solvency and Underwriting Profits) were significantly influenced by adoption of actuarial functions. Underwriting profit was strongly correlated to adoption of actuarial function. The correlation coefficients establish some significant relationship between actuarial function and firm performance. The findings gives confidence to health insurance firms and policy makers to adopt actuarial function as a measure to improve firm performance. It would be recommended that insurance firms and stakeholders undertake a followup study to determine whether actuarial functions have significant influence on the financial performance.