dc.description.abstract | With the advent of the COVID-19 pandemic, general insurance companies face the risk of
ultimate closure or acquisition if they fail to generate an adequate rate of return to their
shareholders, hence a need for strategy development and implementation. Among the
viable investment strategies, asset allocation is significant. The portfolio framework of the
insurance firm evolves as assets are allocated. The study’s objective entailed examining
how Kenyan general insurance companies’ portfolio framework impacts their
performance from a financial perspective. The theory anchored in the current study was
Modern Portfolio Theory by Harry Markowitz, which holds that investors could achieve
maximum diversification benefits, hence better financial performance, with a proper asset
mix in their portfolio framework. By spreading out the risk linked with a particular asset
over a collection of assets like government securities, term deposits, stocks, and real
estate, such that the mean portfolio risk value is inferior to total risk per asset, investors
can reduce unsystematic risk and the financial impact of macroeconomic variables. This
spreads the risk per asset over the investor’s asset selection, as supported by CAPM and
APT. The study adopted descriptive and correlational research designs because they
helped enhance the prediction and explanation of relationships among the selected
variables. 49 Kenyan registered insurance entities made up population targeted by the
study. The sample size comprised 31 general insurance firms that operated between 2016
and 2021. The research sought to determine whether investments in government
securities, stocks, term deposits, and real estate had a favorable as well as significant
influence on performance financially. A positive and considerable influence was
established between financial performance and government securities, stocks, and term
deposit investments. A negative and insignificant impact was established between
financial performance and investment in real estate. The study hypothesized whether
there was a positively significant outcome between leverage and performance financially.
Leverage were found to have an immaterial and adverse association with how the firms
perfomed financially. The study hypothesized whether there was a positive effect
between liquidity and performance financially. The findings indicated that liquidity had
an association that was positive with performance financially. The established
recommendation was that general insurance companies should be regulated and
encouraged to diversify their asset classes in their portfolio framework by the Insurance
Regulatory Authority, by increasing investments in government securities, stocks, and
term deposits. However, due to the negative association of performance financially with
real estate, it recommends increased due diligence and close performance monitoring of
real estate investments. The report suggests that the Insurance Regulatory Authority
reassess the leverage restrictions of insurance firms in order to reduce excessive
borrowing and the inability to repay debt due to the negative link between leverage and
how the firms perfomed financially. Additionally, the study provided a recommendation
that the The Insurance Regulatory Authority should also implement policies governing
the liquidity positions that all general insurance organizations must have in order to
reduce the risk of liquidity and eventual closure because liquidity had a positive
correlation with how the firms perfomed financially. | en_US |