Effect of Asset Liability Management on Financial Performance of Insurance Companies in Kenya

Abstract

institution’s assets held and liabilities to minimize exposure to risks and improve financial performance. The study sought to determine the effect of asset liability management on financial performance in Kenya. The objective of the study were to determine the effects of; Non-Current Assets Management, Current Assets Management, Non-Current Liabilities Management and Current Liabilities Management on Financial Performance of Insurance Companies in Kenya, and to establish the Moderating effect on the company size on the relationship between Asset Liability Management and Financial Performance of insurance companies in Kenya. he study was grounded in three key theories: the Modern Portfolio Theory, the Asset Finance Matching Theory, and the Dynamic Asset-Liability Management Theory. It adopted a descriptive research design, utilizing secondary data collected from 51 insurance companies in Kenya over the period from 2017 to 2023. The secondary data, drawn from the companies' audited financial statements, was analyzed using both descriptive and inferential statistics. The findings revealed several important relationships. Non-Current Assets Management was found to have a significant positive relationship with financial performance, with a correlation coefficient of 0.583 and a p-value of 0.002. Current Assets Management, while still significant, showed a weaker relationship with financial performance, with a correlation coefficient of 0.287 and a p-value of 0.000. Non-Current Liabilities Management exhibited a moderate positive relationship with financial performance, with a correlation coefficient of 0.438 and a p-value of 0.033. In contrast, Current Liabilities Management demonstrated a weak negative relationship with financial performance, with a correlation coefficient of -0.275 and a p-value of 0.000.The regression model, which explained 64.1% of the variation in financial performance, suggested a strong model fit. In terms of the impact on financial performance, Non-Current Assets Management had the most significant positive influence, with a beta value of 0.4937. This was followed by Current Assets Management (β = 0.2851) and Non-Current Liabilities Management (β = 0.3963). On the other hand, Current Liabilities Management had a negative impact on financial performance, with a beta value of - 0.19433. Firm size emerged as the strongest predictor of financial performance, with a beta value of 0.545, indicating that larger firms performed better financially. These findings suggest that effective management of long-term assets and a larger firm size are crucial for improving financial performance. Conversely, poor management of short-term liabilities can have a detrimental effect on financial outcomes. The inclusion of firm size as a control variable in the regression model provided valuable insights into its significant influence on financial performance. Based on these results, the study recommends optimizing the management of Non-Current Assets and improving the management of Current Liabilities to enhance financial performance further