The relationship between portfolio holding and financial performance of insurance companies in Kenya

Abstract

The insurance industry is important in an economy. Insurance business has stringent laws regarding investments following its long term nature. As such several organs of Government including Retirement Benefits Authority, Insurance Regulatory Authority, Central Bank, and capital Markets regulate the way in which such investments should be handled. The objective of this study was to establish the relationship between portfolio holding and financial performance of insurance companies in Kenya. The study adopted a Descriptive research design. All insurance companies operating in Kenya as at 31st December, 2012 were included in the study hence a census. The main source of data was secondary data from the Insurance Regulatory Authority, Association of Kenya Insurers, and insurance companies themselves. The researcher conducted a multiple regression analysis in order to determine the relationship between portfolio holding and financial performance of insurance companies in Kenya. The study found that there is a positive and strong relationship between portfolio and financial performance of the insurance companies. The study further found that there is an inverse relationship between investment in stock and the overall profitability in the insurance industry. The study found that investment in real estate had a direct relationship with the overall profitability of the insurance industry whereby increased investment in government securities lead to increase in profitability of the insurance industry. This study further found that investment in bank deposits are inversely related to the overall profitability of the insurance industry. The study recommends that the policy makers should enact policies that create an environment which facilitates the operations of the industry. This study recommends that the management in the insurance industry should come up with measures to ensure that the investments being made by this industry contribute toward enhancing the overall profitability of the industry.