Determinants of financial performance of insurance companies in Kenya

Abstract

The insurance industry is important in any economy. In Kenya, the contribution of the insurance sector to the GDP grew by 11.7% to 1.05% in 2010 compared to 0.94% in 2009, while in 2011 it contributed 3.02% to the GDP. The objective of this study was to establish the determinants of financial performance of insurance companies in Kenya. The study applied descriptive research design. The population of the study comprised of the 51 insurance and reinsurers companies that were in operations by the year 2012. The study used secondary data collected from the Insurance Regulatory Authority, Association of Kenya Insurers and the respective insurance and reinsurers companies. The study used Statistical Package for Social Sciences (SPSS Version 17.0) to analyze the data. The data was presented using graphs and charts. The study established that growth of the insurance industry positively affects financial performance. As the growth of the insurance industry improves, the financial performance also improved because of the opportunities presented by the growth of the industry. The study found that leverage of the insurance industry is negatively related to the financial performance of the insurance industry. Liquidity affects the performance because moderate liquidity is appropriate but too high liquidity means that the funds are invested in short term assets for the purposes of meeting short term obligations as and when they mature and become due. Tangibility measures the amount of tangible assets held by the industry. From the analysis, as the tangibility reduced, financial performance of the industry increased hence the negative relationship.