Determinants of financial performance for life insurance Companies in Kenya

Abstract

The objective of this study was to establish the factors that affect the financial performance of life insurance companies in Kenya. The tested determinant variables were Solvency Margin, Growth of Premiums, Insurance Financial Leverage, Investment Ratio, Diversification, Company Size, and Retention Ratio. Financial performance was measured using ROA. The study employed multiple linear regression analysis with data for 24 life insurers that were operating in Kenya for the respective five year period 2010 - 2014. The study found that Diversification and Investment ratio showed a strong positive relationship to financial performance while Insurance Financial Leverage showed a moderate positive relationship to Financial Performance of life insurance companies in Kenya. Retention ratio showed a strong negative relationship to financial performance. Company Size and Growth of Premiums showed a weak negative relationship to financial performance while Solvency Margin showed a weak positive relationship to Financial Performance of life insurance companies in Kenya. The results emphasized the need for life insurance firms to focus more on diversifying into different business lines, allocate more assets into investments as well as keep retention ratios at reasonable levels.