Relationship Between Portfolio Holding and Financial Performance of Insurance Companies in Nairobi County

Abstract

The insurance industry is important in an economy. Insurance business has stringent laws regarding investments following its long term nature. The objective of this study was to establish the relationship between portfolio holding and financial performance of insurance companies in Nairobi county. The study adopted a Descriptive research design. All insurance companies operating in Kenya as at 31st December, 2014 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 established that the insurance industry has always invested heavily in the different sectors of the economy. 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 by insurance firms affects the profitability of the insurance industry positivelyhe study recommends that insurance firms should encourage investments in stocks, government securities, real estates and bank deposits. This will enhance profitability in the insurance industry. The study further recommends that customers should be enlightened on the operation of investments in order to enhance their profitability and performance. Additionally, the study recommended that insurance agent should be frequently trained on the operation process and policies to eradicate occurrence of error and mistake that are highly hindering penetration of insurance.