The Relationship Between Risk and Capital: Evidence From Kenya Non-life Insurance Companies.

Abstract

Risk management is a process of identifying loss exposures faced by an organization and selecting the most appropriate techniques for treating such exposures (Rejda, 2003). Insurance companies apply various techniques to manage risks. Some of their risks are re-insured by some companies abroad. The financial risk management has gained an important role for financial institutions. Risk management is one of the most important practices to be used especially in insurance companies in order to get higher returns, (Gabriel, 2008). This study endeavored to ascertain the relationship risk and capital of general insurance companies in Kenya. Secondary Data was collected from Insurance Companies financial reports and regulatory returns and multiple regression and correlation analysis were used in the data analysis. From the finding on the adjusted R squared, the study revealed that 68.1% changes in capital employed by general insurance companies in Kenya could be accounted for by changes in insurance risk, market risk, credit risk and operational risk facing the companies. The study established that insurance risk was negatively affecting the capital of general insurance companies in Kenya. The study also found that credit risk negatively affected the capital of general insurance companies in Kenya. The study concluded that operational risk negatively affects the capital of general insurance companies in Kenya. Market risk of general insurance companies in Kenya was found to positively influence capital. From the finding the study recommends that there is need for insurance companies in Kenya to manage the insurance risk. The study also recommends that there is need for the management of insurance companies in Kenya to management credit and operational risk. The study also recommends that there is need for general insurance companies in Kenya to increase their investments portfolio in the market.