Selected Investment Choices and Effect on Financial Performance of Insurance Companies in Kenya

Abstract

The Insurance sector in Kenya contributes significantly to economic development. However, the Insurance firms face challenges that affect their financial performance. This has led to cases of insolvency, mergers, and acquisitions. An understanding of the challenges faced in this industry provides a framework for addressing the negative effects. Hence, this study sought to establish whether the way management of these firms make investment choices may be affecting their financial performance. Specifically, the study focused on four selected investment choices. These included investment in Government securities, real property, quoted ordinary shares and money market securities which were modeled as predictors of the financial performance for the sampled firms. Data was collected for 37 general insurance companies that were in operation in Kenya for the period 2013-2019. Secondary data on financial performance and investment choice for each portfolio was extracted from Aki annual reports, IRA publications and reports, as well as the companies’ websites. Return on Equity was used as a measure for financial performance. Correlation and simple regression were used to analyze data and test hypotheses. The findings showed that all these four selected investment choices had positive and significant effect on return on equity for the sampled firms.