Influence of Asset Quality on the Financial Performance of Insurance Companies in Kenya
Keywords:
Financial Performance, Insurance Companies, Kenya, Asset Quality, Insurance Regulatory AuthorityAbstract
The research aimed to investigate the influence of asset quality on the financial performance of insurance companies. The study was anchored on the efficiency structure theory. Positivism research philosophy was employed with a descriptive research design that targeted a population of 56 general insurance and life insurance firms in Kenya. Secondary balanced panel data spanning 15 years from 2008 to 2022 was also used in the study. The secondary data was sourced from the financial statements of the firms and industry publications from the Insurance Regulatory Authority (IRA). The quantitative data collected was analyzed using descriptive statistics inform of percentages, frequencies, mean, and standard deviation. Additionally, a balanced dynamic panel data regression model was performed. Prior to fitting the panel regression model, diagnostic tests were undertaken to evaluate linearity, stationarity, normality of residuals, serial correlation, and homoscedasticity. The research included 41 insurance firms that met the inclusion criteria. The study results determined that asset quality has a statistically significant and negative influence on the financial performance of insurance companies in Kenya (β = -0.1956, t = -2.93, p = 0.003). The study concluded that asset quality is a collective consideration of diversification, liquidity, risk and liability profiles and thus plays a crucial role in influencing profitability. The study recommends that additional regulations should be instituted by the IRA that entail developing a range of targets on each of the aspects of asset quality.
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Copyright (c) 2024 Rachael Wangari Gitonga, Elizabeth Kalunda, Francis W Wambalaba
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This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
