Effect of leverage on income retention of general insurers in East Africa
Keywords:
Leverage, Debt to Equity RatioAbstract
The purpose of this research was to determine the effect of leverage on income retention of general
insurers in East Africa. The study adopted explanatory sequential mixed methods research design which
consists of collecting and analysing secondary data first and subsequently collecting primary data to
get deeper insight on the results from secondary data. For secondary data, a census was conducted on
the total population of 87 general insurance companies in existence during the period of study from
2015 to 2019 across Kenya, Uganda, Tanzania, Rwanda and Burundi. Data were obtained from
insurance regulatory reports, company annual reports and through data collection sheets where reports
were not available. The primary data phase consisted of in-depth interviews carried out on a stratified
sample of 25 key informants across the five countries. Both descriptive and inferential statistics were
used to analyse the data. The regression results indicate that leverage, as measured by debt to equity
ratio, has a negative and significant effect on income retention of general insurers in East Africa (β1=
-0.02337, p-value = 0.001). According to the details per country, this negative relationship is significant
for Kenya and Rwanda while insignificant for Tanzania, Uganda and Burundi. The study recommends
that insurance companies should hold adequate equity relative to their liabilities to enhance their
income retention.
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