DETERMINANTS OF FINANCIAL PERFORMANCE OF INSURANCE FIRMS: A SURVEY OF SELECTED INSURANCE FIRMS IN NAIROBI COUNTY
The study investigated the determinants of financial performance of selected insurance firms in Nairobi County. The target population was 55 licensed insurance firms (42 locally owned insurance firms and 13 Foreign owned insurance firms). The study used two respondents in each insurance firm who were Finance Managers and Corporate Affairs Managers and all these had total of 96 respondents. The study used both primary and secondary data. The main primary data source was semi structured questionnaire. The data from the study was analyzed qualitatively and quantitatively using percentages, means and frequency distribution with the aid of Statistical Package for Social Sciences (SPSS) version17. Since data was descriptive, variants such as means, frequencies and percentages were used to describe the findings of the study. Bivariate – ANOVA statistical data analytical technique was used to find the determinants of financial performance of selected insurance firms in Nairobi County. The study concluded that insurance firms had liquid investments which helped them to settle claims especially if their underwriting income cannot cover claims. The firms would sell off their investments if they lacked money to settle claims. Majority of insurance firms relied on cash flow from operations in liquidity management. This implied that all firms had certain source of funds for liquidity management. The study recommended that insurance firms should establish a well matched portfolio of their assets and liability in terms of cash flows or rather they should ensure that they create additional reserve so that it can assist them to cover the interest rate since low interest may create a discrepancy on the earnings.
Key Terms: Equity Returns, Financial performance, Liquidity, Premium Rate, Resources, Retention Ratio, Stakeholders
Adams, M (2009), ‘Investment earnings and the characteristics of the life insurance firms: New Zealand evidence’, Australian Journal of Management, vol. 21, pp.41 - 55.
Adams, M., & Buckle, M. (2013).The determinants of corporate financial performance in the Bermuda insurance market. Applied Financial Economics, 13:2, 133-143.
Agiobenebo, T. J., & Ezirim, B. C. (2002).Impact of Financial Intermediation on the Profitability of Insurance Companies in Nigeria. First Bank of Nigeria Quarterly Review, 2(1), 4-14.
Ahmed, N., Ahmed, Z., & Usman, A. (2011). Determinants of Performance: A case of life Insurance Sector of Pakistan. International Research Journal of Finance and Economics, 61, 123-128.
Ahmed, N., Ahmed, Z., & Ahmed, I. (2010). Determinants of Capital Structure: A Case of Life Insurance Sector of Pakistan. European Journal of Economics, Finance and Administrative Sciences, 6(24), 1450-75.
Ali- Shami, H.A. (2008), Determinants of Insurance Companies Profitability in UAE. Master’s Thesis, University Utara Malaysian.
Asimakopoulos, I., Samitas, A., & Papadogonas, T. (2009). Firm-Specific and Economy Wide Determinants of Firm Profitability: Greek Evidence Using Panel Data. Managerial Finance, 35(11), 930-939.
Athanasoglous P. (2005), Bank-Specific, Industry- Specific and Macroeconomic Determinants of Bank Profitability, Bank of Greece Working Paper, No. 25.
Buyinza, F., Francois, J. & Landesmann, M. (2010), “Determinants of Profitability of Commercial Banks in Sub Saharan Africa Countries”, Department of Economics Johanssen Keppler University, Linz Austria.
Chaharbaghi, L., & Lynch, P. (2009). Revisiting the Concept of Sustainable Competitive Advantage: Perceptions of Managers in Malaysian MNC.
Charumathi, B. (2012). On the Determinants of Profitability of Indian Life Insurers – An Empirical Study. Proceedings of the World Congress on Engineering, 1, 978-88.
Chen, R. & Wong, A. (2004). Determinants of Financial Health of Asian Insurance firms
Ćurak, M., Pepur, S., & Poposki, K. (2011), “Firm and Economic Factors and Performance: Croatian Composite Insurers”, The Business Review Cambridge, Vol.19, No.1, pp. 136-142
Demirgüç-Kunt, A., &Maksimovic, V. (2008).Law, Finance and Firm Growth. Journal of Finance, 53(6), 2107-37.
Donaldson.L., & Davis. J. (2004). Stewardship Theory or Agency Theory: CEO Governance and Shareholder Returns. Academy Of Management Review, Vol. 20, No. 1, pp. 65
Grace, MF & Timme, SG (2012) , ‘An examination of cost economies in the United States life insurance industry’, The Journal of Risk and Insurance, vol. 59, no. 1, pp. 72 - 103.
Gay, L., Mills, G., & Airasian, P. (2007).Educational research: Competencies for analysis and applications. New Jersey: Pearson Education, Inc.
Hagel, J. Brown, J. S. & Davison, L. (2010).―The Best Way to Measure Company Performance. Harvard Business Review. Harvard: Harvard Business Publishing
Hansen, M. T. (2009). Administrative Science Quarterly: The Role of Weak ties in Sharing Knowledge Across Organizational Sub Units. Journal of Financial Management, 44(6), 82-111.
Hakim, S. & Neaime (2005). Performance and Credit risk in banking: A comparative study for Egypt and Lebanon. ERF Working Paper No. 0137 (Cairo:Economic Research Forum).
Hardwick, P. (2009). Measuring cost inefficiency in the UK life insurance industry, Applied Financial Economics, 7, 37-44.
Heath, J & Norman, W (2004), ‘Agency Theory, Corporate Governance and Public Management: What Can the History of State-Run Enterprises Teach Us in the Post-Enron Era?’, Journal of Business Ethics, vol. 53, no. 3, pp. 247-65.
Hirao, Y. & Inoue, T. (2010).On the Cost Structure of the Japanese Property–Casualty Insurance Industry. The Journal of Risk and Insurance, 71(3), 501-530
Kothari, C.R (2004) :Research Methodology: Methods & Techniques (2nd Revised Edition, Reprint: 2007). New Age International Publishers.
Kombo, D. K., & Tromp, D. L. A., (2006), Proposal and Thesis Writing, An Introduction, Paulines Publication Africa, Nairobi, Kenya.
Miller, S.M. & Noulas, A.G. (2007).Portfolio mix and large-bank profitability in the USA, Applied Economics 29 (4), 505-512.
Mugenda, O. M. & Mugenda, A. G. (2003). Research Methods: Quantitative and Qualitative Approaches. Nairobi: Acts Press.
Ngui, A. N. (2010). A survey of the use of financial performance indicators by SACCOS in Kenya, An unpublished MBA Thesis, University of Nairobi. International Financial Reporting Standards. (2006). An AICPA Backgrounder. New York:AICPA.
IRA (2012),Insurance Regulatory Authority, 2012. Retrieved from http://www.ira.go.ke
IRA (2014),Insurance Regulatory Authority, 2013. Retrieved from http://www.ira.go.ke
Iswatia, S., & Anshoria, M. (2007). The Influence of Intellectual Capital to Financial Performance at Insurance Companies in Jakarta Stock Exchange (JSE), Proceedings of the 13th Asia Pacific Management Conference, Melbourne, Australia
Jensen C. & Meckling H. (2006). “Can the Corporation Survive?” Financial Analysts Journal (January-February).
Kim, Y.D, D.R. Anderson, T.L, Amburgey,& Hickman, J.C. (2005).The use of event History Analysis to examine insurers insolvencies, journal of risk and Insurance, 62, 94-110.
Kozak, S. (2011), “Determinants of Profitability Of Non-Life Insurance Companies In Poland During Integration With The European Financial System”, Electronic Journal Of Polish Agricultural Universities, 2011 Volume 14 Issue
Laplume, André; Karan Sonpar; Reginald Litz (2008)."Stakeholder Theory: Reviewing a Theory That Moves Us" . Journal of Management.34 (6): 1152–1189.
Leverty, J. T. & Grace, M. F. (2010).The Robustness of Output Measures in Property-Liability Insurance Efficiency Studies, Journal of Banking & Finance, 34, 1510-1524
Mallin, C.A., (2010). Corporate Governance. 3rd ed. New York: NY, Oxford University press.
Madzlan, M.H. (2009) , Legal issues in takaful. Takaful Islamic insurance concepts and regulatory issues.In Archer, S, Rifaat Ahmed Abdel Karim&Nienhaus, V, Takaful Islamic insurance concepts and regulatory issues, John Wiley and Sons (Asia), Singapore.
Pervan, M., & Pavić, K.T. (2010), “Determinants of Insurance Companies’ Profitability in Croatia, The Business Review Cambridge, Vol.16, No.1, pp. 231-238.
Pervan, M., Curak, M. & Marijanovic, I. (2012), “Dynamic Panel Analysis of Bosnia and Herzegovina Insurance Companies’ Profitability”, Recent Researches in Business and Page 24 of Economics, ISBN: 978-1-61804-102-9.
Pottier, S.W. (2008) , ‘Life insurer financial distress, Best’s ratings and financial ratios’, The Journal of Risk and Insurance, vol. 68, no. 2, pp. 275 - 288.
Ramadhan Z. W. (2010). The relationship between interest rates and financial Performance of firms listed at the Nairobi securities Exchange, Unpublished MBA Project, University of Nairobi
Rao, V,. Al-Yahyaee, M., & Syed, M. (2007). Capital structure and financial performance: evidence from Oman. Indian Journal of Economics and Business, 1-23 International Journal of Scientific and Research Publications, Volume 5, Issue 12, December 2015 177 ISSN 2250-3153.
Shiu, Y.M. (2007), ‘Determinants of United Kingdom general insurance company performance’, British Actuarial Journal, vol. 10, pp. 1079 - 1110.
Swiss, R. (2008).Profitability of Non-Life Insurance Industry, Egypt, Available At Www.Insureegypt.Com.
Teece, D. J. (2009).Dynamic Capabilities and Strategic Management. New York: Oxford University Press.
Wabita, F. M. (2013). Determinants of Financial Performance Of Insurance Companies In Kenya. University of Nairobi unpublished Master Of Science In Finance project.
Yuqi Li (2007) Determinants of Banks’ Profitability and Its Implication on Risk Management Practices: Panel Evidence from the UK, the University of Nottingham.
- There are currently no refbacks.