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Effects of Macroeconomic Variables on Financial Perfomance of Insurance Companies in Kenya

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dc.contributor.author Mwangi, Gladys
dc.date.accessioned 2017-11-15T10:50:27Z
dc.date.available 2017-11-15T10:50:27Z
dc.date.issued 2017
dc.identifier.uri http://erepo.usiu.ac.ke/11732/3452
dc.description.abstract The purpose of the study was to establish effects of macroeconomic variables on financial performance of insurance companies in Kenya. The study was guided by the following research objectives: To determine the effect of inflation on financial performance of insurance companies in Kenya; To establish the effect of interest rate on financial performance of insurance companies in Kenya; To establish the effects of exchange rate on financial performance of insurance companies in Kenya. The study utilized longitudinal design where performance of insurance firms was analyzed over a four year period from 2012-2015. Statistical Package for Social Sciences (SPSS) and excel applications was utilized to describe the data and determine the extent used and this was through descriptive analysis of means, standard deviations, and frequencies. Inferential statistics was utilized via regression analysis to determine the relation between the dependent variable and the independent factors. The information was displayed by use of tables and graphs. Results indicate that all the performance indicators were negatively correlated to inflation. A regression analysis established that only 12.9% of the variation in return on asset (ROA) of insurance firms was explained by the variations in inflation rates. Results further show that all the performance indicators were negatively correlated to average interest rates and only 3% of the variation in return on asset (ROA) of insurance firms was explained by the variations in average interest rates. Lastly, all the performance indicators were negatively correlated to average exchange rates. A regression analysis done established that 85.1% of the variation in return on asset (ROA) of insurance firms was explained by the variations in average exchange rates. The study concluded that inflation rates have a negative effect on a firm‘s performance, in terms of ROA, Debt Ratio, Equity Ratio and Debt to Equity Ratio. Although this is the case inflation only affects 12.9% of the variation in return on asset (ROA) of insurance firms. The study also concluded that interest rates is volatile and has a negative impact on the ROA and its impact on the performance indicators is limited as it influences minimal the variation in return on asset (ROA) of insurance firms. It was also concluded that exchange rate negatively affect ROA, Current Ratio, Debt Ratio, Equity Ratio, Debt To Equity Ratio and Profits. Apart from this it has a very high influence on return on asset (ROA) of insurance firms. It was recommended that for the insurance firms to make ample adjustment for inflation so that during seasons of high inflation the firms do not run at a loss. It was also recommended that insurance firms need to employ more strategies where they can purchase more futures contracts on government bonds or interest rate futures in order to be able to lock-in interest rate and hedge their various portfolios. Finally it was also recommended that the firms may mitigate these risks by hedging the foreign exchange risk by purchasing spot contract to cushion against any negative swing. For future studies a longer period needs to be studied. In addition, other macroeconomic studies should also be studied to establish how they affect performance of insurance firms. en_US
dc.language.iso en en_US
dc.publisher United States International University - Africa en_US
dc.subject Macroeconomic Variable en_US
dc.subject Financial Perfomance en_US
dc.title Effects of Macroeconomic Variables on Financial Perfomance of Insurance Companies in Kenya en_US
dc.type Thesis en_US


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