EFFECT OF CAPITAL ADEQUACY ON THE FINANCIAL PERFORMANCE OF INSURANCE COMPANIES IN KENYA
Margaret Ayuma Mutumira - Masters Student, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
The purpose of this study was to examine the effect of capital adequacy on the financial performance of insurance companies in Kenya. A survey research design was adopted in this study. The target population of the study constituted 54 insurance companies that were licensed to carry out business in Kenya between the periods 2014 to 2018. Secondary data was used from the annual audited financial statements of the insurance companies. Purposeful sampling technique was adopted in selecting a sample of 46 insurance companies. Only those insurance companies with complete financial statements for the 5 years, were selected to participate in the study. Panel data was used in analyzing the data collected. The research findings were presented in tables and figures. The study established that insurance companies in Kenya have positive ROA an indication that they are able to generate at least 20 percent profit from the assets they have. The insurance companies also maintained good quality assets between the periods 2014 to 2018 thus enabling them to generate significant income. A significant variation in the total assets possessed by insurance firms was evident with some firms accumulating huge volume of assets and others having small volumes of assets. A statistically significant positive correlation exists between cash flow and asset quality of the insurance companies in Kenya. The results provided evidence that among the three determinants of capital adequacy only cash flow had a statistically significant relationship with the financial performance of the insurance firms. Capital adequacy has a statistically significant effect on the financial performance of insurance companies in Kenya.
