RISK MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE OF INSURANCE COMPANIES LISTED IN NAIROBI SECURITIES EXCHANGE, KENYA
RISK MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE OF INSURANCE COMPANIES LISTED IN NAIROBI SECURITIES EXCHANGE, KENYA
Janet Mongina Nyarangi - School of Business, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Richard Ngali - School of Business, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
The purpose of the study was to establish the influence of risk management practices on financial performance of insurance companies listed in Nairobi Securities Exchange. The study was guided by the following specific objectives; to determine the influence of risk identification on financial performance of insurance companies listed in NSE; to establish the influence of risk analysis on financial performance of insurance companies listed in NSE; to assess the influence of risk response planning on financial performance of insurance companies listed in NSE; and to evaluate the influence of risk monitoring on financial performance of insurance companies listed in NSE. The study was based on risk management theory, enterprise risk management theory, contingency planning theory and Cognitive Dissonance Theory. The study applied a descriptive research design. The target population of the study comprised of the six (6) insurance companies listed in the NSE. The study’s units of analysis constituted the listed insurance companies’ top and middle level managers in the key departments concerned with risk management and financial performance. This composition translated to a total number of 72 potential respondents. The study conducted a census study of all the 72 top and middle management staff working in the six insurance companies listed in the NSE. The researcher made use of both primary and secondary data. Primary data was collected by means of self-administered, semi-structured questionnaires whereas secondary data was collected from relevant journals. Data analysis was done by use of Statistical Package for Social Sciences (SPSS Version 25) analysis software. The study found that the insurance companies listed in the NSE have implemented risk management practices to a moderate extent. The insurance companies listed in the NSE adopted risk identification practices to a moderate extent, risk analysis practices to a moderate extent, risk response planning practices in their operations to a moderate extent and risk monitoring practices to a great extent. Risk management practices (risk identification, risk analysis, risk response planning and risk monitoring practices) explain 75.1% of financial performance of the insurance companies listed in the NSE. From the regression analysis, holding constant the predictor variables, the financial performance of the insurance companies listed in the NSE would have a coefficient of 4.778. The beta coefficient for risk identification practices was 0.862. The risk analysis practices had a beta coefficient of 0.879. A unit change in risk response planning practices would result to 0.646 change in financial performance. A unit growth in risk monitoring practices would result to 0.7120 times increase in financial performance. The study concludes that there is a moderate level of implementation of risk management practices. The insurance companies listed in the NSE are exposed to considerable amount of risks which call for them to establish, adopt and implement specific risk management practices in their operations. Risk analysis practices that influence the financial performance of the insurance companies listed at the NSE are exposure assessment, risk assessment, consequence assessment and risk estimation. Risk response planning practices like risk acceptance, risk avoidance, risk limitation and risk transference have significance influence on the financial performance of the insurance companies listed at the NSE. The study recommends that the management of the listed insurance companies should ensure they have effective risk identification practices in place. The listed insurance companies should also ensure they have risk analysis practices which consider the organizational targets, goals and strategies for ensuring that effectiveness and efficiency in their operations. There is need for aligning the risk responce planning practices to the organizational visions and missions. There is need for adoption of the most supportive risk monitoring structures to foster high returns.
