The Effect of Mergers and Acquisitions on Financial Performance of Insurance Companies in Kenya

Abstract

Mergers and Acquisitions have been happening in the Kenyan insurance industry for many years now, ICEA LION GROUP was incorporated in 2012 after Lion of Kenya Insurance Company Limited and the Insurance Company of East Africa Limited (both Kenyan) merged their operations to form an East African regional insurance company. Saham Group acquired Mercantile Insurance in April 2014, Union Insurance of Mauritius acquired Phoenix of East Africa Co. Ltd in May 2014 and in April 2015 Barclays Plc acquired First Assurance Company Ltd. It would be of importance to study the financial performance of these amongst others after the merger and acquisition. The study sought to determine the effects of mergers and acquisitions on the financial performance of Insurance companies in Kenya. The study took a causal research design. Causal research design is consistent with the study objective. The process of data collection involved the use of audited accounts used to estimate the relationship between pre and post-merger and acquisition. Normality tests were conducted for the data and the data was found to be normal hence parametric tests were performed. The study found out that the mean for ROE reduced from 2.538 to 0.883 also the Standard deviation also reduced from 3.756 to 1.373 implying the return on equity decreased and the level of risk also reduced the mean for ROI increased from 2.568 to 3.176 at the same time the Standard deviation increased from 2.242 to 2.766. The return on Investments increased implying that the companies performed better after the merger and acquisition. The mean size of the insurance companies increased from 16.457 to 17.926, this was expected because of the synergies obtained through mergers and acquisitions. The size of insurance companies is expected to grow after mergers and acquisition. The study failed to accept the null hypothesis and thereby concluding that mergers and acquisition affects the performance of insurance companies. The study recommends similar studies to be done in other industries and across the region.