Effect of Firm Specific Characteristics on Financial Performance of Firms; Evidence From General Insurance Companies in Kenya

Abstract

The profitability of general insurance companies is crucial since their main expense is settling of insurance claims and leads to stability of the industry. Insurance companies enable entrepreneurs to undertake ventures without worry. However, there have been reports of general insurance companies collapsing due to poor performance. In this connection, it is crucial to undertake studies in order to understand the performance of general insurance in Kenya. The general objective of this study was to establish effect of firm specific characteristics on financial performance of firms, evidence from general insurance companies in Kenya. This study had the following specific objectives: To find out the effect of underwriting risk on financial performance of general insurance companies in Kenya, to establish the effect of solvency on financial performance of general insurance companies in Kenya, to find out the effect of liquidity on financial performance of general insurance companies in Kenya and to determine the effect of investments on financial performance of general insurance companies in Kenya. This study had three theories which are: Liquidity Preference Theory, Modern Portfolio theory and Stakeholders theory. This study adopted a descriptive research design. The study had a target population of all the 32 insurance companies in Kenya that are non-life. Data was collected among the general insurance companies for the period between 2011 and 2016. This study used secondary data that was collected by use of secondary data sheet. The study used multiple regression model in order to evaluate the nature and significance of the independent variables on the dependent variable.The study found that liquidity, leverage and underwriting negatively and significantly affected performance of general insurance companies in Kenya. Firm size had a positive and significant effect while solvency had a positive but non-significant effect on financial performance of general insurance companies in Kenya. The study recommends that general insurance companies should keep optimal liquidity and leverage in order to boost performance. Equally, the firms should establish a robust risk management department in order to establish a balanced portfolio of insurance business.