Effect of Enterprise Risk Management on Financial Performance of Insurance Firms in Kenya

Abstract

The project’s goal was the assessment of the effect of Enterprise Risk Management (ERM) on financial performance of insurance companies in Kenya. Theoretically, ERM adds value to a firm that adopts it; but still, there is no concurrence among scholars regarding the ERM effect on financial performance. The increase in business activities, complexities in business operation, unpredictability and evolving risks have triggered clamour for ERM universally. The empirical evidence demonstrates that the risk increases, displaying weaknesses in the risk management system. This analysis investigated the general objective which was the effect of ERM on financial performance of insurance firms in Kenya. The specific objectives that guided the study were to; analyse the effect of liquidity risk management, the effect firm size and credit risk management effect on insurance firms in Kenya. The Portfolio Theory was the anchoring theory of this study and it formed the basis of explaining the connection between and financial performance of insurance firms in Kenya. Secondary data used was from 54 IRA registered insurance companies. Data collection was done from published reports provided by IRA for a period of 10 years, from 2009 to 2019. SPSS software was used in the examination of the quantitative data. The study applied regression analysis and the findings were presented using tables. From the evaluation the outcomes established a negative correlation between liquidity risk management and financial performance, all other independent variables (credit risk management and firm size) were all positively correlated with the dependent variable (financial performance). All the models were significant. From the findings a significant correlation between combined ERM variables and financial performance (p-value 0.000 < 0.005) was established. The R square value of 0.8479. The recommendation of the study was that for these insurance firms to reap greater benefit from risk management endeavours a multi-faceted approach towards risk management should be adopted.