The relationship between corporate governance, ownership structure and financial performance of insurance companies in Kenya

Abstract

The study investigates into the relationship between ownership, corporate governance structures and financial performance of insurance companies. Corporate governance and ownership structures have been assumed to be some of the factors that may influence the financial performance of insurance companies in Kenya. The study comprised of 41 licensed insurance companies and they were stud ied over a five year period from 2005 to 2009.

The findings revealed that the average number of board members in Kenyan insurance companies was either 6 or 7 with non-executive directors being in the range of 5 and 6. Companies underwriting only life business however had fewer directors in the period between 2005 and 2007. Companies underwriting insurance business also had higher leverage compared to the composite underwriters. The average ownership concentration is 65%.

The governance variables studied showed a significant relationship between size, non executive directors and leverage with both Return on Assets (ROA) and Return on Equity (ROE). The results showed a positive return on assets however, when ownership was considered, the results becam~ negative. The results further showed that board size and constitution and financial leverage have a significant impact on both return on equity and return on assets.

The study also found that there was a significant relationship between size, outside (non-executive) directorships and leverage with both return on assets (ROA) and return on equity (ROE). The study also found that the relationship between ownership and financial performance of insurance companies was insignificant. The study concluded with recommendations to the regulators to come up with benchmarks that can be adopted in the insurance industry to improve financial performance