Purchasing Power Risk and the Performance of Non-life Insurance Companies in Kenya
Abstract
This study aimed at re-examining the consequences of purchasing power Risk on Non-Life
Insurance Industry in Kenya. Specifically, the study targeted at examining the extent to which
inflation rate especially in developing economies have affected the operations of Non-Life
Sector. Non-life sector basically deals with two portfolios; investment and Underwriting of
premiums which are very sensitive to inflation rate level.
In the study, therefore, the role of inflation rate on the performance of general insurance industry
is studied and it was observed that inflation rate is a major factor in the performance of general
insurance operations. Further, the study critically examined how inflation rate relates with both
Real Underwriting and Real Investment activities. It was observed that the two portfolios in the
Non-Life are too sensitive to inflation rate to the extent that the movement of inflation rate is
inversely proportional to the Real Investment and Real Underwriting Returns. Further the
researcher wanted to estimate the inflation thresholds; the lexis points at which inflation becomes
detrimental to the activities of Non-Life Industry. It was observed in a developing economy like
Kenya, the inflation rate ought to be maintained at a ceiling of 9.2 per cent and a floor of 4 per
cent. However, the expectation of the purchasing power Risk is 9.99 %. It is therefore necessary
to maintain the Inflation rate below two digit level; below 10% level.
It was observed in the study that inflation in Kenya is unstable and unpredictably high with the
outlier being observed during 2007/2008 post-election violence. Also it was observed that
inflation rates in the country become more unstable especially during and immediately after
electioneering period
Citation
Graduate diploma in actuarial sciencePublisher
University of Nairobi