The Effect of Foreign Exchange Rate Volatility on Profitability of Insurance Industry in Kenya
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Date
2015-10Author
Nyairo, Edna K.
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
The volatility in the foreign exchange rate can become a source of risk for firms. The
risk is that adverse volatility in exchange rates may result in a loss to an institution
especially those which trade their shares on the money market and those engaging in
international business as they are naturally exposed to currency rate jeopardies. The
study thus sought after examining the effects of foreign exchange rate volatility on
profitability of insurance industry in Kenya. Further the study investigated whether
GDP growth rate, interest rate, annual growth rate of productive workforce (age 15 to
64 years) and inflation as control variables affect the profitability of insurance
industry in Kenya. The study used a descriptive research design on 49 insurance
companies in Kenya. The study covered a period of ten years from 2005-2014.
Secondary data was collected from the CBK, World Bank the annual reports of each
insurance company under study. Data was then analyzed using a regression model,
SPSS and Microsoft Excel statistical soft wares. The results of analysis were then
interpreted using tables and graphs to show the relationships. The findings show that
Foreign exchange rate volatility negatively impacts on the ROA of the insurance
industry. GDP growth rate and inflation also negatively affects ROA. Finally, interest
rate has a positive effect on the ROA of the insurance firms. At 5% level of
significance, all the independent variables are not statistically significant. The study
concludes that exchange rate volatility, GDP growth rate, annual growth rate of
productive workforce (age 15 to 64 years), inflation and interest rates have
insignificant effect on the profitability of insurance industry in Kenya. This implies
that macroeconomic environment is responsible but only to a small extent in
determining the profitability of the insurance companies in Kenya. The study
therefore recommends that the regulatory authorities of macroeconomic environment
should regulate them in such a way that they lead to favor of companies increased
profitability and eventually economic growth.
Publisher
University of Nairobi