dc.description.abstract | The aim of this research project was to establish the relationship between macroeconomic
variables and the financial performance of the insurance industry in Kenya. Return on
capital employed was used as the financial performance indicator. The financial
performance was regressed against the macroeconomic indicators; average interest rates
as computed by Central Bank rate, GDP growth rate, real exchange rate (Ksh/USD),
inflation rate as computed by CPI and unemployment rate. Both the dependent and
predictor variables were measured quarter yearly. A descriptive research design was
employed in the research study. The study population comprised 49 insurance firms that
are registered in Kenya by the year 2015. The study utilized secondary data that was
collected quarter yearly. The data was collected from various sources; the World Bank,
Central Bank of Kenya, Kenya National Bureau of Statistics and the industry financial
statements as reported by IRA. The study was carried out in a ten year period from 2006
to 2015. The data was analyzed using multiple regression analysis, correlation analysis
and descriptive analysis, using STATA software. The analyzed data was presented using
tables and line graphs. The study found that GDP growth rate had a probability of
(0.006<0.05) which is statistically significant while interest rates (0.4483>0.05),
exchange rate (0.276>0.05), and un-employment rate (0.117>0.05) are statistically
insignificant. Therefore interest rates, exchange rates and unemployment rates are not
suitable predictors of the insurance industry’s financial performance. It is crucial that
other factors both micro-economic and industry specific are considered while undertaking
another study in order to determine the drivers of performance of the insurance industry.
The research study recommends that the CBK should keep inflation, exchange rates and
interest rates in check. These variables have profound effect on the performance of the
insurance industry. For instance high exchange rates, translates to devaluation of the local
currency and will cause a decrease in the performance of the industry. The study also
recommends that the government initiate policies and measures that increase the GDP
which will lead to a positive effect on the industry and the economy as a whole. | en_US |