A Comparative Study of Profitability of Life Assurance and General Insurance Companies Operating in Kenya

Abstract

The insurance business in Kenya is marked by strong competition. Market share will typically increase at a competitor’s expense. Industry-wide, most growth happens within the international and also the domestic space. Insurance firms also are a significant employment generator and occupy a significant place in a country’s economy. The main role of insurance firms is pooling the resources of many individuals with similar risks and ensures that the few that experience loss are shielded. For this purpose insurance companies need to remain profitable. This study makes an effort to compare profitability of General Insurance companies and Life Insurance companies operating in Kenya for nine quarters in 2014-16. The data used for the study was net profit, total assets and equity of the insurance companies from their quarterly financial records obtained from the Association of Kenya Insurers (AKI) and the companies’ websites. These were used to generate the ROA and ROE that were used for the analysis. The results from the study suggest that GI are more profitable than LI companies. This is based on the interpretation of the results that show the GI with positive ROA and ROE values. Therefore based on the ROA of GI 0.034 compared to ROA of LI at 0.003 the GI is more profitable. This may imply that for every Shilling invested in a GI the returns are greater than those invested in LI by a factor of 10. The study, therefore, recommends improving the profitability of LI companies through improving their daily operation process by minimizing wastage of resources, adopt effective technology that will help improve on their performance and use of effective management practices.