The Relationship Between Asset Allocation and Investment Returns of Insurance Companies in Kenya

Abstract

The relationship between asset allocation and investment returns is critical in determining whether asset is critical in increasing policyholders and shareholders’ wealth in Kenya. It is paramount that the insurance funds be invested in manner that is consistent with the spirit of increased performance. Where this not done proactively then, as might be expected investment returns will decrease leaving its members. However, as the regulator, IRA is concerned with whether insurers have developed an Investment Policy (IP) and adhere to it. There is therefore a gap when it comes to evaluating the effectiveness of those IPs in increasing wealth. The study adopted a descriptive survey and utilized a sample of 49 insurance companies in Kenya. The sample included only those insurance companies were in existence for at least 5 years. The findings of the study were that allocation of investments describes 7% of the inconsistency of yields. The remaining 93% explain other factors e.g. timing asset class, security selections and manager selection. The study recommends that the insurance assets should be less regulated by relaxing the rule for strict adherence to the insurance act. Also the IRA should allow fund managers actively manage the funds and use the Insurance Act as a guide for strategic ranges. This is because the asset allocation in Kenya account for only 7% performance of the financials.