The Effects of Mergers and Acquisitions on Financial Perfomance of Insurance Companies in Kenya

Abstract

Rapid changes with high competitive pressure in insurance industry in the recent past has forced firms to adopt competitive strategies that will improve their financial performance. There have been extensive researches on mergers and acquisitions with inconsistent results and conclusions. The business environment is rapidly changing and necessitating organizations to undertake mergers and acquisitions as one of the strategies to save a firm with dwindling incomes. Most of the studies done for the insurance industry were based on the general ratios used to measure performance of an organization. In view of the knowledge gap identified, this research focused on finding out how performance changes if any pre and post-merger based on the ratios specific to the insurance industry. In order to attain the study's goal, this study used a descriptive research approach. To examine if there was any impact on financial performance, the descriptive research design was employed to assess the performance of insurance firms before and after the M&A. This study’s population was insurance companies that have merged and acquired a controlling stake between 2000 and 2019. The study considered five years of data before and after the merger and acquisition for each of the insurance companies. Secondary data from the Insurance Regulatory Authority (IRA), AKI historical market statistics, and individual firm published audited financial statements from their official websites were used in this study. A comparison of the periods before and after the merger was done to see if mergers result in improved financial performance. Mergers and acquisitions have been linked to the financial performance of Kenyan insurance companies, according to research. While research suggests that mergers and acquisitions boost insurance company financial performance, mergers and acquisitions account for just 82.8 percent of insurance company financial performance in Kenya. After mergers and acquisitions, insurance companies should focus on the long term vision, according to this study, because long-term returns are higher than short-term profits. As a result, both sides must put in more work after mergers and acquisitions in order to increase performance.