The Effect Of The Separation Of Life Assurance And General Insurance On The Financial Perfomance Of Insurance Companies In Kenya
Mergers and demergers are resorted to as managerial strategies in the management of organizations for many reasons. However, the main objective, other than survival of the business, is generation of better returns as compared to those before the merger or demerger. In Kenya, the insurance industry opted to demerge composite insurance providers into those that deal in general and life insurance separately. The objective of this study was establishing the effect of the splitting of life assurance and general insurance on the profitability of insurance companies in Kenya. This was done through the use of event study method with the assumption that such an event generates reaction from both within or without the organization. The event in this study was the announcement of the separation of life insurance from general insurance business by the insurance companies in the study. A time span of nine year was used to conduct the analysis. The data used for the study were the annual earnings before interest and tax (EBIT) and the annual book values of assets of the insurance companies from their yearly financial records obtained from the Association of Kenya Insurers (AKI) and the Insurance Regulatory Authority (IRA). These were used to generate the returns that were used for the analysis. The findings indicate that there was no statistically significant difference between the patterns of returns after the splitting of the insurance companies. This is deduced from the fact that the Z statistic was -0.03 which is less than 1.96 which is the Z-critical at 95 % confidence level. This indicated that there was no statistically significant difference between returns before and after the demergers. The study, therefore, recommends that Splitting of insurance companies should be done only as a method safeguarding the funds of those in the life insurance industry, but not as a mechanism of generating extra income. It is also recommended that insurance companies should come out strongly to improve the attitude of stakeholders towards them and that splitting should be coupled with policies to ensure operational efficiency if better returns are to be realized.