Effects of mergers on financial perfomance of insurance companies in Kenya
The objective of this research was to determine the effects of mergers on the financial performance of insurance companies in Kenya. Theoretically, its assumed that mergers improves company performance due to increased market power, enhanced profitability, and risk diversification. The research focused on the financial performance of the insurance companies which merged between 1995 and 2005 in Kenya. Comparative analysis of the six insurance companies' financial performance for the pre and post merger periods was conducted to establish whether the mergers had led to an improved financial performance after the mergers. Secondary data from the financial statements was collected for 4 years before and after the mergers for 4 companies and 3 years before and after the merger for the other 2 companies due to unavailability of the old financial statements of these 2 companies. The data was then analyzed with the help of excel spreadsheets. The study found that the mergers had no positive effect on the profitability of insurance companies in Kenya and that the profitability either remained the same as before the merger or deteriorated in the first four years after the merger. The study also found that the mergers had no effect on the level of capital adequacy and long term solvency of the merged insurance companies as 50% of the companies improved while the other 50% deteriorated. On the performance measures that are unique to the insurance industry, the study established that mergers have positive effect on the financial performance of insurance companies that transact general business while it has adverse effect on the financial performance of insurance companies that transact life business in Kenya.