Firm Specific Factors and the Profitability of Listed Non-Life Insurance Firms in Kenya

Abstract

Insurance as a subset of the financial industry plays a critical function in economic growth of countries. The subsector drives economic sustainability through indemnification of the stakeholders covered in various policies. This is through recompense of parties with insurable interest thus insulation against economic losses. The insurance sector’s contribution to Kenya’s GDP is relatively low (2.24 percent in 2021) compared to other major sectors such as agriculture, but it can be considered as a key enabler particularly in minimizing financial losses in various sectors. Non-life insurance accounted for 55.2 percent of the total Kenya underwritten insurance premium as of 2021 but the sector witnesses performance hurdles with a recurrent persistent underwriting loss. A similar trend is further observed among the listed non-life insurance firms who recorded mostly negative profits after tax. Against this backdrop, balanced panel data for the four listed non-life insurance firms in Kenya covering 2015-2022 period, obtained from their annual financial statements was analyzed using appropriate panel models to achieve the objective of this study which was to estimate the effect of firm specific factors on profitability of listed non-life insurance firms in Kenya. The estimated econometric model used the endogenous variables, return on assets (ROA) and return on equity (ROE), as measures of profitability. The firm specific factors included in the model were firm size, leverage, firm growth, liquidity, underwriting risks, and age of the firm. There was inclusion of gross domestic product growth rate, inflation rate, and interest rate as macroeconomic moderating or control variables.