The Influence of Asset Quality on Sustainability of Kenya’s Insurance Companies

Purpose: To examine how asset quality influence the sustainability of insurance companies in Kenya.
Methodology: The study adopted a positivist research philosophy and employed a descriptive research design during the research process. The target population was the 51 insurance companies as registered by the Insurance Regulatory Authority of Kenya (IRA) as at 31st December 2016. The study proportionately chose 30 companies, of which 10 companies were life, 15 from general and 10 from composite insurance companies’ respectively. The raw data was cleaned, edited, coded and analyzed using SPSS analytical tool to generate descriptive and inferential statistics while secondary data was collected using data collection sheets. Data analysis was performed using multiple regression analysis to determine the relationship of the independent variable of Asset Quality to the dependent variable of Sustainability. The researcher used descriptive statistics such as the mean, the standard deviation and frequencies to analyze the data. Further, inferential statistics such as the ANOVA and the T-test were applied for further analysis.
The Study Findings: Asset quality had a positive and significant effect on sustainability of insurance companies in Kenya. The insurance companies that list defaulting clients with credit reference bureaus ended up improving the quality of premiums debtors, which bring in a significant impact on sustainability. Further, a company listing of defaulting clients with the credit reference bureaus and the elevation of credit management to both senior management and board levels were all positive and significant to company sustainability. However, both having a credit control policy and annual credit rating exercises had insignificant influence on asset quality and therefore its influence on sustainability of insurance companies were diminished.
Unique Contribution: Recent trends show many international insurance companies from Europe and South Africa making entry into the country. The entry of these companies is key as they make significant contributions to the insurance sector such as foreign direct investments in various local insurance companies. The result has been merging and acquisition of various local companies by large companies like Old Mutual and Absa Bank. These acquisitions are positive in nature since they will bring additional underwriting and reinsurance capacities and capabilities in addition to better risk management. However, the interest by foreign insurance companies, some of which had long exited the Kenyan insurance market is a threat to the long established local insurance company owners. Therefore, IRA should ensure adequate regulation to safeguard the industry against companies that may come in and siphon out capital in terms of transfer pricing and management agreements without proper regulatory supervision. Further, the various efforts by the government to regulate the insurance industry were found not to influence the quality of capital that an insurance company has, as there has been significant non-compliance to many of the guidelines that enhance asset quality.