Macroeconomic Indicators and Financial Performance of Insurance Firms Listed at the Nairobi Securities Exchange
DOI:
https://doi.org/10.47941/ijf.1450Keywords:
Inflation, Interest Rates, Exchange Rates, Gross Domestic Product, Financial PerformanceAbstract
Purpose: The general objective of the study was to determine how macroeconomic variables affected the financial performance of insurance firms listed on the Nairobi Securities Exchange. The study's specific goals were to identify how inflation, interest rates, exchange rates and gross domestic product affected those same companies' financial performance.
Methodology: A descriptive survey research design was used for the investigation. All the six insurance companies listed on the Nairobi Securities Exchange made up the study's target group hence a census-style analysis. The panel regression model was used in the investigation and relied on secondary information that was gathered using a data collection sheet. The five-year period covered by the data was from 2017 to 2021.
Findings: According to the report, insurance is severely impacted by inflation. There was a general increase in exchange rates and there was a fluctuation in the economic growth. From the findings, the study concludes that the insurance companies were operating on economic conditions that became increasingly challenging as shown by increasing inflation rates. The CBR and lending rates showed a general downward trend in the five years' period, the exchange rates in the Kenyan economy were changing rapidly, there were major changes in the economic performance of the Country emanating from various occurrences including global oil crisis and COVID-19 pandemic. Despite the harsh economic conditions, the NSE listed insurance companies posted healthy financial performance as shown by ROA values above 5%.
Unique contribution to theory, practice and policy: The study recommends that the NSE listed insurance companies to make ample adjustment for inflation so that during seasons of high inflation the firms do not run at a loss. The study also recommends the NSE listed insurance companies firms to employ strategies where they can purchase more futures contracts on government bonds or interest rate futures in order to be able to lock-in interest rate and hedge their various portfolios. The NSE listed insurance companies are also recommended to mitigate the exchange rate risks by hedging the foreign exchange risk by purchasing spot contract to cushion against any negative swing. The government through line ministries of finance and planning should undertake measures to ensure good performance of the economy.
Downloads
References
Association of Kenya Insurers, AKI. (2020). Insurance Industry Annual Report, 2019. The Association of Kenya Insurers.
Association of Kenya Insurers, AKI. (2019). Insurance Industry Annual Report 2018. The Association of Kenya Insurers.
Bauer, P. T. (1984). Reality and rhetoric: Studies in the economics of development. London: Weidenfield and Nicolson.
Bresser-Pereira, L.C. (2012). Exchange rate at the center of development theory, Advanced Studies, 26(75): 7-28.
Bussière, M., Gaulier, G., & Steingress, W. (2020). Global trade flows: Revisiting the exchange rate elasticities. Open Economies Review, 31(1), 25-78.
Carlo, B. Bidard, C., Klimovsky, E. & Rebeyrol, A. (2014). Disequilibrium, Reproduction and Money: a Classical Approach, Metroeconomica, 10.1111/meca.12051, 65, 3, (524-540).
De Paula, L.F., Fritz, B. & Prates, D.M. (2017). Keynes at the periphery: currency hierarchy and challenges for economic policy in emerging economies, Journal of Post Keynesian Economics, 40(2): 183-202.
Ehiogu, C. P., & Eze, O. R. (2018). Effect of inflation rate on insurance penetration of Nigerian insurance industry. International Research Journal of Finance and Economics, 170(1), 66-76.
Fabio, P., (2021). Introduction to the Marginal Approach, Microeconomics for the Critical Mind, 10.1007/978-3-030-62070-7_3, (153-245).
Fisher, I. (1930). The theory of interest. New York: Macmillan.
Harvey, JT. (2007). Teaching Post Keynesian Exchange Rate Theory, Journal of Post Keynesian Economics, 30(2): 147-68.
Harvey, J.T. (2009). Currencies, Capital Flows, and Crises: A Post Keynesian Analysis of Exchange Rate Determination, London: Routledge.
Harvey, C. (1993). The Rate of Commercial Banking in Recovery from Economic Disaster. Institute of Development studies, Discussion Paper, 325.
Insurance Regulatory Authority. (2019). Insurance Industry Report for the year ended 31st December, 2014.
Johnson, H. (1971). A word to the third world: A Western economist's frank advice. Encounter, 37, 3-10.
Karanja, L. N. (2018). The Effects Of Selected Macroeconomic Variables On The Financial Performance Of The Banking Industry In Kenya (Doctoral dissertation, University Of Nairobi).
Klein, M., & Linnemann, L. (2021). Real exchange rate and international spillover effects of US technology shocks. Journal of International Economics, 129, 103414.
Kume, V. & Xhuka, Z. (2017). Innovation management in the insurance sector in Albania. online: fbm.uniruse.bg/jei/.../09-2010-JEI-Vasilika-Kume-Edited-Final-M.pdf, retrieved on 14 September 2018.
Lal, D. (1983). The poverty of Development Economics. London: Institute of Economic Affairs.
Little, I. M. D. (1982). Economic development: Theory, policy, and international relations. New York: Basic Books.
Maurice, K. S. (2012). A test of the international fisher effect in selected Asian countries.
International Journal of Humanities and Social Science, Columbus State University, 2 (4).
Meier, G. M., (2000). The old generation of development economists and the new. In G. M. Meier and J. E. Stiglitz (Eds.), Frontiers of development economics: The future in perspective (pp.13-50). Washington, D.C.: World Bank/Oxford University Press.
Miyogo, A. M. (2018). The Effect Of Interest Rates, Inflation And Money Supply On The Market Index: A Case Of The Nairobi Securities Exchange (Doctoral dissertation, University of Nairobi).
Moyo, D., & Tursoy, T. (2020). Impact of Inflation and Exchange Rate on the Financial Performance of Commercial Banks in South Africa (No. 101383). University Library of Munich, Germany.
Ndung'u, E. W. (2019). Relationship Between Macroeconomic Factors and Financial Performance of Firms Listed in Nairobi Securities Exchange (Nse) (Doctoral dissertation, University of Nairobi).
Nyangor, M. (2020). Effect of gross domestic product on financial performance of collective investment schemes in Kenya (Doctoral dissertation, UoN).
Pandy, I. (2009). Financial Management. Journal of finance, 9-21.
Phillips, S. (1999). Inflation: The case for a more Resolute Approach in Economic Adjustment and Reforms in Low- Income countries. International Monetary fund, 51-63.
Reshid, S. (2015). Determinants of Insurance Companies Profitability in Ethiopia. Unpublished MSc thesis, Addis Ababa University.
Robinson, W., & Warburton, P. (1980). Managing currency holdings: lessons from the
floating period. London business school, economic outlook. February.
Rogoff, K. (1996). The Purchasing Power Parity Puzzle, Journal of Economic Literature, 34 (2), 647-668.
Sambasivam, Y., & Ayele, A. G. (2017). A study on the performance of insurance companies in Ethiopia. International Journal of Marketing, Financial Services & Management Research, 2(7), 138-150.
Shapiro, A. C. (2007). Foundations of multinational financial management. PrenticeHall, Inc. London.
Shapiro, A.C. (2006). Multinational financial management, New York: John Wiley & Sons, Inc
Sinaj, Z., Dumi, F. & Dumi, R. (2016). The system of contributions for health insurance scheme in Albania- Performance and main Challenges. Journal of Educational and Social Research, 4(4), 289-295.
Skipper, H. J., & Barfield, C. E. (2018). Insurance in the general agreement on trade in services. American Enterprise Institute.
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65.
Waitimu, N. (2018). The effects of foreign exchange rate volatility on the financial performance of listed construction and allied companies in the NSE in Kenya. (Doctoral dissertation, University of Nairobi).
Wanguru, G. W. (2019). Effect of Foreign Exchange Rates Volatility on Financial Performance of Agricultural Sector in Kenya. (Doctoral dissertation, University of Nairobi).
Wanyama, D. W., & Olweny, T. (2013). Effects of corporate governance on financial performance of listed insurance firms in Kenya. Public policy and administration research, 3(4), 96-120.
World Bank, (2003). Sustainable development in a dynamic world"”Transforming institutions, growth, and quality of life (World Development Report). Washington, D.C.: World Bank/Oxford University Press.
Yu, L., Sevilimedu, V., Vogel, R., & Samawi, H. (2020). Quasi-Likelihood Ratio Tests for Homoscedasticity in Linear Regression. Journal of Modern Applied Statistical Methods, 18(1), 19.
Zweifel, P., & Breuer, M. (2006). The case for risk-based premiums in public health insurance. Health Econ. Pol'y & L., 1, 171.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Margaret Aor Oburu, Dr. Richard Ngali Ph.D., CFE, Dr. Joshua Matanda. Ph.D.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
