The relationship between Investment Strategies and Profitability in the Insurance Industry in Kenya

Abstract

Purpose:The Study sought to find the relationship betweeninvestment strategies and profitability in the insurance industry inKenyaMethodology:The study adopted a descriptive survey research design.This study used both primary data from the respondents of the research instruments and the secondary data available from the financial statements. Thestudy took 50% of the population as the sample size. Thisyielded 22 insurance companies. Both qualitative and quantitative data was collected using a questionnaire that consisted of both open ended and close ended questions. Data was analyzed using Statistical Package for Social Sciences (SPSS) and results presented in frequency tables to show how the responses for the various questions posed to the respondents. Results:Results indicated that there is a positive and significant relationship between investment strategies and profitability, ROA and ROE of insurance companies. Specifically, it was revealed that passive strategies are more superior to active strategies as they enhance profitability.The results imply that insurance firms invest in local stocks, international equity, cash equivalents, bonds and investment in associates and subsidiaries in an effort to diversify. Unique contribution to theory, practice and policy:The study recommends that insurance firms should continue investing in local stocks, international equity, cash equivalents, bonds and investment in associates and subsidiaries in an effort to diversify their portfolio. It is also recommended that insurance firms should reduce their holdings in real estate to safeguard their liquidity. The study recommends that insurance firms should use passive strategies as opposed to active strategies as this would enhance their profitability. Passive strategies are less costly compared to the active strategies