Factors Affecting Investment Choices By Insurance Companies In Kenya

Abstract

Insurance companies as financial institutions play a significant role not only in the mobilisation of contractual savings but also in the efficient allocation of capital. Insurance companies depend on insurance premiums to raise money for their investments. Therefore, the need to develop a systematic and rational method of evaluating investment choices to maximise utility in the assets that they put their money in However, the choices on investment is affected by factors such as the market environment which influences the take up of investments being the micro and macro economic factors that influence growth. This study therefore sought to establish the factors affecting investment choices by insurance companies in Kenya. The study was guided by the following specific objectives; to examine the effects of liquidity on investment choices by insurance companies in Kenya; to determine the effect of investment horizon on investment choices by insurance companies in Kenya; to assess the effect of risk appetite on investment choices by insurance companies in Kenya; and to examine the effect of profitability on investment choices by insurance companies in Kenya. The study applied the use of descriptive and longitudinal design. The study was conducted in insurance companies in Kenya. The study used the census approach to select all the 48 insurance companies in Kenya. The study then sampled six insurance companies that are listed in the NSE. The study covered a 5-year period, from 2014 to 2018. The six selected being the ones with high gross written premium in the industry. The study collected secondary data from insurance companies’ websites, financial resort and IRA reports. Data analysis was carried out using STATA. Multiple regression analysis was performed to establish the association between the study variables. Correlation analysis and diagnostic tests were also performed. Presentation of the data was done by the use of tables. The study found that liquidity positively affects investment choices by insurance companies in Kenya; investment horizon positively affects investment choices by insurance companies in Kenya; risk appetite has a strong positive effect on the investment choices by insurance companies in Kenya and that profitability positively affects investment choices by insurance companies in Kenya. The study recommends management of insurance companies listed in the NSE should strive to achieve and maintain an optimal liquidity position that holds adequate cash/liquid resources for operational needs while the surplus liquid resources are invested. Listed insurance companies should have a well-maintained portfolio in order to achieve success. There is need for the companies to evaluate the various investments options available so as to ensure that the project chosen will give maximum value/profits.