EFFECT OF PORTFOLIO MANAGEMENT ON THE FINANCIAL PERFORMANCE OF LISTED INSURANCE FIRMS IN THE NAIROBI SECURITIES EXCHANGE, KENYA

Abstract

The performance of listed insurance companies in Kenya has over time been unstable, despite its contribution to Kenya’s GDP. Whereas the firms have diversified investment asset portfolios, the financial performance of these companies has generally remained low; as evidenced by inconsistent revenues. The purpose of this paper is to establish the relationship between portfolio management and the financial performance of the listed insurance firms in Nairobi Securities Exchange (NSE), Kenya. The study has been guided by Modern Portfolio Theory, allowing for the integration of mixed securities. correlational research design has been employed on a target population of six (6) listed insurance companies at the Nairobi Securities Exchange. census technique of data collection to obtain secondary data through the document review method was used. Analyzing data through descriptive and inferential statistics, the following results were obtained; showing a positive significant effect of both portfolio size (β = 0.4859, p = 0.002) and portfolio asset allocation (β = 0.4031, p = 0.000) on the financial performance of listed insurance firms at NSE. However, the results yielded a negative but significant effect of portfolio risk (β = - 0.02546, p = 0.002) on financial performance; implying that a unit increase in portfolio size and portfolio asset allocation leads to 48.59% and 40.31% increase in financial performance of listed insurance firms, respectively. However, Portfolio risk has a negative effect, implying that a unit increase in portfolio risk leads to a 2.55% reduction in financial performance. It can therefore be concluded that portfolio management influences the financial performance of insurance firms listed at the NSE, thereby recommending that listed insurance firms in the NSE should increase the level of portfolio management by giving attention to such elements as portfolio size, portfolio asset allocation, and portfolio risk; which are important predictors of the firms’ financial performance, alongside determining the specific mix of investments generating the highest return for a given level of risk, which will lead to increased profitability.

JEL: G10; G20; G22

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