Abstract:
The motivation behind the alliances is increased competition for market share, and to enable these firms to build internal capacity, engage in cross-border expansion, expand distribution channels, grow existing business when organic growth is difficult and diversify risks. The financial performance of insurance firms, just like any other business, is of cardinal importance. This is not only for their long-term survival but also as a precondition to the stability and growth
of a country’s economy owing to the fact that insurance service is the “oil that lubricates” the engine of a country’s economy. The use of horizontal alliance among insurance firms creates internal capital markets that substitute for well-developed external capital and corporate debt markets. Furthermore, the risk sharing and pooling activities of the horizontal groups take over some of the functions of a market for corporate control. The objective of this paper was to
determine the influence of diversification of risks among the alliance partners on the financial performance of insurance firms in Kenya. The study adopted a cross-sectional descriptive survey research design and the target population was 44 insurance firms. Purposive sampling technique was used to select four respondents from each insurance company that is General Manager in charge of Technical Operations, Underwriting Manager, Claims Manager and Marketing Manager giving a sample size of 176 respondents. This study used primary data
obtained from administration of questionnaires. Descriptive statistics conducted were frequencies, percentages, means and standard deviation while inferential statistics consisted of correlation and regression analysis. The findings indicated a strong positive significant linear relationship between diversification of risks and financial performance of insurance firms. The results showed that R square was 0.876 indicating that 87.6% of the variation in financial performance can be explained by a unit change in diversification of risks The study recommends insurers to form horizontal alliance with the intention of not only minimizing risk,
but diversifying systemic risk which affects all policies and poses a big threat of destabilizing portfolio premium income.
