Antecedents of Investment Management Structure Choice among Insurance Companies in Kenya

Abstract

Using a binary logistic regression approach, this study investigated the antecedent factors in the Investment Management Structure (IMS) choice among insurance companies in Kenya. The IMS choice is a critical decision because there are many alternatives that could be adopted ranging from in-house management to complex multi manager structures with diverse implications on the investor. The overall objective of the study was to explore the IMS choices of insurance companies in Kenya. Specific objectives sought to describe the effect of four main categories of antecedents on IMS choice, namely: investment efficiency, corporate governance, firm size and market dynamics. Business category was built into the analysis as a moderating variable. Agency theory, transaction cost theory and regret theory were the main theories adopted. A descriptive research design was applied with a target population of forty six (46) companies licensed to undertake business in Kenya as at the end of 2017. Both primary and secondary data were collected for the study. Primary data was collected directly from the respondents using a self-administered questionnaire. Secondary data was collected from the regulatory agency using a secondary data collection sheet. Data processing and analysis was conducted using STATA. Descriptive analysis was done using frequency, mean, standard deviation and correlation analysis. Data distribution testing was carried out using the Kernel density estimate and Shapiro-Wilk test for normality, variance inflation factors for multicollinearity and box plots for outlier testing. Model diagnostic testing was undertaken using the Hosmer-Lemeshow test for goodness of fit. The research found that 66% of the respondents used in-house IMS. Investment efficiency, corporate governance, firm size and market dynamics were found to be statistically significant positive antecedents of delegation IMS with odds ratios of 1.1243, 1.2285, 1.482 and 1.050 respectively. On its own, business category was a negative antecedent of the delegation IMS choice with an odds ratio of 0.8563 which was not statistically significant. As a moderator, business category amplified the positive effect of investment efficiency and market dynamics on life insurers towards delegation with odds ratios of 1.3186 and 1.1592 respectively. It diminished the positive effect of firm size towards delegation on life insurers to an odds ratio of 1.1015. The corporate governance positive effect to delegation was diminished for life companies with an odds ratio of 1.0595. The study concluded that investment efficiency, firm size and market dynamics affect insurance companies IMS choices in favour of delegation and that this effect was more pronounced for life companies. Corporate governance was a positive antecedent of IMS choices regardless of their business category. This research recommends that insurance companies should pay close attention to their investment efficiency needs, firm size and market dynamics as they choose their IMSs; companies with large capital and asset base should delegate their investment management activities to external professionals in order to benefit from higher returns, lower investment risk exposures and lower costs of investment management; good corporate governance practices should always be employed as a guide to all critical decisions such as IMS choice.