Effect of Behavioural Biases on Tactical Asset Allocation in Insurance Companies in Mombasa Town, Kenya 1. Introduction Investor psychology and emotions are key determinants of investments in financial markets and the value of financial securities as is widely recognized (Nyamute, Lishenga & Oloko, 2015). An investor is said to be behaviourally biased when the investor makes decisions that are not rational, that is, faulty decisions (Pompian, 2012). Biased investors are subject to given beliefs or attitudes as they make decisions which are said to be irrational (Shefrin, 2007). Singh (2010) stated that investors may make cognitive errors because of faulty reasoning caused by emotions and investor psychology. Tactical asset allocation is an allocation within a portfolio that takes advantage of short-term opportunities which result in an extra return, based on preset asset mix. Tactical asset allocation is considered as a practice that helps to improve returns from the initial long-term asset mix set by the enterprise (Dziwok, 2014).Insurance companies can be said to be practicing tactical asset allocation when they adjust the asset mix in line with forecasts of movements of investment returns in the short term. In tactical asset allocation, the investor considers changes to the initial asset targets for the overall portfolio and within asset classes (Usman, 2018). Insurance companies modify their portfolios by reallocating funds to various asset classes in the midst of changes in the business environment. An example of such change is interest rate capping in Kenya which had implications for portfolio mix of insurance companies which usually buy bank bonds. The insurance companies are critical in raising funds and risk management, to facilitate financial and economic development (Li, 2019). Interest rate capping in Kenya resulted in generally low interest rates offered by banks. The advent of low interest rates affected the financial connection between banking and insurance sectors as it changes the patterns of funding banks and the strategies of investment in insurance company business (Niedrig, 2015). Efficiently carrying out tactical allocation of funds in insurance companies are key in enhancing the competitiveness of insurance business (Li, 2019). Behavioral biases are wrongs and potential damaging behaviors caused by an erroneous decision. Psychologists have noted that people are usually overconfident; they usually overrate their abilities to achieve investment targets, that is, performance of investments. One can rarely find a person rating his ability as below average (Byrne& Utkus, 2013). Practically, people usually view the world positively as regards their endeavours and plans. Despite the fact that such world views can help one to forget disappointing experiences, it can result in biased fund allocation decisions. This is because the investor will be tempted to exaggerate their ability to engage in successful investment ventures and have a narrow view of the real factors surrounding the investment decis...