Effect of leverage on income retention of general insurers in East Africa

Abstract

The purpose of this research was to determine the effect of leverage on income retention of generalinsurers in East Africa. The study adopted explanatory sequential mixed methods research design whichconsists of collecting and analysing secondary data first and subsequently collecting primary data toget deeper insight on the results from secondary data. For secondary data, a census was conducted on the total population of 87 general insurance companies in existence during the period of study from2015 to 2019 across Kenya, Uganda, Tanzania, Rwanda and Burundi. Data were obtained frominsurance regulatory reports, company annual reports and through data collection sheets where reportswere not available. The primary data phase consisted of in-depth interviews carried out on a stratifiedsample of 25 key informants across the five countries. Both descriptive and inferential statistics wereused to analyse the data. The regression results indicate that leverage, as measured by debt to equityratio, has a negative and significant effect on income retention of general insurers in East Africa (β1=-0.02337, p-value = 0.001). According to the details per country, this negative relationship is significantfor Kenya and Rwanda while insignificant for Tanzania, Uganda and Burundi. The study recommendsthat insurance companies should hold adequate equity relative to their liabilities to enhance theirincome retention.