Effect of Liquidity Risk on Financial Performance of Insurance Companies Listed at the Nairobi Securities Exchange

Many people think the possibility of an insurance company running into difficulties over liquidity issues is a remote prospect. After all, there is no leveraging of loans as with the banks, and the reserves are backed by good solid assets. However, this is not the case, and liquidity risk (sometimes associated with fraud) has been a source of some historic insolvencies. This study was aimed at establishing the liquidity risk and its effect of financial performance of Listed Insurance Companies in Kenya. The risks to be studied included operational risk, market risk and credit risk. The six listed insurance companies comprised of the target population for the period 2012-2015. The study was descriptive in nature. The financial statements of these companies were studied and comparisons made on the return on equity and net premiums earned for those years. It was found out that operational, market and credit risks has negative effect on the financial performance if these companies. The researcher recommended that measures should be put into place to hedge these risks and hence maintain a healthy financial performance.