BBSA Research Projects (2021)

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http://hdl.handle.net/11071/12522

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Pricing of weather index insurance products
(Strathmore University, 2021) Munyaka, Emmy Mwithi
Weather index insmance is relatively a new type of risk mitigation mechanism which could assist in alleviating some of the problems like moral hazard and adverse selection that are related with traditional crop insmance schemes. This paper focuses on pricing of weather index insmance products using the option pricing model, the Black-Scholes framework. Pricing of the weather index products responds to objective and independent index parameters. The index parameter is expected to have a strong conelation with the yield loss. The index parameter used in this study was rainfall and the crop yield used was maize. The rainfall data obtained from Kenya Meteorological Department and the maize yield data collected from the Ministry of Agricultme was proven to have a strong conelation. One ofthe assumptions of the BlackScholes framework is that the underlying asset follows a log-n01mal distribution. The underlying asset in this study, rainfall, was proven to be log-normally distributed. This study focused on cases of inadequate rainfall and the payout and premium were calculated. The results show that maize farmers can protect themselves against the effects of inadequate rainfall by purchasing the weather index insurance product.
Predictive models for colorectal cancer: A United Kingdom study
(Strathmore University, 2021) Oidamae, Ken Tobiko
The role ofMachine Learning (ML) and Artificial Intelligence (AI) in healthcare and other aspects of life is growing every day. The purpose ofthis study was to build predictive ML models to determine whether patients with colorectal cancer live or die and to draw insights on them. This study was of a causal design. Patients from the UK of various ages, different times of diagnosis and with different grades and stages of cancer were the focus of the study. These coupled with their vital status - alive or dead - were used to build the models. Three models were built - regression model, decision tree and extreme gradient boosting ensemble trees. The three models had various accuracies in predicting the survival with the regression model performing the worst followed by the decision tree and then the ensemble trees. Apart from the models, feature importance showed the significance of attributes like the stage of cancer and grade of tumor differentiation had on thelikelihood of a patient surviving or dying.
Kenya insurance companies' financial performance determinants
(Strathmore University, 2021) Wanjohi, Laura Muthoni
The insurance firm is an integral aspect of Kenya's financial system, which is vital to the economy. With the growing need to be insured against various risks and the Emergence of different technological products, the insurance companies still have a low contribution to the GDP. For this study, we are establishing the factors that determine the financial performance of insurance companies across the general line,the life and combined line of business. The internal factors such as leverage, liquidity, loss ratio, underwriting risk, retention ratio and size of the firm were regressed against Return on Assets. The study shows that the loss ratio and leverage are important factors in the financial performance of general insurance firms, and they should improve on the leverage and reduce the loss ratio. The retention ratio,underwriting risk and firm size all have a role in life insurance bv.sinesses' financial performance which should be enhanced, and loss ratio decreased. The liquidity and loss ratio have a substantial impact on the profitability of insurance companies with both lines of business. In companies that have both lines of business, they should reduce the loss ratio and increase the liquidity.
Pay-as-you-drive as a pricing alternative in motor insurance
(Strathmore University, 2021) Waithera, Jasmine
A Pay-As-You-Drive (PAYD) pricing method simulating the replacement of the fixed costs of vehicle ownership and operation, with variable costs. The objective was to estimate the pricin effect of each strategy and deduce 'Yhether P A YD pricing can be employed as an alternativepricing method. The pricing effect is the focus of this paper. Consumers should be able to choose among various pricing structures. With a per-unit-of-distance alternative pricing scheme, drivers would be able to save money on car insurance by driving less and might even decide that some of the extra kilometers driven are not worth the cost. The data incorporated in this study is mileage data from private passenger vehicle data in the Commonwealth of Massachusetts. The data analyses over one million data points. The results showed that the traditional Generalised Linear Model (GLM) method of pricing was still more efficient. Even so, for insurers with the largest portfolios in the market, that have considerable participation in relation to the total, the Pay-As- You-Drive pricing method can be a simple and effective alternative pricing technique. The decision as to which pricing technique to employ is thus best left to the strategy of each insurer and should be analyzed in relation to the cost of each and how much this will impact positively to the result of the portfolio.
Modelling risk adjustment under IFRS 17
(Strathmore University, 2021) Musyoka, Nisa Wairimu
The IFRS 17 accounting standard for measuring Insurance profits is effective for periods starting on or after 1 January 2022 and critical to its measurement is the Risk Adjustment factor. The Risk Adjustment measure is the compensation the entity requires for uncertainty about timing and amount of non-financial risks. The issue however is that there is no prescribed calculation to this measure hence entities must derive the calculation that best suits them if they adhere to the IFRS 17 requirements. This study aims to determine the best risk adjustment measure calculation given the Kenyan Insurance market. The study goes into rigorous detail as to the suggested approaches, mainly the discounted cash flow approach and the cost of capital approach and gives an analysis of how to develop the respective models and the outcome of which one worked best in the context of the Kenyan market. Data was obtained from the Insurance Regulatory Authority for the years 2015 - 2019 mainly focused on short term claim statistics. The study established that the Proportional Hazard Transform under the discounted approach would be best suited to the Kenyan market since it explains the significance of the effects of premium on risk. It also satisfies all conditions under the IFRS 17 requirements and is a coherent risk measure.
Using the generalized linear Model (GLM) to model (specific) chronic diseases
(Strathmore University, 2021) Aleeq, Salim
As per the World Health Organization, chronic diseases rank highly in incidence, prevalence, and mortality on a global scale with around 60% of the 56.5 million total global deaths in 2001. Among the most prevalent of the chronic diseases is diabetes. Diabetes is rapidly increasing in its rates of incidence and mortality. It was ranked as the seventh leading cause of mortality in 2016, despite the fact that it was not even featured in the top 10 list in the year 2000. Furthermore, according to the International Diabetes Federation there are around 552,400 diagnosed cases of diabetes in Kenya. It is evident fi"om the above that diabetes is a serious and prevalent chronic disease in the countly. As a result, the aim of this research project is to mod~l and perform a regression analysis on diabetes using Kenyan data. The modeling process was done using a Generalized Linear Model. The estimators are expected to display optimal propetties since GLMs use the MLE method of parameter estimation. Once the model was completed the model diagnosis displayed a significant R2, suboptimum deviances and a high AIC value. In conclusion, the most significant ,risk factors of diabetes in the country are high blood pressure, age, gender, and level of education.
Insurance pricing using geographical ratings
(Strathmore University, 2021) Ivy, Eva Wambui Kinyua
With time, insurance industries are expected to improve their pricing models, enabling them to respond to changes and become more efficient. Like any other industry experiencing losses, the Kenyan insurance industry has been on a journey to find solutions to reduce the losses they incur. This research tries to help the Kenyan insurance industry by suggesting the use of geographical ratings as a risk factor in the calculation of premiums.
A comparative study of football prediction models
(Strathmore University, 2021) Rapando, Reginald Tabuche
This study investigates the effect of tiers on football prediction models. The tiers in this study are grouped according to the value of the teams. Many football prediction models do not take tiers as a factor when making predictions. The study used a Poisson Regression Model which assumes that the number of goals scored by a team follow a Poisson distribution. It also employed a Bayesian approach . The parameters used in the Poisson Regression Model are strength of attack, defensive strength, home advantage and club value (the tiers). From the study it was found that teams in a higher tier were given a higher probability of scoring more goals and winning games as compared to teams in a lower tier. This shows.that the value of a team has a significant effect on the predicted outcome in a football prediction model. From this, it was concluded that the value of a team is an important aspect that needs to be considered in football prediction models since it has a significant effect on the outcome of prediction.
The extent to which pension funds can be used to address the affordable housing gap in Kenya
(Strathmore University, 2021) Oluoch, Lucille Mujaw
The government of Kenya developed the Big Four Agenda in 2017, which is inclusive of affordable housing provision among the other three agendas. However, challenges with housing provision have led to an estimated 2 million-unit deficit. This study investigates how pension funds can address Kenya's affordable housing gap through constructing optimal hypothetical portfolios and evaluating the effectiveness of investments in private equity and real estate. The Shapiro-Wilk normality test was used to determine if asset class data follows a normal distribution to justify Mean-CVaR method optimisation in place of MVO. The asset classes were optimised and subsequently portfolios inclusive and exclusive of private equity and real estate asset classes were optimised, with performance compared. The returns of the optimal portfolio were used in a model to estimate the number of housing units the pension fund could purchase. The analysis showed that equity data alone follows a normal distribution hence justifying the use of Mean-CVaR optimisation for the multi-asset portfolio and that the traditional asset portfolio is the most profitable, rendering private equity and housing as ineffective investments. Further research is required on expanding pension portfolio asset class range and identification of better proxies for private equity and real estate data .
Impact of mobile loan credit during the covid-19 pandemic in Kenya
(Strathmore University, 2021) Oduor, Sandra Odera
This study sought to investigate the impact of mobile loan credit during the Covid-19 Pandemic in Kenya. The specific objectives included investigating factors fuelling mobile loan uptake during the pandemic and investigating the effects of the pandemic on loan repayment. A total of 352 participants from Buruburu were randomly selected to form the sample of the study. The response rate was 100% with majority of respondents falling in the age groups of 30 and below (53.41 %). A descriptive cross-sectional research design was adopted. The data was collected by using pretested, structured interview based questionnaires and analysed using SPSS version 20. The study established that employment amongst the youths is still a problem as the youths were the most borrowers with a percentage of more than 53.41%. The COVID 19 pandemic has made more Kenyans to borrow mobile loans as 42.90% of the respondents had never borrowed before the pandemic. This study recommends that the government should create more employment opportunities for the youths by investing in and promoting Jua Kali sector. This will reduce the dependence rate on mobile loans amongst the youths and negative CRB listing.
Mobile money and macroeconomic outcomes in East Africa
(Strathmore University, 2021) Kimere, Christine Muthoni
This study examined the outcomes of mobile money use on money supply, inflation and national output. Data was taken from East African countries that have adopted mobile money services, namely Kenya, Tanzania, Uganda and Rwanda. A Panel Vector Autoregression was fitted to the data, and subsequently a Forecast Error Variance Decomposition and Orthogonalized Impulse Response Function were generated to examine the dynamics between the variables. The findings indicate that mobile money transactions have modest negative effects on inflation and money supply in the medium-term. Indicating that mobile money substitutes for the transactional function of money to some extent, and enhances output and efficiency of production.
Measuring the impact of universal health care on longevity risk
(Strathmore University, 2021) Mbau, Lorna
Longevity remains to be a complex risk that is ever evolving and requ1res great understanding. Improved healthcare through the roll out of Universal Health Care is also seen to enhance this risk through improved mortality rates. This leaves individuals, governments and benefit providers at risk because they can not appropriately make financial plans leading to major losses or inadequate funds and reserves. This study expounds on longevity risk and its impact on the interested pmties
Loss distributions for motor insurance claim severity in Kenya
(Strathmore University, 2021) Nyairo -, Frankline Okindo
The insurance industry is one of the oldest industries. Insurance companies exist to provide indemnity and make profits since insurance is a business like any other. The advancement of the insurance market is compelled by the prevailing interest of the public for cover against different forms of risks of tmacceptable arbitrary incidents with a considerable financial effect (Omari et al., 2018). A policyholder is supposed to pay a premium and make a claim when a certain event occurs witllin a given period as per the policy. The insurer is tl1en obliged to settle the claim, and this is referred to as loss. Insurers are keen with the results oftl1e random outcome of claims instead of the existence of the claims. They are concerned with the loss rather than the circumstances that give rise to the loss (Achieng, 2010). The aggregate amount of claims in a given dmation is a measure that is vital to the operations of an insurance company.
A pension model for the informal sector in Kenya
(Strathmore University, 2021) Kariuki, Mercy Wanjiku
The purpose of this research paper is to come up with a pension model for the informal sector in Kenya. We develop a pension model that uses pre-retirement mobile phone airtime expenditures through use of Bonga Points to accumulate the pension fund. We then determine the expenditure patterns experienced pre- and post-retirement and use these patterns to advise on the daily amount required to be saved above the current amount in order to. facilitate a comfortable postretirement life. The data utilized in this study was retrieved from primary and secondary sources. Inflation and interest rates data were retrieved from Kenya's Central Bank database. The mortality rates were retrieved from the World Health Organization and the life expectancy from World Atlas, Lancet and World Life Expectancy. Pre-retirement and post- retirement data were retrieved from a survey done in the informal markets in Kenya. The inflation and interest rates were forecasted using the Vasicek Interest Rate Model using MS Excel. The resl.llts show that an average individual working in the informal sector spends J approximately KShs. 6,130.77 pei· month for his/her livelihood. Due to inflation trends in the country, their expenses will increase in order to maintain the same standard of living during their retirement. Given the expenditure pre-retirement in that they will need to save KShs.754.30 per month, it will require them to be increase their mobile phone expenditure by KShs. 40 per day in order to raise an amount sufficient to sustain their lifestyle post-retirement.
Modelling the effectiveness of Covid-19 intervention measures for different demographics
(Strathmore University, 2021) Annah Mwende Musomba
The study aims to discuss on how differences in timing and duration of implementation of an intervention measure would affect the results from intervention. It also seeks to find how effectiveness of an intervention would differ if put in different countries with different demographic characteristics. A Susceptible- Infected- Recovered (SIR) model is developed to provide a theoretical framework for the study. The model uses the SIR model but accounts for different demographics and how intervention (school closure) affects the rate at which individuals move form susceptible to infected. Using data of confirmed cases of different countries and the interventions put in place, the study deduces the importance of timing and duration in implementation of an intervention. The study deduces that for an intervention to be greatly effective considerations must be done on the timing and duration of the intervention. Demography of a region should be considered when picking out an intervention.
Modelling of insurance penetration contribution to the economy.
(Strathmore University, 2021) Muriithi, Susan Waithera
The study was set to understand the relationship between the economy of the country and insurance penetration. The relationship between the two would be important to understand the contributions of insurance penetration to the economy as well as recognize what causes the low insurance penetration rate. The availability of already published information on these factors was reliable and due to this reason, the use of primary data was not obtained. The data was available from the Insurance Regulatory Authority as well as the Central Bureau of Statistics and sigma-explorer. The target population was the already registered number of insurance companies and a cover period of the past five years which was key since the penetration rate in the country has been dropping ever since 2013 when it was at its highest. The model used was a regression analysis which combined the major determinants of insurance penetration the variables to be used in the regression. This include assets, investments and investment income and the Gross Premium Income. Fromthe analysis the Gross Premium Income was seen to be the leading factor in the insurance industry to be contributing to the national economy. The insurance sector is the major contributor to insurance penetration by the decision they make in everything from the distribution channel, promotion methods, pricing, benefits provided, technology used, and everything in general and still maintaining a competitive advantage. Every decision they make is a contribution towards the economy. Due to their major role in all this the study examines what is done and how this affects the penetration rate and what can be done to change ad improve this.
Funding opportunities for affordable housing programme
(Strathmore University, 2021) Maina, Peter Wanyoike
The purpose of this research paper is to examine the funding opportunities available for the affordable housing program. The study looks at the current channels of funding, the challenges facing affordable housing, the role of the private and goverm11ent sector. Primary data used was collected through presenting questionnaires to respondents in different financial sectors and there was a 64% response rate. The basis used for data collection were looking for the current funding opportunities, the difference between the funding opportunities in affordable housing than in other housing development, the drawbacks in funding and how can the funding opportunities be optimized. The data collected was input into Ms Excel and expressed as pie chart to make more meaning. The results show that there is need for encouragement of saving and contribution towards home ownership by the general public as this will be a catalyst in achievement of affordable housing. We find that state contribution is the best funding source for the affordable housing program and that government funding will still go back to the individual tenants and private entities through the housing tax levy
Impact of longevity risk on pension systems
(Strathmore University, 2021) Nyambura, Malvin Gitau
According to the "2019 Revision of World Population Prospects" prepared by the Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, life expectancy has risen from 60.26 in 201 0 to 66.70 in 2019. This increase in life expectancy is attributed to improved healthcare facilities, proper education, diversification in agricultural production and an increase in living standards. The improvement in life expectancy is positive news but it results in increased longevity risk. Longevity risk is the risk that individuals will have longer lifetimes than expected. In pensions, this is the risk attached to the increasing life expectancy of pensioners and policyholders, which will result in higher pay-out ratios than expected for many pension funds. If gains in life expectancy could be forecasted and factored in retirement planning, then the effect of longevity risk could be minimal and thus negligible but improvement in life expectancy and mortality are uncertain. Thus, longevity risk is related to the uncertainty surrounding future mortality and life expectancy.
The impact of accessibility of mobile loan applications on the level of savings among Strathmore university students.
(Strathmore University, 2021) Kimaku, Martha Wanjiru
This study looks into the impact of accessibility of mobile loan applications on the level of savings among Strathmore University students. The continuous borrowing culture introduced by mobile loan applications is discussed as being a key factor that inhibits saving efforts ofthe youth. The life cyc le hypothesis model coupled with the technology adoption model wilt give this study an insight into the saving and borrowing culture of the youth. How then does endless borrowing prevent the youth fi·om creating good saving habits? With regards to borrowing and saving amongst individuals differ as a result of behavior, knowledge and mindset. The study therefore intends to investigate how number of mobile loan apps on each Strathmore University student's phone influences the level or savings, how the existence of knowledge about the mobile loan applications influences the level or savings among Stratlunore University student and how the level of usage of mobile loan applications impacts the level of savings among Strathmore University students. A descriptive study design was used whereas the estimated sample size was 384 students but only 100 respondents took part in the survey. The study employed a voluntary sampling method by use of online survey which was clone by the Strathmore University students order to investigate the factors that correlate students' saving and borrowing patterns using mobile applications. A multiple linear regression model was applied using the STAT A software to execute the analysis. Results revealed that there was a very weak correlation between quantity, knowledge and fi-equency of access fi·om mobile loan applications and the level of savings among Stratlunore University students. In addition, the more a student wns equipped with the knowledge of loan apps decreased a chance for them to save.
A resource-based approach to the valuation of African startups by venture capitalists
(2021) Odidambo, Blair Obanda
The valuation of a new firm is instrumental in entrepreneur financing. This research aims to create a consistent theoretical structure that seeks to determine whether variables identified as basic to a firm's performance in strategy theories explain the valuation of startups by venture capitalists. The main proposition of this research is that venture capitalists assess the variables that are essential to companies ' efficiency in valuing fresh companies. The specific pointer that venture capitalists look into is the qualities of the founder. This pointer will influence startups' valuation by venture capitalists when entrepreneurs seek financing from venture capitalists at the early development stages. The empirical findings of this study would also seek to develop an initial theoretical linkage between under-researched literature on venture capital maintenance and well-developed theories in strategic management. A theoretical rigor is added to the literature on investments by venture capitalists with the introduction ofthis approach.

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