BBSA Research Projects (2016)

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http://hdl.handle.net/11071/5015

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Agricultural micro-insurance in Kenya: determinants of the loss and profit experienced in insurance companies in Kenya in 2014
(Strathmore University, 2016) Kirui, Fiona C
ABSTRACT The Kenyan agricultural production sector is faced with a lot of risks that will affect a farmer's level of income. The Kenyan insurance market offers two types of-agricultural micro insurance products, index based crop insurance and indemnity based crop insurance. This study has investigated the significant factors that affect profitability of an insurance company. To provide answers to the research questions quantitative methods were employed. Use of simulation of variables, correlation tests, and regression analysis were the major quantitative tools used to analyse the data availed. The results of the study conducted showed that companies that offer index based products are more profitable compared to companies that offer pure indemnity products. It was also noted that a combination of both products leads to a higher profit margin as opposed to offering pure based products.
Analysis of the post earnings announcement drift in the Nairobi Securities Exchange
(Strathmore University, 2015-12) Musalia, Claude Mugaravai
This paper is an event study concerning the market anomaly, Post-earnings-announcement drift (PEAD) in the Nairobi Securities Exchange from 2008 to 2014. The PEAD theorizes that a stock's cumulative abnormal returns tend to drift in the same direction of an earnings surprise for several weeks following an earnings announcement. Its aim was to determine if the PEAD occurred in the Nairobi securities exchange and whether it could be used to monitor stock performance. Stock performance was determined by using the market model to regress the stock returns against the market returns. Evidence from the study suggests that the PEAD anomaly occurred in the NSE and that it could be used to monitor stock performance.
Application of the Gumbel Copula for Economic Risk Aggregation - a case of Kenyan Banks
(Strathmore University, 2015-12) Chatoro, Andanje Marian
Commercial banks are some of the most heavily regulated institutions, not only in Kenya but also in other parts of the world. Increasingly, the Basel Accords have been revised to require banks to set aside enough funds to cover their risks. Commercial banks, however, face many risks chief among them market and credit risks. These risks tend to have different distributions which complicates the calculation of a firm-wide measure of risk to calculate economic capital. Many companies use value at risk as it is simple and easy to explain. However, value at risk is not wholly dependable due to the limitations associated with correlations and the fact that it does not fulfill the sub-additive property. The copula function was therefore developed to deal with these challenges. This study applies the Gumbel copula in measuring dependence and economic capital using data from Kenyan banks.
Assessing the determinants of public pension system reform in Kenya
(Strathmore University, 2015-11) Okoth, George Owino
In recent years many countries around the world have either undertaken or are seriously considering a pension reform due to various factors. This study was done to tty and establish the key factors Kenya should consider when undertaking a public pension system reform. Data was collected from 2005 to 2013. Time series regression analysis was conducted with the NSSF fund value growth as the dependent variable and the following independent variables: central government debt, pension debt, external debt, gross savings as percentage of GDP, contributions growth rate, age dependency and life expectancy. The regression analysis was used to determine the relationship between the dependent variable and the independent variables. The study found a significant relationship between the 'NSSF fund value growth and central government debt, pension debt, gross savings as percentage of GDP, life expectancy and age dependency ratio, indicating that pension reforms have generally been effected because of economic and demographic factors. The study recommends that policies should be put into place to better manage pension contributions, pension debt and the age dependency ratio, to increase the sustainability and robustness of the NSSF.
Assessing the impact of volatility on expected stock return
(Strathmore University, 2015-12) Lelo, Sora
Many researchers have studied movements in aggregate stock market volatility. Some argue that the relation between returns and volatility is strong. Pindyck (1984) attributed much of the decline in stock prices during the 1970's to increase in volatilty. On the other hand , Porteba and Summers (1986) argued that the time-series properties of volatility make the scenario unlikely. Neither study, however, provides a direct test of the relation between expected return and volatility. The amplitude of the fluctuations in aggregate stock volatility is difficult to explain using simple models of stock valuation (Schwert G. W.,1989)
Callibration of a multi - factor weather index to determine the trigger event of claim payments on crop micro insurance in Eastern Kenya
(Strathmore University, 2015-11) Nasidai, Mruttu Kerry
In 2014, among the seven companies that offer agricultural insurance in Kenya, only two of the companies reported a profit. The shared characteristic between these two companies is that they both used index-based insurance. The intention of this study was to explore index based insurance through the calibration of a multi-factor weather index to be used in a crop micro insurance to' determine the trigger event of claim payments. This research used linear regression, Generalized Linear Models and Value at Risk to illustrate the relationship between weather elements and claim payments. From this study we can conclude that we can illustrate the relationship between weather elements and expected crop yield, and therefore use this interaction to base claim payoff calculations. Recommendations for further research into this topic include widen the area under study to include areas with a wider scope of weather variations and to increase the number of crops under research to include those that are more sensitive to weather changes. The work presented aims to encourage more index-based programs in Kenya to help farmers manage risk in a more innovative way and help expand the insurance industry in Kenya as a whole.
The causal relationship between the stock market and foreign direct investments - evidence from Kenya
(Strathmore University, 2015-11) Siimoi, Tobiko Allyn
The paper aims at investigating the nature of the causal relationship between Foreign Direct Investments and the Stock Market index in Kenya. The relationship has proved to be significant enough to solicit an empirical relationship. The Granger Causality test as proposed by C. J. Granger in 1969 and later redefined by Toda and Yamamoto in 1995 is applied in the study. For the test to be conducted stationarity must be proven, therefore the study adopts 2 methods to test for stationarity; The Augmented Dickey-Fuller (ADF) and The Phillips-Perron tests. The panel data is for the period 1990-2014. Data on the Stock Market Index was obtained from the NSE website and data on Foreign Direct Investments will be obtained from the World Bank website. The results from the study showed no causal relationship between the 2 variables studied.
A comparison of Mean - variance and mean - semi variance optimization on the Nairobi Stock Exchange.pdf
(Strathmore University, 2015-11) Wasi, Mwabaya Fahari
The main objectives of this paper were to measure and compare the portfolio performance of portfolios weighted through the mean variance and semi variance approach in the Kenyan context and to compare portfolio performance in terms of return between portfolios weighted using a Geometric Mean Variance Frontier Approach V s Semi Variance Approach. Equities used were from broad sectors of the NSE: Agricultural, Financial, Commercial and Services and Industrial. Based on the empirical results, there is no significant advantage in using semi variance as a risk measure as compared to variance in optimization. This is because the equity returns in the Nairobi Stock Exchange follow a normal probability distribution. The geometric mean variance returns are also compared to the semi variance optimization methods and results show they statistically approximate each other. Key limitations for the study that NSE duration used may have been a unique case for a normal distribution. Further research needs to be done to ascertain whether the geometric mean variance optimization approximates the semi variance approach.
Determinants of insurance penetration and density in under - developed, developing and developed countries
(Strathmore University, 2015-11) Otieno, Dansol Obondo
The need for greater Insurance penetration in both life and non-life segments has been underscored by economic surveys. Insurance penetration has remained low not only in Kenya but in Africa as a whole and other under developed and developing countries. This study is set out to establish factors causing the low Insurance uptake, the challenges faced by the insurers in marketing their products and subsequently identify strategies the Insurance Companies can adopt to enhance Insurance uptake. This is through the studying the relationship more so between Insurance Penetration and Density and their determinants in developed, developing and under developed countries, with the aim of finding out if there exists a relationship and why this relationship holds. This is to help in understanding why developed countries with high insurance penetration and low market shares among firms, both competing and non-competing are doing better than those with the inverse of this relationship more so under developed countries. Secondary data was collected via financial reports of insurance firms and insurance performance within countries via the regulatory bodies. In as much as there are various obvious ways of improving insurance penetration in countries, this study highlights that various insurance policies and regulations governing the insurance industry have an effect on the performance within the insurance firms in as much as the mechanisms to promote rapid insurance penetration do exist, by studying the above phenomena.
Determinants of insurance penetration and density in under developed, developing and developed countries
(Strathmore University, 2016) Otieno, Dansol Obondo
The need for greater Insurance penetration in both life and non-life segments has been underscored by economic surveys . Insurance penetration has remained low not only in Kenya but in Africa as a whole and other under developed and developing countries. This study is set out to establish factors causing the low Insurance uptake, the challenges faced by the insurers in marketing their products and subsequently identify strategies the Insurance Companies can adopt to enhance Insurance uptake. This is through the studying the relationship more so between Insurance Penetration and Density and their determinants in developed, developing and under developed countries, with the aim of finding out if there exists a relationship and why this relationship holds. This is to help in understanding why developed countries with high insurance penetration and low market shares among firms, both competing and non-competing are doing better than those with the inverse of this relationship more so under developed countries. Secondary data was collected via financial reports of insurance firms and insurance performance within countries via the regulatory bodies . In as much as there are various obvious ways of improving insurance penetration in countries, this study highlights that various insurance policies and regulations goveming the insurance industry have an effect on the performance within the insurance firms in as much as the mechanisms to promote rapid insurance penetration do exist, by studying the above phenomena.
Determination of Key parameters in Generalized Linear Models for claim reserving - General Insurance
(Strathmore University, 2015-11) Wasafisia, Mang'eni Patrick
Based on Generalized Linear Models, we are able to establish the key parameters to be used for determining the future claim frequency through the adoption of appropriate logical variable selection method given various variable interactions in the model. With ample calibration, we prove the robustness of the model by analyzing its predictability power through evaluation of the dispersion parameters. This facilitates the efficiency in claim reserving given the scarcity of resources and time to run the saturated models. We adopt the statistical based variable selection method for the model as opposed to experience selection. The general insurance industry could embrace the study to economically maintain and improve the certainty in their claim reserving. Relying on the sample analysis, general insurers and particularly motor vehicle insurers could estimate their future claim frequency at about 85% confidence interval basing on the model of the car and the age bracket of the policyholder.
Developing capital charges for the general insurers under the non life underwriting risk module in Kenya
(Strathmore University, 2015-11) Ikenye, Gabriella
Financial institutions are in the business of accepting risk from their clients and also managing risk exposure from within. Hence it is essential for financial institutions to have safe and sound risk management systems. In the banking world, Basel Accords were introduced while in the insurance sector solvency was introduced. The three major objectives that both regulations set out to achieve are to contribute to financial institutions in terms of regulatory costs, and to be based on measures and tools that are risk sensitive, i.e ones that are reflective of the risks faces by financial institutions.
Factors influencing time to death after retirement in Kenya
(Strathmore University, 2015-11) Komora, Biancah Zawadi
The study on the time to death after retirement has been done previously, specifically in developed countries. Studies on the average age of survival postretirement and determinants of time to death have however not been done in Kenya. Of the studies that have already been conducted, mortality of retirees has been associated with age at retirement, gender, the retirees' socio-economic status and early retirement. The consensus on the survival or mortality of people who retire early and those who retire later has not been grounded till date. Mortality in retirement •years and interventions put in place to address the issues should be determined. This study will incorporate the life table method, which is widely used in determining life expectancy, to determine the life expectancy of a Kenyan retiree. The end of the guarantee period is calculated with life expectancy inherent, therefore, once the life expectancy is determined, it will aid in determining the cessation of life annuities. Over the years, retirement has been seen to lead to death, however, this can be aided if employers get a hold of information like this and accordingly advise their employees. This study attempts to determine the time to death and the factors that lead to mortality after retirement in Kenya. The factors taken into consideration are, the age at retirement, socio-economic status (derived from the monthly pension paid to the retiree) and gender. The study concluded that chances of early death are increased by early retirement. It also seeks that other factors such as the health status of the retiree be incorporated to ensure that the retiree's death was not hastened by the fact that they were not healthy on retirement.
The financial implication of longevity improvements on the liabilities of annuity providers.
(Strathmore University, 2016) Kosgei, Winnierose W
Different countries around the world have experienced and improvement in mortality over the years. This improvement can be attributed to factors such as technological advancements in the medical field and improved living standards among others. This is generally a good thing , but for life insurance companies and defined benefit pension schemes that provide benefits in form of annuities, there lies the risk of longevity. Which is the risk that people will live longer than expected requiring them to be paid benefits for longer periods . This paper studies the implication of changes in Kenyan mortality on the value of an annuity. It focuses on the mortality of the annuitants in Kenya. These are people who have purchased life annuities from Kenyan insurance companies. Exponential extrapolative methods are used to obtain reduction factors that are later used to extrapolate mortality from the year 2011-2050. An annuity of Ksh.1 is then priced over the extrapolated period for each age range for all years, in order to determine how an annuity changes over the years. From the analysis , the Kenyan mortality has been reducing. This has an inverse effect on the value of annuities as the annuity prices are observed to increase with an increase in mortality over the years. This therefore exposes the Kenyan insurance companies to longevity risk.
Foreign exchange rate modeling for the Kenyan market - half - life model approach
(Strathmore University, 2015-12) Ngige, Isabel
This study is a comparative test of the forecasting ability of the half-life purchasing power parity model and the portfolio-hybrid model used for forecasting exchange rates in Kenya. The United States Dollar and Ugandan Shilling exchange rates are analyzed for the period between 2005 and 2015. The models' forecasting precision assessment is based on three statistical tests; First Diebold and Mariano (1995) null test of equal forecasting ability is used to determine the superior half-life model among the three, four and five year half-life durations of which there is none, the root mean squared forecasting error and Thiel's inequality co-efficient tests are finally used between the three year half-life model for the Ugandan Shilling, the five year half-life model for the United States Dollar and the portfolio-hybrid model. The study concludes that the half-life purchasing power parity model is more precise in forecasting the United States Dollar and Ugandan Shilling exchange rates, albeit in sample. The conclusion of the superiority of the half-life model, which is relatively simple to run, requires no prior forecasts of the economic independent variables and is parsimonious, impacts industry players largely affected by movements in exchange rates who require an efficient exchange rate forecasting model such as portfolio managers.
A generalized linear model for rating the premiums of a Micro Health Insurance Policy
(Strathmore University, 2015-11) Muganda, Felista
This study focuses on the modeling of a risk premium for a micro health insurance policy. It was carried out as a response to the gap highlighted by scholars and industry players which relates to the difficulty in developing insurance products which are both affordable and sustainable to cater for the needs of the low income market. which is a large segment in developing countries (KPMG, 20 13). It adopts the generalized linear model in the rating of premium factors to parameterize their Significance in predicting the claim amount. The product being analyzed is a group micro health insurance policy in the Kenyan market, and claims data has been .obtained from three .schemes whose policies have been in force for at least three years since 2011. A policy covers not only the scheme's members but also their nuclear family. Factors rated include the claimant's age, gender, and their relation to the insured life. The impact of the interaction between these factors is also analyzed. The results show that for a group policy offering family cover, all the three factors are significant in the prediction of claim amounts and thus the risk premium. They also show that interactions between the claimant's age and gender and between their age and relation to the policy holder significantly improve the pricing model.
The impact of corporate governace on working capital management efficiency of Kenyan listed firms
(Strathmore University, 2015-11) Mugo, Claire Patriciah Njoki
This paper analyzes the impact of corporate governance on working capital management efficiency of Kenyan listed firms. The sample size was 27 firms within 5 of the sectors in the Kenyan economy for the period 2009-2014. Through regression analysis the paper investigates the relationship between corporate governance practices and working capital within the firms. The findings of this study indicate that corporate governance plays some role in improving the efficiency of working capital management however there is not necessarily a causal relationship between the two.
Inter - sector volatility spillover among equities on the Nairobi Stock Exchange
(Strathmore University, 2015-11) Chuchu, Michael Nyangasi
This paper investigates the existence and magnitude of volatility spillovers among equities on the Nair obi Securities Exchange. The multivariate VARMA - GARCH model is used to test for spillover effects between four broad sectors of the NSE: Agricultural, Financial, Commercial and Services and Industrial. The significance of the parameters of the model are used as an indicator of the spillover effect between sectors. Based on the empirical results, the biggest volatility spillover is from the commercial and services sector to the broad industrial sector. There are also significant spillovers from the industrial and agricultural sectors to the financial and commercial and services sectors, as well as from the financial and commercial and services sectors to the broad industrial sector.
Panel Analysis of the dynamic relationship between financial development and economic growth in Subsaharan Africa
(Strathmore University, 2015-11) Kiganya, Grace
Previous research on the relationship between financial development and economic growth has yielded mixed results. Whereas researchers agree on the presence of a positive relationship between finance and growth, they rarely agree on the direction of causality and the path the relationship takes. This study examines the direction of causality between financial development and economic growth in twenty countries in Sub-Saharan Africa and whether it changes over the course of development for the period 1963- 2013. The study employs dynamic panel analysis to account for the varying degrees of development and Pairwise Dumitrescu Hurl in Panel Causality Tests for testing multivariate causality between financial development and economic growth in SSA. Whereas the study establishes a positive relationship between economic growth and financial development, results suggest that the direction of causality does not change over the course of development. In most countries the direction of causality is bi-directional.
Prediction of student loan default rates
(Strathmore University, 2015-11) Manya, Abwoga Susan
This study focuses on the modeling of the probability of student loan default using certain characteristics of individual students. A generalized linear model is adopted in the rating of students' characteristics to parameterize their significance. Factors to be rated include the type of university attended, the type of loan taken by the student and the period of the course. By determining the probability of default, the amount of loss expected can be detem1ined and thus create reserves to counter the .adverse effects of high student loan defaults.

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