The Effect of Bank Interest Rates on the Financial Performance of Insurance Companies in Uganda: a Case Study of Statewide Insurance Company Ltd.

Abstract

The purpose of this study was to investigate the effect of Bank interest rates on financial performance of Insurance companies in Uganda. It looked in to some of the key factors that determine financial performance and the extent to which they influence financial performance of insurance companies. This study was conducted using a descriptive survey design. The target population for this study comprised the 27 respondents from Statewide Insurance Company Ltd.

This study used purposive sampling method to select the respondents. The study used questionnaires as the tool for data collection. Data was analyzed through descriptive statistics and results presented in frequency tables, bar graphs and pie charts. The findings of the study showed that fluctuations in bank interest rates affect the financial performance of insurance companies both ways. This is because it affects the rate of borrowing as well as the rate of return on investments. Return on assets, Liquidity and Return on equity as an indicator of financial performance enables insurance companies to invest in viable ventures while avoiding the too risky ones. The findings revealed thata change in bank interest rates affects the liquidity, ROE and Asset levels of Statewide Insurance Company Ltd, hence bank interest rates has greater influence in the determination of liquidity, ROE and Asset levels of Statewide Insurance Company Ltd. The relationship between bank interest rates and liquidity, ROE and Asset levels was also found to be linear with increase in interest rates leading to higher liquidity, ROE and Asset levels.

Finally it was recommended that insurers should invest in financial analysts so that they can gauge when interest rates can work in their favour to increase their income.

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