EFFECT OF REINSURANCE ON FINANCIAL STABILITY OF INSURANCE COMPANIES. A CASE OF GA INSURANCE LIMITED.

Abstract

This study examined the effect of reinsurance on the financial stability of insurance companies, focusing on GA Insurance Company Limited. The study was guided by four objectives: to investigate the impact of reinsurance diversification, assess the influence of the reinsurance utilization ratio, evaluate the effect of reinsurance recoverables, and examine how the frequency of reinsurance use affects financial stability. A descriptive research design was adopted, targeting 200 employees from executive, mid-level, and junior management, from which a sample of 100 respondents was selected using stratified random sampling. Out of these, 40 valid responses were obtained, representing an 80% response rate. Primary data was collected using structured questionnaires containing both open-ended and closed-ended questions and analyzed using SPSS through descriptive statistics such as frequencies and percentages, with findings presented in tables and charts. The results revealed that reinsurance significantly enhances financial stability, with 95% of respondents indicating that it improves risk management and solvency. Reinsurance diversification reduced exposure to major losses and improved risk distribution, although its effectiveness depended on geographic and economic factors. The reinsurance utilization ratio enhanced underwriting capacity and supported optimal risk retention, while reinsurance recoverables improved liquidity and showed minimal default risk despite possible concentration risks among a few reinsurers. Frequent use of reinsurance also stabilized underwriting performance and strengthened financial resilience. The study concludes that an integrated reinsurance strategy involving diversification, optimal utilization, effective management of recoverables, and consistent application is essential for improving financial stability.