Abstract:
The main aim of this research project was to analyze how diversification strategy affects the performance of
insurance firms in Kenya. The following objectives were used to provide guidance; to determine the
significance of vertical diversification strategy on performance of insurance firms in Kenya, to study the effect
of horizontal diversification strategy on performance of insurance firms in Kenya, to establish the effect of
concentric diversification strategy on performance of insurance firms in Kenya and to establish the effect of
conglomerate diversification strategy on performance of insurance firms in Kenya. The research adopted the
modern portfolio theory, Ansoff market growth theory, the agency theory and performance maximization
theory. A descriptive survey design was used in this research. The study population was the 54 insurance
firms in Kenya. The target respondents were the chief finance officers or their representatives. Both
secondary and primary data was utilized. Primary data was obtained using questionnaires which were
administered through both drop and pick later method and email. Data was analysed using both descriptive
statistics such as mean and standard deviation and inferential statistics which included correlation and
regression analysis. The study revealed a significant positive relationship between horizontal diversification,
vertical diversification, concentric diversification, conglomerate diversification, and performance of insurance
firms in Kenya. Its regression analysis revealed that 45.6% of changes in performance of these firms were
attributed to the collective use of the diversification strategies. This study concluded that diversification
strategies are essential strategies for firms to use in their endeavor to improve on their performance levels.
Based on the findings, horizontal diversification strategy had the greatest influence on performance followed
by concentric while conglomerate and vertical diversification had the least influence on performance of
insurance firms in Kenya. It was therefore recommended that managers and shareholders of the firms that
are yet to diversify their portfolio should diversify to remain competitive and profitable in this turbulent
business environment. It was further recommended that management of the insurance firms should come up
with sound policies to guide them when diversifying