Inflation Risk and Financial Distress of Insurance Companies Listed at Nairobi Securities Exchange, Kenya

Purpose: The financial distress of insurance companies listed at the NSE had become a significant concern, as several firms faced difficulties in maintaining solvency and meeting their financial obligations. In recent years, these companies experienced declining profitability, liquidity issues, and capital adequacy challenges. The main objective of this study was to determine the effect of inflation risk on the financial distress of insurance companies listed at Nairobi Securities Exchange in Kenya. The study was anchored on expectations theory of inflation. Methodology: The study employed a descriptive research design. For this study, the population consisted of all six insurance companies listed on the NSE as of December 2024. This study employed secondary data collection methods, gathering comprehensive annual financial and statistical information from the NSE reports, IRA publications, and the official websites of the listed insurance companies. Data were collected for 7 years between 2017 and 2023. Data were analyzed using descriptive and inferential statistics with the aid of STATA 17. The descriptive statistical tools included frequencies, percentages, means, variances, and standard deviations. Inferential statistic tools included Pearson’s Product Moment correlation and the panel regression analysis. Findings: Inflation risk with a coefficient value of 0.391171 and p value of 0.024, therefore positively and significantly affecting the financial distress of insurance companies listed at Nairobi Securities Exchange in Kenya Unique Contribution to Theory, Practice and Policy: Insurance firms should adopt hedging strategies for foreign exchange, strengthen asset-liability matching to manage interest rate exposure, implement inflation-adjusted pricing models, and diversify portfolios to cushion against equity market shocks, while regulators should encourage prudent risk management, promote derivatives markets, and enforce strong capital adequacy frameworks to safeguard financial stability.