Abstract: Through performance appraisal an organization undertakes to measure the set goals against employee actual performance with respect to the period in question. It is also used to identify an employee’s weaknesses and strengths and provide for appropriate adjustments. This study examined the importance of performance appraisal as an outcome of performance contracting in insurance firms in Kenya. The study employed a descriptive approach for and used a population that consisted of 49 heads of performance contracting sections of 49 Kenyan insurance firms. A census method of sampling was used due to the availability of the population.