Risk-based Capital Research Articles

The Effect of Financial Soundness Level on Premium Growth of Companies Listed in AASI

Analyze how the effect of financial health level as measured by liquidity ratio, investment balance ratio with liabilities, investment income ratio, claim expense ratio, tabarru' fund change ratio, and risk-based capital ratio on premium growth of Islamic insurance companies listed in the Indonesian Sharia Insurance Association (AASI) for the period 2018-2022. Quantitative research using panel data regression analysis with SPSS 26 program.There is a significant influence between the variable ratio of investment income on the growth of premiums of Islamic insurance companies indicated by a partial significance test value of 0.044 <0.05 and there is also an influence between the variable ratio of changes in tabarru's funds on the growth of Islamic insurance premiums indicated by a partial significance test value of 0.007 <0.05. Meanwhile, there is no influence between the variables of liquidity ratio, investment balance ratio with liabilities, claim expense ratio, and risk-based capital (RBC) ratio on the growth of premiums of Islamic insurance companies.

Risk-Based Premiums of Insurance Guarantee Schemes: A Machine-Learning Approach

Introduction/Main Objectives: This study explores the application of machine-learning techniques to risk-based premium calculations for insurance guarantee schemes within the Indonesian insurance market. This study aims to develop a risk-based premium calculation model using machine-learning techniques in the Indonesian context. Background Problems: A gap exists in determining risk-based premiums for both the life and non-life insurance sectors within the Indonesian insurance market. Identifying and understanding the key variables that significantly influence risk-based capital (RBC) is important, and this research addresses this need. Novelty: This paper is the first to apply machine learning to calculate risk-based premiums in the context of the Indonesian insurance market. The distinction between the life and non-life insurance sectors in terms of the importance of its variables and itsselection of an optimal model further enrich its unique approach. Research Methods: We employed gradient-boosted and decision-tree models to identify key factors impacting risk-based capital. Furthermore, we leveraged clustering techniques to categorize companies into distinct risk tiers, aiming to enable more precise risk-based premium rate calculations. Finding/Results: The findings reveal significant differences between the life and non-life insurance sectors in terms of key variables that impact their risk-based capital. These insights lead to the categorization of insurance companies into distinct risk tiers whichhelps to more accurately calculate risk-based premiums. Conclusion: Machine learning can serve as a powerful tool in refining insurance risk management practices, ultimately benefiting insurers, policyholders, and regulators alike.

Analysis Of The Financial Performance Of Insurance Companies Before And During The Covid-19 Pandemic Based On Early Warning System And Risk-Based Capital

This study aims to provide empirical evidence regarding the comparison of the value of the Early Warning System and Risk-Based Capital in measuring the financial performance of insurance companies before and during the COVID-19 pandemic. The Early Warning System measurement indicator uses the claim expense ratio. Sampling using purposive sampling method and obtained a sample of 18 insurance companies listed on the Indonesia Stock Exchange (IDX) for the period 2017-2022. The type of data used is secondary data in the form of financial reports collected through the company's official website and the Indonesia Stock Exchange (IDX). The data analysis method uses non-parametric statistics, namely the Wilcoxon Sign Rank Test with the help of SPSS version 27. The results prove that there is a significant increase in the value of the Early Warning System during the pandemic compared to before the Covid-19 pandemic. The Risk-Based Capital value did not experience a significant decrease during the pandemic compared to before the Covid-19 pandemic. In addition, in this study, the Early Warning System is considered more accurate than Risk-Based Capital because it has a smaller standard error.

Enterprise risk management in the insurance industry: Trends and future directions

The research aims to describe the state of enterprise risk management (ERM) in the insurance sector. It highlights emerging trends in the application of risk management in the insurance sector and thereby reports the prominent research gaps and new avenues for research in ERM. The research adopts a systematic literature review (SLR) approach, using 187 research papers spanning 44 years (1977–2021). The paper identifies the fact that most ERM and insurance sector research is performed in North America and Europe, while developing economies in Asia and Africa lag. The paper establishes a three-way relationship between ERM, risk management (RM) and risk-based capital (RBC) where RM is a subset of ERM and RBC is a driver of ERM. The research shows that very few studies are conducted on risk culture, three lines of defence and the role of chief risk officers. The determinants of ERM identified are board, firm size, audit and risk management committee and corporate governance. The determinants identified for firm value are return on assets, return on equity, profit, Tobin's Q, among others. This research provides a way for academicians, practitioners and policy makers to design effective strategies for implementing ERM in organisations.

The influence of capital structure and operational performance on financial performance with governance and financial risk as mediation in Insurance Companies in Indonesia

This study examines the influence of capital structure and operational performance on financial performance, with governance and financial risk as mediators. The sam- ple for this research comprises insurance companies listed on the Indonesia Stock Exchange in 2013-2021 with a total of 72 firm-year observations. The data used are secondary data obtained from annual and financial reports accessed via idx.co.id. The independent variables are capital structure, measured using the Debt Equity Ratio (DER), and operational performance, measured using liquidity. The mediating variable is the governance variable, measured by the independent board of directors (DKI), and financial risk is measured using Risk Based Capital (RBC). The depen- dent variable in this study uses financial performance as measured by Return On Assets (ROA). The results prove the following: (1) Capital structure has a positive and significant effect on financial performance. (2). Operational performance has a negative and significant effect on financial performance. (3). Capital structure had a positive and significant effect on DKI. (4) Operational performance has a significant negative effect on financial risk. (5) DKI does not mediate the influence of capital structure on financial performance. (6) Financial risk fully mediates the influence of operational performance on financial performance. (7). DKI has a negative and significant effect on financial performance. (8). Financial risk has a negative and significant effect on financial performance.

Sectoral Asset Concentrations and Insurance Solvency Regulation

Historical evidence, like the global financial crisis from 2007–2009, highlights that sectoral asset concentrations can play an important role in the solvency of insurers. Yet, current regulatory frameworks, such as the U.S. risk-based capital (RBC) framework, neglect sectoral asset concentrations in the determination of capital requirements, potentially underestimating the asset portfolio’s systematic loss exposure and reducing incentives for corresponding risk mitigation. By creating a detailed data sample of U.S. insurers’ asset holdings from 2009 to 2018 by means of their statutory filings, we find that insurers concentrate their assets particularly toward the financial, public, and real estate sector and that sectoral asset concentrations toward the public sector are associated with improved solvency, while concentrations toward the real estate sector weaken solvency. Our findings can serve as a starting point to revise current regulatory practices, particularly in terms of creating proactive incentives for insurers to mitigate the accumulation of systematic risk exposures associated with sectoral asset concentrations.

Modeling underwriting risk: A copula regression analysis on U.S. property-casualty insurance byline loss ratios

This article evaluates underwriting risks for U.S. property-casualty insurance company using a by-line multivariate framework. We propose a regression system with copula structure to estimate the dynamics and dependences of by-line loss ratio changes. The dynamics are characterized by autoregressive, macroeconomic, and line-specific variables. The dependences are characterized by symmetric, asymmetric, and vine copulas to manifest the contemporaneous risk. Both positive and negative dependence of loss ratio changes are found, and the lines of business contribute distinct diversification effects from the Risk-based Capital (RBC) R5 formula suggested. Based on empirical studies of industry-wide data, we confirm that the choice of copula structure and marginal estimation method affects the model's performance in the stress testing of catastrophic events. The proposed approach can be regarded as an internal model calculating the diversification benefits across business lines, based on a statistical hypothesis in contrast to a regulatory base. These findings help insurers and regulators to evaluate their capital requirements more precisely and reduce liability-side risk.

The Relationship between Bank Capital, Risk-Taking and Profitability: Fresh Evidence from Panel Quantile Approach

This study aims to reveal the relationship between bank capital (BC), risk-taking, and profitability for commercial banks in Turkey using panel quantile regression models (QRPD) with non-additive fixed effects (NAFE). Accordingly, we consider the data of 18 commercial banks for 2012-2022. Firstly, we concluded a positive relationship between banks' risk-based capital (RBC) and traditional capital ratios (CR) and return on assets (ROA); in contrast there is a negative relationship between RBC and risk-weighted assets (RWATA) under all market conditions. Secondly, we found a positive relationship between the RBC and the provision for loan losses ratio (LLPTA) in other periods except for the contraction period; at the same time, there is a positive relationship between CR and LLPTA in other periods except for the expansion period. The findings also showed an inverted U-shaped relationship between RBC and the LLPTA and return on equity (ROE) and an N-shaped relationship between CR and ROE. Lastly, we discovered a positive relationship between RWATA and ROA and ROE in all market conditions, whereas a negative relationship exists between LLPTA and ROA. The findings provide valuable insights into the validity of the moral hazard and cost-skimping hypotheses, regulatory assumptions, agency, portfolio and risk-bearing profit theories in the commercial banking sector, and that risk, capital and profitability indicators are leading factors in banks' stability.

THE DETERMINANTS AND IMPLEMENTATION OF RISK-BASED CAPITAL ON THE FINANCIAL PERFORMANCE OF INSURANCE COMPANIES IN INDONESIA

The insurance company is one of the pillars in supporting economic growth. In Indonesia, insurance companies are required to report their solvency ratio to the government on a regular basis. Therefore, the objective of this research is to assess the effect of retention, investment assets, leverage, technical reserves and maturity mismatch on Risk Based Capital (RBC) and financial performance of insurance companies in Indonesia. This research is a quantitative approach using panel data regression method. The population of this research is companies in the insurance industrial sector in 2014-2018. The sample used in this research was 91 insurance companies. This research used secondary data obtained from financial reports published in print media and company websites during 2014-2018. The results of this research indicate that retention and investment assets have a positive effect on risk-based capital (RBC) and the financial performance of insurance companies. While leverage has no effect on risk-based capital (RBC) or financial performance of insurance companies. On the other hand, the technical reserve variable only affects the financial performance of insurance companies but has no effect on the company’s risk-based capital. In addition, the maturity mismatch variable indicates a negative effect on risk-based capital but has no effect on the financial performance of insurance companies. Meanwhile, risk-based capital affects the financial performance of insurance in Indonesia.

Analisis Pengaruh Rasio Early Warning System dan Good Corporate Governance terhadap Risk Based Capital pada Perusahaan Asuransi Syariah di Indonesia Periode 2017-2021


 
 
 
 The goal of this study is to determine how big of an impact Good Corporate Governance (GCG) and Early Warning System (EWS) ratios have on the Risk Based Capital (RBC) of Sharia insurance businesses. The study technique employs a total sample of 13 Islamic insurance firms and a quantitative approach using panel data regression models utilizing EViews12. Liquidity, claims expenditure, and changes in surplus are the factors from the EWS ratio that were chosen. The size of the board of directors, board of commissioners, sharia supervisory board, and audit committee are the following factors that were chosen from GCG. The outcome of the hypothesis test was that none of the independent factors concurrently affected the RBC variable. The liquidity ratio is the single factor that, in part, significantly affects RBC.
 Keywords: EWS; GCG; RBC; Sharia Insurance
 
 
 

Financial performance of sharia and non-sharia life insurance: A comparative analysis

The emergence of Islamic insurance as a financial solution for Muslim communities, especially in Muslim-majority countries, is an intriguing topic. This study aims to evaluate the financial performance of Sharia-compliant life insurance in Indonesia and its market presence. Specifically, it compares the financial performance of non-Sharia and Sharia life insurance companies using the Early Warning System (EWS) and Risk-Based Capital (RBC). The EWS evaluation measures capital adequacy ratio, claim expense ratio, liquidity ratio, and own retention ratio, while RBC measures solvency ratio. The results of hypothesis testing, using the Mann-Whitney U test, reveal a significant difference between the financial performance of non-Sharia and Sharia life insurance companies based on EWS. However, there is no significant difference between their financial performance based on RBC's solvency ratio. The findings of this study imply that, as a whole, sharia-compliant insurance outperforms its non-sharia counterparts. Despite the relatively small sample size, these results offer a ray of hope for Islamic financial institutions to pursue further growth and development.

Internal and External Determinants of Risk Based Capital

Abstract This research aims to investigate the determinants of Risk Based Capital (RBC) of Indonesia’s general insurance public listed companies. Panel data regression model was used to analyze the internal and external variables influencing the RBC. This research finds that ratios of sales to total asset, gross profit to total asset, premium claim to total asset, investment to total asset, and interest have a significant impact on the RBC of Indonesia's publicly traded general insurance companies. JEL classification numbers: C650, G22, G32. Keywords: Sales to total asset, Policy rate, investment performance, Gross profit to total asset, Premium claim, Panel data regression model, Risk based capital (RBC).

Pengaruh Profitabilitas (ROA) Terhadap Solvabilitas (RBC) Pada Perusahaan Asuransi Kerugian Yang Terdaftar Di Bursa Efek Indonesia

Insurance companies help reduce losses that may be incurred by investments as well as for life and asset protection. This study aims to determine the effect of return on assets (ROA) on risk based capital (RBC) in insurance companies listed on the IDX. Quantitative method with the type of associative problem formulation that has a causal relationship as well as secondary data sources in the form of financial reports (annual reports) of insurance companies listed on the IDX are used in this study. The population in this study were 84 insurance companies listed on the IDX and sampling was carried out using a non-probability sampling method with a purposive sampling technique. Descriptive analysis, data normality test, product moment correlation, simple linear regression, t test, and the coefficient of determination are the data analysis techniques used in this study. The results of this study show that profitability (ROA) has a positive and significant effect on solvency (RBC) in general insurance companies listed on the IDX.
 Keywords: Risk Based Capital, Return on Assets, and Insurance Company.

The Effect of Debt to Equity Ratio, Debt to Asset Ratio, and Risk Based Capital on Return on Asset In General Insurance Companies on The Indonesia Stock Exchange For 2015-2021 Period

According to the study's findings, the ratios of debt to equity (DER), debt to assets (DAR), and risk-based capital (RBC) all affect return on assets at the same time (ROA). This research was conducted to look at the ratios of risk-based capital (RBC) to return on assets (ROA), debt to equity ratio (DER), and debt to asset ratio (DAR) in general insurance businesses for the years 2015 through 2021. This kind of study employs a quantitative methodology and secondary data sources. Financial statements are the source of the data. The general insurance businesses are the study's population. Analysis is conducted using multiple regression. The IBM SPSS Statistics 25 statistical application is used by the researcher. Debt to Equity Ratio (DER) significantly influences Return on Assets in a favorable way (ROA).

Claims Payment, Risk-Based Capital as Determinants of Life Assurance Companies’ Profitability in Nigeria

The study assessed the relationship between claims payment, risk-based capital and profitability of Life Assurance Companies in Nigeria. There are fourteen listed life insurers in the industry where data of six insurers were randomly selected from the companies` annual reports for the periods of 2011-2019. The data were made available in the Nigerian Insurers Association Digest. Ex-post factor research design was employed. Findings show that claims payment, proxied by Net Claim, Net Premium and Net Expenses and Risk-Based Capital have significant effect on profitability of life Insurance Companies in Nigeria. Four hypotheses were tested. The first hypothesis showed the p-value of 0.0095<0.005, confirming that Net Claim has significant effect on Profitability of listed Life Assurance Companies in Nigeria. The second hypothesis showed that, Net Premium has significant influence on Profitability of listed Life Assurance Companies in Nigeria with a p-value of 0.0081<0.05. The third hypothesis showed a coefficient of 0.003, p < 0.05), indicating that there is significant relationship between Expenses Ratio and Profitability of Life Assurance Companies in Nigeria. Finally, the fourth confirmed that Risk-Based Capital has significant effect on Profitability of listed Life Assurance Companies in Nigeria with a p-value 0.0089>0.05. The study therefore concluded that the life insurance companies should put in place strategies to ensure proper management of Net Claim, Net Premium, Net Expenses and Risk-Based Capital and also entrust these in the hands of experts to yield high results. The study recommended that the claim managers should work in cooperation with other sections of the insurer from the policy formation stage to its cessation to promote timely payment of genuine claims and increase the profitability of insurance firms through effective cost control.

Pengaruh Rasio Keuangan Early Warning System Terhadap Tingkat Solvabilitas Pada Perusahaan Asuransi Yang Terdaftar di Bursa Efek Indonesia Tahun 2017-2020

Early Warning System is a tool that can be used to analyze financial statements and process them into useful information to be used as a monitoring system for the financial performance of the insurance company concerned. This study aims to examine the ratio of liquidity ratios, claims expense ratios, and the ratio of premium growth to solvency levels as proxied by Risk Based Capital (RBC). The population in this study were 16 insurance companies listed on the Indonesia Stock Exchange (IDX). The sample used is 10 companies obtained by using purposive sampling method. The data obtained from the analysis of the company's annual report obtained from the IDX's official website, namely www.idx.co.id with the data method using the classical assumption test, multiple linear regression test, hypothesis testing, and coefficient of determination test. The results of the study show that: (1) Liquidity has a positive and significant effect on risk based capital; (2) The claim expense ratio has a positive and significant effect on risk based capital; (3) Premium growth has a positive and significant effect on risk based capital. Based on the F test, liquidity, claims expense ratio, and premium growth have a positive and significant effect on risk based capital.

PENGARUH RASIO PERTUMBUHAN PREMI DAN RASIO BEBAN KLAIM TERHADAP TINGKAT KESEHATAN PERUSAHAAN ASURANSI DI MASA PANDEMI COVID-19

Pandemic of Covid-19 makes people increase the awareness of insurance in their daily lives. This increase in awareness has led to the importance of insurance companies that have a good level of health and their performance can be assessed by the public. Performance in insurance companies can be reflected in a system called the Early Warning System. Meanwhile, the health level of the insurance company is reflected in Risk Based Capital. The Early Warning System consists of several ratios, including the premium growth ratio and claim expense ratio This study aims to test whether the premium growth ratio and claim expense ratio affect the health level of the insurance company. The health level of the insurance company is proxied with Risk Based Capital (RBC). The population used in this study were insurance companies listed on the Indonesia Stock Exchange from the 2020-2021 period. The sample selection method used is purposive sampling. The hypothesis testing of the research used is multiple regression analysis using the eviews program. The result of this study is that there is no influence between the premium growth ratio and the health level of the insurance company and there is an influence between the claim expenses ratio and the health level of the insurance company.

Pengaruh Premi, Hasil Underwriting dan RBC terhadap ROA pada Asuransi Syariah yang Terdaftar di OJK Periode 2016-2020

This study aims to determine how the influence of premiums, underwriting results, and RBC (Risk Based Capital) on ROA (Return on Assets) in Sharia General Insurance Registered at OJK (Financial Services Authority) either partially or simultaneously. This research method is associative quantitative with secondary data type in the form of sharia general insurance financial reports published by OJK from 2016 to 2020. The data collection techniques include documentation and literature study. While the data analysis used is multiple correlation analysis, multiple regression analysis, coefficient of determination analysis, t test design, and F test design. The results show that there is no influence between premiums on ROA in sharia general insurance registered with the OJK, there is a positive and negative effect. There is a significant relationship between underwriting results on ROA on sharia general insurance registered with the OJK, and there is no effect between RBC on ROA on sharia general insurance registered with the OJK.

An Approach for Variable Selection and Prediction Model for Estimating the Risk-Based Capital (RBC) Based on Machine Learning Algorithms

The risk-based capital (RBC) ratio, an insurance company’s financial soundness system, evaluates the capital adequacy needed to withstand unexpected losses. Therefore, continuous institutional improvement has been made to monitor the financial solvency of companies and protect consumers’ rights, and improvement of solvency systems has been researched. The primary purpose of this study is to find a set of important predictors to estimate the RBC ratio of life insurance companies in a large number of variables (1891), which includes crucial finance and management indices collected from all Korean insurers quarterly under regulation for transparent management information. This study employs a combination of Machine learning techniques: Random Forest algorithms and the Bayesian Regulatory Neural Network (BRNN). The combination of Random Forest algorithms and BRNN predicts the next period’s RBC ratio better than the conventional statistical method, which uses ordinary least-squares regression (OLS). As a result of the findings from Machine learning techniques, a set of important predictors is found within three categories: liabilities and expenses, other financial predictors, and predictors from business performance. The dataset of 23 companies with 1891 variables was used in this study from March 2008 to December 2018 with quarterly updates for each year.

Antecedent of risk-based capital of public non-life insurance companies in Indonesia

The performance of the insurance service industry has an impact on the Indonesian economy, therefore insurance companies must be able to maintain their sustainability by maintaining a level of financial health, generally represented by risk-based capital (RBC). The purpose of this research is to test and analyse whether the macro indicators such as customer price index (CPI), gross domestic product (GDP), central bank interest rate (BIR); and micro indicators such as investment performance, loss ratio and total assets are antecedent of RBC. This quantitative research used nine samples of public non-life insurance companies in Indonesia and the secondary data were collected from annual financial reports from 2008-2019 and macroeconomic data were collected from Statistic Bureau Centre, then data panel regression analysis was conducted to test the research hypotheses. The results show that loss ratio, total assets and the movement of GDP are antecedent of the RBC. Total assets has relative big impact (positive) on RBC and loss ratio has relative small impact (positive) on RBC, on the other hand GDP has a relative medium impact (negative) on RBC. In other words, two micro indicators and one macro indicator have impacts on RBC.