jagomart
digital resources
picture1_Financial Economics Pdf 126773 | 04 Toto 47 65


 162x       Filetype PDF       File size 0.43 MB       Source: tsharto.staff.gunadarma.ac.id


File: Financial Economics Pdf 126773 | 04 Toto 47 65
research accepted 17 february 2019 paper safa1 0 63 international journal of business and management science chief editor mohammad safa 23 www safaworld org ijbms submission ijbms submission safaworld org ...

icon picture PDF Filetype PDF | Posted on 12 Oct 2022 | 3 years ago
Partial capture of text on file.
                       Research                                                   Accepted 17 February, 2019 
                       Paper                                                                          SAFA1= 0.63 
                                                                            
                                                                       
                                  International Journal of Business and Management Science 
                                                     Chief Editor: Mohammad Safa 
                                                                                    23
                                                      www.safaworld.org/ijbms  
                                                 Submission: ijbms.submission@safaworld.org 
                                                                       
                                                                       
                        Effect of Micro and Macro Economic Factors on the 
                         Financial Health of General Insurance Companies  
                                                           in Indonesia 
                                   a                     b                           c
                                    Toto Sugiharto,  Novita Sulistiowati,  Rina Nofiyanti 
                                                                       
                                     acFaculty of Economics, Gunadarma University, Indonesia 
                       bFaculty of Information and Communication Technology, Gunadarma University, 
                                                                 Indonesia 
                                       *Corresponding author: tsharto@staff.gunadarma.ac.id            
                                                                       
                          Abstract: The objective of the study is to analyze the effect of macro and micro 
                          economic  factors  on  the  financial  health  of  general  insurance  companies  in 
                          Indonesia. Macroeconomic factors include economic growth rate, inflation rate, and 
                          interest   rate;  microeconomic  factors  include  company  size,  investment 
                          performance, loss ratio, and current ratio. Financial health is represented by risk-
                          based  capital.  Automatic  linear  modeling  was  performed  to  test  the  proposed 
                          hypotheses. It is revealed that the financial health of general insurance companies is 
                          significantly  influenced  by,  respectively,  current  ratio,  reference  interest  rate, 
                          inflation rate, and company size in different directions and magnitudes.      
                           
                          Keywords: General Insurance Companies; Risk Based Capital; Economic Growth; 
                          Inflation  Rate;  Interest  Rate;  Company  Size;  Investment  Performance;  Current 
                          Ratio 
                           
                        
                        
                                                                        
                       1
                       SAFA stands for Standardized Acceptance Factor Average which is calculated based on the review scores. If the 
                       obtained SAFA lies between 0.5 and 1 tends to be accepted for publication with the recommended level of 
                       revision, if other requirements are satisfied. 
                       2
                        Copyright @ 2025, Mohammad Safa: Unless otherwise noted, copyrights for the texts which comprise all issues 
                       of the International Journal of Business and Management Science (IJBMS) are held by the copyright owner. 
                       Items published by IJBMS may be freely shared among individuals, but they may NOT be republished in any 
                       medium without written consent from the copyright owner. In order to discuss any relevant issues or acquire 
                       permission for reprint or reuse of data, please contact the editors at ijbmseditors@safaworld.org. 
                       3
                         Disclaimer: Facts and opinions published in the International Journal of Business and Management Science 
                       (IJBMS) express solely the opinions of the respective author(s). Author(s) are responsible for citing sources and 
                       the accuracy of their references. The editors cannot be held responsible for any lacks or possible violations of 
                       third parties’ rights. If any misconduct found in any published items, the relevant party may contact the editors for 
                       suggestions. 
                       Published by the Society for Alliance, Fidelity and Advancement (SAFA)                       47 
                                          Effects of Macro and Micro Economic Factors on Insurance companies                                                                                   ISSN 1985-692X 
                                           
                                          INTRODUCTION 
                                           
                                          In  the  economic  system,  financial  institutions  function  as  economic  support 
                                          through  the  provision  of  facilities  that  encourage  capital  outflows  and  capital 
                                          inflows  or  capital  turnover.  As  one  of  the  sectors  in  the  financial  industry, 
                                          insurance companies serve a special role in supporting monetary and investment 
                                          activities by providing long-term funds, while increasing risk-taking capabilities. 
                                          Additionally,  the  insurance  sector  is  an  integral  part  of  a  country's  financial 
                                          industry whose role cannot be underestimated. Accordingly, if the performance of 
                                          this  important  sector  is  not  encouraging  and  does  not  experience  substantial 
                                          growth,  it  will  influence  the  economic  system  in  a  very  unfavorable  way. 
                                          Insurance companies play an important role for both businesses and individuals 
                                          where they compensate for any losses and place them in the same position as 
                                          before the loss occurred. The level of the financial health of an insurance company 
                                          determines its position within the market, which, in turn, increases market growth. 
                                          The  diversity  in  numbers  and  size  of  insurance  companies,  which  are  closely 
                                          related with both internal (microeconomic) factors and external (macroeconomic) 
                                          factors, provide an important contribution in determining the financial health as 
                                          well as financial performance of insurance companies. 
                                                 Ghimire  (2104)  defines  insurance  as  a  means  of  financial  protection  from 
                                          events that result in loss of property (wealth or assets), loss of family head as the 
                                          backbone of family breadwinners, and loss of income due to accident, prolonged 
                                          illness,  and  disability  permanent.  Meanwhile,  from  a  legal  point  of  view, 
                                          according  to  Article  246  of  the  Commercial  Code,  insurance  or  coverage  is 
                                          defined as an agreement where the insurers bind themselves to the insured by 
                                          obtaining a premium, to give him compensation due to a loss, damage, or not 
                                          expected benefit, which may be suffered due to an uncertain event. In addition, the 
                                          Financial  Services  Authority  of  Indonesia  (OJK)  defines  insurance  as  the 
                                          agreement  between  the  insurer  and  the  insured  requires  the  insured  to  pay  a 
                                          premium to provide compensation for the risk of loss, damage, death, or loss of 
                                          expected profits, which may occur for unexpected events. 
                                                 In the last decade, insurance companies in Indonesia experienced substantial 
                                          growth, particularly in total assets, premium growth rates and the ratio between the 
                                          rates  of  growth  of  premiums  and  gross  domestic  product.  Data  on  these  three 
                                          attributes over the past five years is presented in Table 1 below.  
                                           
                                          Table 1: Premium growth rate, premium growth rate to gross domestic product ratio and assets of 
                                          insurance companies 2012-2016 
                                          Attribute                                        Year 
                                                                                           2012                      2013                       2014                      2015                       2016 
                                          PGR1 (%)                                         14.90                     9.80                       28.10                     19.50                      15.36 
                                          PGR/GDP2 (%)                                     2.13                      2.13                       2.35                      2.56                       2.00 
                                          Asset (trilion IDR3)                             584.02                    659.73                     807.68                    853.42                     984.53 
                                           
                                          Source: Financial Service Authority of Indonesia (Insurance Statistics 2016) 
                                          Note:  1Premium  Growth  Rate  (Laju  Pertumbuhan  Premi);  2Gross  Domestic  Product  (Produk 
                                                        Domestik Bruto), 3Indonesian  Rupiah 
                                           
                                          48                              International Journal of Business and Management Science, 9(1): 47-65, 2019 
                     Effects of Macro and Micro Economic Factors on Insurance companies       ISSN 1985-692X 
                      
                        In has been predicted by Rahim (2013) that the insurance industry in Indonesia 
                     in the next five years has the potential to grow quite rapidly. However, there are 
                     three  important  agendas  that  must  be  accomplished  to  realize  these  optimistic 
                     projections.   Firstly,   internal  consolidation  that  includes  the  consistent 
                     implementation of the principle of risk-based capital (RBC), the implementation of 
                     risk-based  pricing  (RBP)  and  the  implementation  of  the  principles  of  good 
                     corporate governance (GCG) in a comprehensive manner. Secondly, the increase 
                     and expansion of business activities through the application of the transfer of risk 
                     concept  that  is  to  bear  the  risk  of  economic  actors  in  other  sectors  through 
                     professional  asset  management  practices.  Thirdly,  improving  human  resources 
                     (HR) quality, service quality, and the efficiency of corporate management through, 
                     among  others,  the  application  of  information  and  communication  technology 
                     (ICT) including information systems (Rahim, 2013). 
                        Based on the above-mentioned background to the recent study, this research—
                     which  aims  to  analyze  the  influence  of  macroeconomic  and  microeconomic 
                     (company specific) factors on the financial health of Indonesian general insurance 
                     companies—is of importance and, therefore, needs to be accomplished. Results of 
                     the study are expected to provide managers or practitioners of insurance industry, 
                     particularly   general    insurance     companies,     with    information    regarding 
                     macroeconomic and microeconomic factors that potentially affect the financial 
                     health of general insurance companies. 
                        The paper is organized as follows. The second section describes the literature 
                     review  which  consists  of  the  financial  health  of  insurance  companies,  the 
                     determining  factors  of  the  financial  health  of  insurance  companies,  the 
                     macroeconomic determinants of the financial health of insurance company and 
                     research hypotheses. The third section explains the methods of the study which 
                     covers  research  model  and  variables,  methods  of  analysis  and  sampling 
                     procedures. The fourth section consists of results and discussions which include 
                     the descriptive statistical analysis of research variables, the results of the automatic 
                     data  preparation  and  the  inferential  statistical  analysis  of  research  variables. 
                     Finally, we present our conclusions. 
                      
                      
                     LITERATURE REVIEW 
                      
                     Financial Health of Insurance Companies  
                      
                        Similar with other types of business organizations, insurance companies are 
                     established and operate their business activities with the aim of maximizing the 
                     wealth of their shareholders by, among others, maximizing the company's market 
                     value (Necas, 2016). In addition, Dahnel et al. (2005) in Necas (2016) explained 
                     that   the   relationship   between  shareholders,  insurance  companies,  and 
                     policyholders  (clients)  can  be  illustrated  as  follows.  Shareholders  provide 
                     capital—along with its related risks—for insurance companies with the hope of 
                     obtaining revenue along with other requirements, namely the increase in market 
                     value of the funds invested. On the other hand, policyholders (clients) divert risk 
                     to insurance companies with the hope that in the future all obligations contained in 
                     insurance  policies  are  met  by  the  insurance  companies.  In  return,  insurance 
                     International Journal of Business and Management Science, 9(1): 47-65, 2019           49  
                     Effects of Macro and Micro Economic Factors on Insurance companies       ISSN 1985-692X 
                      
                     companies demand premiums in accordance with the risks faced by clients taken 
                     over by insurance companies. 
                        Shareholders demand high returns - in this case return on assets (ROA) with 
                     low risk. Policy holders (clients) want the maximum guarantee that the insurance 
                     company in the future fulfills all its obligations in accordance with the insurance 
                     policy (insurance policy) agreed upon by both parties. The extent to which the 
                     insurance company is able to fulfill all of its obligations depends very much on 
                     what is referred to as capital endowment or capital support or capital availability. 
                     Meanwhile,  the  higher  the  level  of  capital  support  —  the  greater  the  capital 
                     support that needs to be provided - it will be increasingly difficult for shareholders 
                     to obtain the required or desired income. In uniting or harmonizing the desires of 
                     both  parties  namely  shareholders  -  who  demand  high  returns  (ROA)  -  and 
                     policyholders  (clients),  who  demand  definitive  and  comprehensive  guarantees, 
                     insurance companies can use financial stability as an intermediary or the bridging 
                     aspect between shareholders and policyholders. Chen and Wong (2004) use the 
                     term financial  stability  and  financial  health  insurance  companies  alternately  or 
                     interchangeably, meaning that they have the same meaning. Financial stability or 
                     financial  health  of  an  insurance  company  acts  as  a  prerequisite  for  insurance 
                     companies  in  fulfilling  the  wishes  of  shareholders  and  policyholders  (Necas, 
                     2016).  This  is  in  line  with  Vaughan  and  Vaughan  (2008)  who  states  that  the 
                     financial stability or financial health of insurance companies is a very important 
                     factor that must be considered in choosing an insurance company. 
                        Chen and Wong (2004) and Necas (2016) in their study found that financial 
                     stability and financial health are closely related to the solvency or solvency of 
                     insurance  or  reinsurance  companies  to  guarantee  fulfillment  of  obligations 
                     permanently  following  insurance  or  reinsurance  activities  from  their  own 
                     resources , liquidity — the ability to fulfill its financial obligations at the right 
                     time,  without  affecting  normal  operations,  and  profitability  —  the  ability  of 
                     insurance companies to make profits. In Indonesia, based on the Financial Services 
                     Authority  (2016),  compulsory  insurance  companies  at  all  times  meet  financial 
                     health level requirements where the level of financial health company includes: (a) 
                     solvency level;  (b)  technical  reserves;  (c)  sufficient  investment;  (d)  equity;  (e) 
                     guarantee funds; and (f) other provisions relating to financial health. 
                      
                     Determining Factors of the Financial Health of Insurance Companies 
                         
                        Chen and Wong (2004) state that the financial health of insurance company 
                     which is represented by insolvency of the company are influenced by a number of 
                     factors. In general, these factors are classified into two major groups, i.e. micro-
                     determinants or micro-economic indicators or company-specific determinants and 
                     macro  determinants  or  macro-economic  indicators  (Chen  and  Wong,  2004; 
                     Caporale et al., 2017). Micro-economic indicators that have the potential to affect 
                     the health level of insurance companies, both life insurance and general insurance, 
                     are presented in Table 2. 
                      
                      
                      
                      
                     50              International Journal of Business and Management Science, 9(1): 47-65, 2019 
The words contained in this file might help you see if this file matches what you are looking for:

...Research accepted february paper safa international journal of business and management science chief editor mohammad www safaworld org ijbms submission effect micro macro economic factors on the financial health general insurance companies in indonesia a b c toto sugiharto novita sulistiowati rina nofiyanti acfaculty economics gunadarma university bfaculty information communication technology corresponding author tsharto staff ac id abstract objective study is to analyze macroeconomic include growth rate inflation interest microeconomic company size investment performance loss ratio current represented by risk based capital automatic linear modeling was performed test proposed hypotheses it revealed that significantly influenced respectively reference different directions magnitudes keywords stands for standardized acceptance factor average which calculated review scores if obtained lies between tends be publication with recommended level revision other requirements are satisfied copyr...

no reviews yet
Please Login to review.