Assessment of factors affecting the solvency of property-liability insurance companies
DOI:
https://doi.org/10.51599/is.2024.08.01.09Keywords:
insurance company, solvency, company size, investment return ratio, own-retention ratio, underwriting result, Algeria.Abstract
Purpose. This study aims to determine the effect of company size, investment return ratio, own-retention ratio and underwriting results on both the solvency ratio based on technical provisions (YTP), and the solvency ratio based on net premiums (YNP) of 12 property-liability (P/L) insurance companies in Algeria during 2018–2021. This study uses the multiple regression analysis with the help of the SPSS program.
Results. The results of this study indicate that the underwriting results have a positive and significant effect on YTP of P/L insurance companies in Algeria during 2018–2021, while other variables do not affect YTP. This study also states that the own-retention ratio and underwriting results have a significant positive influence on YNP of P/L insurance companies in Algeria during 2018–2021, however the company size and investment return ratio do not affect YNP of these companies. The developed models explain only 32.4 % of the variation in dependent variable (YTP) and 61.7 % of the variation in dependent variable (YNP), implying that there are still other factors affecting solvency of P/L insurance companies in Algeria.
Scientific novelty. The scientific novelty of this research lies on knowing the factors affecting the solvency of insurance companies by focusing on Algeria, especially since the Algerian solvency system is still purely traditional and does not focus on the factors considered in this study.
Practical value. The findings will enable insurance companies in Algeria to optimally evaluate their solvency by focusing on the factors that have a significant effect on the solvency of insurance companies, thus ensuring the sustainability of these companies. Furthermore, the results of this study could be assistance to the insurance regulatory authority in Algeria to reconsider the rules of regulating solvency based on the factors that affect insurer’ solvency.
References
Agustiyani, A. (2019). The influence of liabillity to liquid assets ratio, retention ratio, incurred loss ratio and firm size on solvability at assurance company listed on the Indonesia stock exchange for the 2014–2018 (Thesis). Pancasakti University Tegal.
Ahmeti, Y., & Iseni, E. (2022). Factors affecting profitability of insurance companies. Evidence from Kosovo. Academicus International Scientific Journal, 25, 122–142. https://doi.org/10.7336/academicus.2022.25.08.
Alamsyah, R., & Ahmad, L. (2021). The effect of insurance premiums, claims, underwriting results, on profitability with a risk-based minimum capital ratio (RBMC) as an intervening variable in general insurance companies. The Accounting Journal of Binaniaga, 6(1), 61–80. https://doi.org/10.33062/ajb.v6i1.434.
Alamsyah, R., & Wiratno, A. (2017). Pendapatan Premi, Rasio Hasil Investasi, Laba, Klaim dan Risk Based Capital Perusahaan Asuransi Kerugian di Indonesia. Jurnal Riset Akuntansi dan Perpajakan, 4(1), 87–101. Available at: https://core.ac.uk/download/pdf/288330992.pdf.
Ambarwati, S., & Hasib, F. F. (2018). Pengaruh ukuran perusahaan, hasil investasi, dan profitabilitas terhadap solvabilitas asuransi syariah di Indonesia periode 2012–2016. Journal of Islamic Economics and Business, 4(2), 91–102. https://doi.org/10.20473/jebis.v4i2.9807.
Barakat, F. S. Q., Hussein, J., Mahmoud, O. A. R., & Bayyoud, M. (2022). Analysis of the factors affecting the financial performance of insurance companies listed on the Palestine stock exchange. Indian Journal of Finance and Banking, 9(1), 213–229. https://doi.org/10.46281/ijfb.v9i1.1679.
Chiaramonte, L., Dreassi, A., Paltrinieri, A., & Piserà, S. (2020). Sustainability practices and stability in the insurance industry. Sustainability, 12(14), 5530. https://doi.org/10.3390/su12145530.
Executive Decree No. 13-115 (2013). Available at: https://www.joradp.dz/FTP/JO-ARABE/2013/A2013018.pdf?znjo=18.
Joo, B. A. (2013). Analysis of financial stability of Indian non life insurance companies. Asian Journal of Finance & Accounting, 5(1), 306–319. https://doi.org/10.5296/ajfa.v5i1.3366.
Kebede, T. N., Tesfaye, G. D., & Erana, O. T. (2024). Determinants of financial distress: evidence from insurance companies in Ethiopia. Journal of Innovation and Entrepreneurship, 13(1), 17. https://doi.org/10.1186/s13731-024-00369-5.
Kumar, N., & Kumar, N. (2016). Impact of corporate characteristics on solvency: an empirical study of public sector general insurance companies of India. Advances in Economics and Business Management, 3(2), 213–219.
Min, L., & Jingfeng, X. (2018). Future solvency prediction for property insurance companies. Advances in Social Sciences Research Journal, 5(12), 482–491. htts://doi.org/10.14738/assrj.512.5759.
Mohammad Salameh, H. (2021). Failure threats of insurance companies: a case study of financial environments of Jordan. Investment Management and Financial Innovations, 18(3), 113–126. https://doi.org/10.21511/imfi.18(3).2021.11.
Pramusinta, A., & Aryani, Y. A. (2023). The effect of growth of net premium, claim ratio, RBC, and retention ratio on the financial performance of insurance companies in the Asean region. Journal of Economics, Finance and Management Studies, 06(01), 189–199. https://doi.org/10.47191/jefms/v6-i1-22.
Rahayu Ningsih, S., Purwohedi, U., & Mardi (2021). Factors affecting solvency in insurance companies in Indonesia 2015–2019 period. Marginal: Journal of Management, Accounting, General Finance and International Economic Issues, 1(1), 34–46. https://doi.org/10.55047/marginal.v1i1.5.
Reschiwati & Rizki Putri, S. (2018). Random effect model: influence of income premium, claim cost and underwriting results on net income in insurance company in Indonesia: case study of insurance company listed on Indonesia stock exchange. International Journal of Modern Trends in Business Research, 1(3), 1–17.
Siddik, Md. N. A., Hosen, Md. E., Miah, Md. F., Kabiraj, S., Joghee, S., & Ramakrishnan, S. (2022). Impacts of insurers’ financial insolvency on non-life insurance companies’ profitability: evidence from Bangladesh. International Journal of Financial Studies, 10(3), 80. https://doi.org/10.3390/ijfs10030080.
Siopi, E., Poufinas, T., Chen, J. M., & Agiropoulos, C. (2023). Can regulation affect the solvency of insurers? New evidence from European insurers. International Advances in Economic Research, 29(1–2), 15–30. https://doi.org/10.1007/s11294-023-09867-w.
Sukmaningrum, P. S., Hendratmi, A., Shukor, S. B. A., Putri, M. R., & Gusti, R. P. (2023). Determinants of sharia life insurance productivity in Indonesia. Heliyon, 9(6), e16605. https://doi.org/10.1016/j.heliyon.2023.e16605.
Trunfio, T. A., Scala, A., Giglio, C., Rossi, G., Borrelli, A., Romano, M., & Improta, G. (2022). Multiple regression model to analyze the total LOS for patients undergoing laparoscopic appendectomy. BMC Medical Informatics and Decision Making, 22(1), 141. https://doi.org/10.1186/s12911-022-01884-9.
Tsai, J. T., & Lo, C.-L. (2024). Modeling underwriting risk: a copula regression analysis on U.S. property-casualty insurance byline loss ratios. Pacific-Basin Finance Journal, 83, 102206. https://doi.org/10.1016/j.pacfin.2023.102206.
Utami, E. P., & Khoiruddin, M. (2016). Pengaruh Rasio Keuangan Early Warning System Terhadap Tingkat Solvabilitas Perusahaan Asuransi Jiwa Syariah Periode 2010–2013. Management Analysis Journal, 5(1), 55–62. https://doi.org/10.15294/MAJ.V5I1.8133.
Uyanık, G. K., & Güler, N. (2013). A study on multiple linear regression analysis. Procedia – Social and Behavioral Sciences, 106, 234–240. https://doi.org/10.1016/j.sbspro.2013.12.027.
Wu, S., & Deng, X. (2021). Corporate diversification, ownership, and solvency in China’s property-liability insurance companies. Mathematical Problems in Engineering. https://doi.org/10.1155/2021/1562771.
Wu, S., & Li, Y. (2021). Impact of the business structure on solvency of property-liability insurance companies and its mediating effect. Discrete Dynamics in Nature and Society. https://doi.org/10.1155/2021/5457846.
Zach, B. (2021). The five assumptions of multiple linear regression. Statology. Available at: https://www.statology.org/multiple-linear-regression-assumptions.