The insurer factors and the determination of retention to improve the performance of insurance companies in Indonesian insurance industry

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Abstract

The purpose of this study is first to analyze the insurer factors affecting the payment of reinsurance premium as well as reinsurance premium inward from abroad and ceded abroad in Indonesian insurance industry in the period of 2010-2014. The insurer factors analyzed are total admitted assets, underwriting risk, net claims, liabilities, corporate income, corporate capital, retention premium, line of business, and interaction between capital and profit as well as debt and profit. The second purpose is to determine the retention rate of insurance companies to improve their performance. The method applied to analyze the reinsurance premium is multiple linear regressions. The methods applied to determine the retention rate are Straub's method and the provisions by Indonesian Financial Services Authority (OJK), i.e. OJK Regulation No.14/POJK.05/2015 and OJK Circular Letter No. 31/SEOJK.05/2015. The finding shows that the insurer factors affecting the reinsurance premium in Indonesia are capital/equity, profit, net claim, underwriting risk, line of business in property, motor vehicle, engineering, cargo, hull and liability, surety, personal accident and health, miscellaneous, and interaction between capital and profit. The second finding shows that the retention of the insurance companies is determined by capital at risk, profit loading, risk willingness and unbalancedness. The calculation using Straub's method and OJK Regulation and Circular Letter implicates that the insurance companies can adjust the calculation of retention by using risk profile and claim recovery based on the historical data to determine and customize the self-retention according to the provisions by OJK.

Original languageEnglish
Pages (from-to)317-336
Number of pages20
JournalInternational Journal of Applied Business and Economic Research
Volume15
Issue number7
Publication statusPublished - 2017

Keywords

  • Insurance
  • Insurance Performance
  • Reinsurance
  • Reinsurance Premium
  • Retention
  • Straub's Method

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