Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Asia-Pacific Journal of Risk and Insurance

The Official Journal of the Asia-Pacific Risk and Insurance Association

Editor-in-Chief: Kwon, W. Jean

2 Issues per year

Online
ISSN
2153-3792
See all formats and pricing
More options …

Solvency Determinants of Conventional Life Insurers and Takaful Operators

Rubayah Yakob / Zulkornain Yusop / Alias Radam / Noriszura Ismail
Published Online: 2012-06-18 | DOI: https://doi.org/10.1515/2153-3792.1143

The business of insurance is based on the trust of its policyholders, who expect that their losses will be compensated should the need arise at any time. Thus, sound financial conditions constitute the most important criterion for insurance firms, as well as for takaful operators. Although the policyholder may be the most important source of insurer finance, or a debt holder from an economic point of view through premium payments, the policyholder is not well informed in assessing the financial strength or solvency of the life insurer. Various measures of the solvency of the insurer are used in the industry, such as margin of solvency (MOS), risk based capital (RBC), and claim paying ability (CPA) rating. Unfortunately, none of these can provide information to policyholders on the financial position of the insurer. This is because the MOS and RBC for each insurer is the company's and regulator’s confidential information. However, for the CPA rating, it is limited to insurers who wish to be evaluated, and therefore the assessment is not comprehensive. Because of these shortcomings, this study provides a platform for policyholders to get an idea of the solvency of the insurers/takaful operators. Furthermore, this study identifies factors that affect the solvency of the insurers/takaful operators in Malaysia. Using random effects regression on panel data for 2003-2007, it is determined that investment income, total benefit paid to capital and surplus ratio, financial leverage, and liquidity are significantly related to solvency, in which the investment income has a positive relationship, while the other three have a negative relationship. From the results obtained, the policyholders/consumers can assess the insurers’ financial strength through the solvency determinants of the insurers/takaful operators, even though the actual level of solvency is not known. To some extent, this information can help policyholders/consumers make smarter choices in choosing the insurers/takaful operators

Keywords: solvency; random effects regression; insurers; takaful operators

About the article

Published Online: 2012-06-18


Citation Information: Asia-Pacific Journal of Risk and Insurance, ISSN (Online) 2153-3792, DOI: https://doi.org/10.1515/2153-3792.1143.

Export Citation

©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston. Copyright Clearance Center

Citing Articles

Here you can find all Crossref-listed publications in which this article is cited. If you would like to receive automatic email messages as soon as this article is cited in other publications, simply activate the “Citation Alert” on the top of this page.

[1]
Muhamad Abduh and Syaza Nawwarah Zein Isma
Journal of Islamic Accounting and Business Research, 2017, Volume 8, Number 3, Page 334

Comments (0)

Please log in or register to comment.
Log in