The Effect of Efficiency, Profitability, Claims and Firm Size on Financial Distress Mediated by Risk-Based Capital in Insurance Companies Registered with the Financial Services Authority

Abstract

The financial health of a life insurance company is important to ensure its ability to pay life insurance benefits to policyholders. Companies that experience financial difficulties put their ability to pay claims at risk, resulting in delays or inability to pay benefits that should be provided. The aim of the research is to analyze the influence of efficiency, profitability, claims and firm size on the financial distress of life insurance companies both directly and through risk based capital mediation. The research used 25 life insurance companies for the 2018-2022 period. Determination of the sample using purposive sampling technique. Data analysis uses path analysis with the help of a computer program. The analysis results show that efficiency, profitability and firm size have a significant effect on risk based capital, but the claims ratio has no effect on risk based capital. The profitability and firm size and risk based capital have a significant effect on financial distress, but efficiency and claims have no effect on financial distress. The risk based capital is able to mediate the influence of efficiency, profitability and firm size on financial distress in life insurance companies in Indonesia. The use of risk based capital as a mediating variable is a research novelty, then efficiency, profitability, claims and firm size as independent variables simultaneously also becomes a research novelty.