https://jetbis.al-makkipublisher.com/index.php/al/index
767
Journal Of Economics, Technology, and Business (JETBIS)
Volume 3, Number 4 April 2024
p-ISSN 2964-903X; e-ISSN 2962-9330
ANALYSIS OF THE FINANCIAL PERFORMANCE OF INSURANCE
COMPANIES BEFORE AND DURING THE COVID-19 PANDEMIC BASED ON
EARLY WARNING SYSTEM AND RISK-BASED CAPITAL
Emia Rani Pepayosa
1
, Ratna Septiyanti
2
Universitas Lampung, Indonesia
1
2
KEYWORDS:
Financial performance,
Pandemic, Early Warning
System, Risk-Based Capital
ABSTRACT
This study aims to provide empirical evidence regarding the
comparison of the value of the Early Warning System and Risk-Based
Capital in measuring the financial performance of insurance
companies before and during the COVID-19 pandemic. The Early
Warning System measurement indicator uses the claim expense ratio.
Sampling using purposive sampling method and obtained a sample of
18 insurance companies listed on the Indonesia Stock Exchange
(IDX) for the period 2017-2022. The type of data used is secondary
data in the form of financial reports collected through the company's
official website and the Indonesia Stock Exchange (IDX). The data
analysis method uses non-parametric statistics, namely the Wilcoxon
Sign Rank Test with the help of SPSS version 27. The results prove
that there is a significant increase in the value of the Early Warning
System during the pandemic compared to before the Covid-19
pandemic. The Risk-Based Capital value did not experience a
significant decrease during the pandemic compared to before the
Covid-19 pandemic. In addition, in this study, the Early Warning
System is considered more accurate than Risk-Based Capital because
it has a smaller standard error.
INTRODUCTION
Coronavirus Disease 2019 or Covid-19 is a new disease that can cause respiratory distress
and pneumonia. This disease is caused by Severe Acute Respiratory Syndrome Coronavirus 2
(SARS-CoV-2) infection. The first Covid-19 case in Indonesia was detected on March 2, 2020,
and continues to increase every day, so Presidential Decree Number 11 of 2020 concerning the
Determination of a Covid-19 Public Health Emergency was made, where the government took
a policy to carry out lockdown and social distancing rules to prevent the spread of Covid-19.
(Kompas.com, 2022). The policy has had an impact on the economic downturn in Indonesia
and the sustainability of companies in various sectors including the industrial sector. The
financial industry sector is one of the sectors affected by Covid-19, including the insurance
sector. The performance of the insurance industry is influenced by many factors, one of which
is the economy and income. COVID-19 has caused economic growth and income to fall so that
the demand for insurance automatically falls and finally the insurance industry can experience
losses (Marpaung, 2020).
The Covid-19 pandemic may provide two different possibilities for the insurance
industry. First, insurance is a tertiary need that may not be chosen due to the economic crisis.
Second, with future uncertainties about health and the economy, insurance may be an option
Vol 3, No 4 April 2024
Analysis Of The Financial Performance Of Insurance Companies
Before And During The Covid-19 Pandemic Based On Early
Warning System And Risk-Based Capital
https://jetbis.al-makkipublisher.com/index.php/al/index
to guarantee future uncertainties. This uncertainty will certainly affect the future of insurance
companies in terms of premium income (Pratiwi & Agustina, 2022). Based on statistics from
the Indonesian Life Insurance Association (AAJI), the first quarter of 2020 recorded a 4.9%
decline in premiums and at the end of the second semester of 2020, it is estimated that it will
experience negative growth as a result of the physical distancing policy which causes people
to work from home (Marpaung, 2020).
In addition to the decline in insurance premiums, insurance companies have experienced
an increase in their solvency level. In a pandemic condition where the economy is unstable, the
company's solvency level should have decreased due to the increase in the value of company
risks such as an increase in the value of claims, thus increasing the capital used to cover these
risks. The following is a graph that shows the movement of the solvency level based on the
Risk-Based Capital indicator:
Figure 1
Risk-Based Capital Data of Indonesian Insurance Companies
Source: OJK, processed by researchers (2023)
The graph above shows that the solvency level of the insurance industry has fluctuated.
before and during the pandemic. but experienced an increase at the beginning of the pandemic
in 2021 where the solvency level should have decreased. The Financial Services Authority sets
specific standards for assessing the performance of insurance companies, one of which is the
provision of the Solvency Level. Solvency level can be proxied by Risk-based capital (Ulfan
et al., 2018). According to Roncalli (2020) in Winata & Awaloedin (2023), states that the
research standards for financial risk in insurance companies are different from those of banking
or other similar financial institutions, namely using the Solvency Framework. Based on POJK
Regulation Number 5 of 2023 concerning the Second Amendment to POJK Number 71 /
POJK.05 / 2016, Risk-based capital is a solvency level limitation technique used to evaluate
the ability of insurance companies to fulfill all their business obligations (Winata & Awaloedin,
2023).
At the height of the COVID-19 pandemic in Indonesia, thirteen insurance companies
came under the special supervision of the Financial Services Authority (OJK). This was done
as a result of several problems faced by the insurance companies, one of which was that the
companies were unable to fulfill their client obligations. Sourced from Katadata (2022),
Thirteen insurance companies including seven life insurance companies and six other general
1
3
4
5
4
3
1 1
4
3
0
10
2018 2019 2020 2021 2022
RISK BASED CAPITAL
PERUSAHAAN PERANSURANSIAN
Asuransi Umun dan Reasuransi Asuransi Jiwa
Analysis Of The Financial Performance Of Insurance
Companies Before And During The Covid-19 Pandemic Based
On Early Warning System And Risk-Based Capital
Vol 3, No 4 April 2024
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insurance and reinsurance companies, are under the special supervision of the regulator. With
a letter KEP-71/D.05/2022, the Financial Services Authority has revoked the business license
of PT Asuransi Jiwa Adisarana Wanaartha due to problems paying claims and customer losses.
PT Asuransi Jiwa Adisarana Wanaartha was penalized for violating the minimum solvency
level, minimum investment adequacy ratio, and minimum equity. PT Asuransi Jiwa Kresna
Life also experienced defaults on two of its insurance products as well as alleged embezzlement
of customer insurance. PT Asuransi Jiwasraya also experienced 10 corruption cases that
harmed customers, and PT Asuransi Bumiputera also experienced cases of default (Katadata,
2022).
From the existing phenomenon, it is necessary to analyze the performance of financial
performance of insurance companies before and during the COVID-19 pandemic because these
problems make companies, policyholders, and investors suffer losses. Insurance companies
must measure and know the company's financial performance so that they can identify
problems and make the right decisions. PSAK No. 28 concerning Loss Insurance Accounting,
lists the Early Warning System method that can be used as a financial performance
measurement tool in the insurance industry. In this study, the Early Warning System is used as
a tool to detect the financial performance of insurance companies with measurement indicators
using the claim expense ratio. In the Early Warning System, the claim expense ratio is
considered capable of representing the profitability, liquidity, and premium stability of
insurance companies, so that it can signal potential financial problems (Nyoman Winata, 2021).
Previous research conducted by (Zahra et al., 2023) and (Hida & Baskoro, 2022) shows
that there is a significant difference in financial performance in the form of an increase in the
value of the Early Warning System of insurance companies before and during the Covid-19
pandemic. Based on research (Pratiwi & Agustina, 2022) shows that there is a significant
difference in financial performance in the form of an increase in the value of the Early Warning
System of insurance companies before and during the Covid-19 pandemic. Meanwhile, based
on research conducted by (Prawesti, 2022); (Antoni, 2021); and (Irhamni & Karya, 2021)
shows the result that there is no significant difference in the financial performance of insurance
companies before and during the COVID-19 pandemic based on the Early Warning System.
Based on research (Pratiwi & Agustina, 2022) and (Hida & Baskoro, 2022) Comparative
analysis of financial performance using Risk-Based Capital shows a significant difference in
the form of an increase in value. While the research results (Winata & Awaloedin, 2023);
(Prawesti, 2022); (Antoni, 2021); and (Irhamni & Karya, 2021) shows the result that there is
no significant difference in the financial performance of insurance companies before and after
the COVID-19 pandemic based on Risk-Based Capital.
Based on the results of previous research, it can be concluded that there are differences
in research results from the measurement indicators of the Early Warning System and Risk-
Based Capital. Therefore, further research is needed. To obtain more comprehensive results.
The results of this study can be useful for insurance companies in managing their financial
health and for regulators in monitoring the solvency of the insurance industry. Researchers use
insurance companies listed on the Indonesian stock exchange because they are more vulnerable
to market movements and economic conditions and describe more clearly the information and
transparency of pandemic-related risks so that it can help assess the potential risks and stability
Vol 3, No 4 April 2024
Analysis Of The Financial Performance Of Insurance Companies
Before And During The Covid-19 Pandemic Based On Early
Warning System And Risk-Based Capital
https://jetbis.al-makkipublisher.com/index.php/al/index
of the company more deeply. This research is a development of Zahra et al's research (2023),
researchers added Risk-Based Capital measurements to show whether differences in the
financial performance of insurance companies can be understood by evaluating their solvency
levels. Based on the number and vulnerability of insurance companies that experience claim
defaults, this study focuses on looking at the Early Warning System by using the claim expense
ratio to find out whether only by looking at this ratio can detect the company's financial
problems in the face of the Covid-19 pandemic or other economic instability. In addition, this
study also analyzes the accuracy of the Early Warning System and Risk-Based Capital in
assessing the financial performance of insurance companies.
RESEARCH METHODS
In this study, the type of research method used is quantitative research. The quantitative
research method in this study uses comparative research. According to (Sugiyono, 2019),
Comparative research is research that compares the existence of one or more variables in two
or more different samples, and or at different times. The types of variables used are independent
variables in the form of Early Warning Systems and Risk-Based Capital. This study uses
secondary data, namely data in the form of numbers derived from the financial statements of
insurance companies listed on the Indonesia Stock Exchange for the period before the COVID-
19 pandemic, namely the 2017 and 2019 periods and the period during the COVID-19
pandemic, namely in the period 2020 to 2022. The financial statements are sourced from the
company's website and the Indonesia Stock Exchange. The type of data required is data that
meets the criteria for calculating the Early Warning System and Risk-Based Capital of
insurance companies listed on the Indonesia Stock Exchange (IDX) for the period 2017-2022.
Population and sampling technique
The population is an insurance company listed on the Indonesia Stock Exchange (IDX)
for the period 2017-2022. The existing population is 18 companies. This study uses a sampling
technique using the purposive sampling method which is included in the nonprobability
sampling. The characteristics of the sample in this study include:
a. Insurance companies listed on the Indonesia Stock Exchange (IDX)
b. Insurance companies that publish audit financial reports during the 2017-2022 period.
Based on the characteristics of the existing research sample, 18 insurance companies
listed on the Indonesia Stock Exchange (IDX) were obtained as research samples.
The data analysis technique used is a nonparametric statistical method because it has a
small sample size or data that does not meet the assumption of normality. The data in this study
were processed using IBM SPSS Statistics 27 software. The data analysis used the Wilcoxon
signed ranks test which is used to evaluate certain treatments on two observations, between
before and after certain treatments.
Data collection techniques
In this study, the documentation method was used to collect data. This means that data is
collected by quoting, recording, or viewing directly from journals, media, documents, and
financial reports of insurance companies listed on the Indonesia Stock Exchange (IDX).
Operational Variables