DISCRIMINANT ANALYSIS OF INSURANCE COMPANIES IN INDONESIA 2017-2021
Bagoes Harsono (a*), Imo Gandakusuma (b)

a) Universitas Indonesia
*bagoes.harsono[at]gmail.com
b) Universitas Indonesia

Abstract

Determining and forecasting the financial situation of insurance companies of Indonesia has become an important issue of financial supervision to ensure the sustainability of the financial sector and reduce the negative impact of the insurance companies insolvency. The purpose of this research is to identify a financial distress condition for insurance companies using existing method such as Altman Z-score and Ohlson O-score, and also approach new discriminant model using the data from 2017 to 2021. In order to improve the quality of estimation and forecasting of the financial state of insurance companies in Indonesia, a discriminant model should take account into the local characteristic of the insurance business. The discriminant model using existing variable from the Altman model with additional three variable used by the Indonesian regulatory in order to identify the financial state. The research included 124 Indonesian insurance companies. The research finds that a discriminant model of insurance companies in Indonesia with three dominant variable of net working capital, return on total assets, and current ratio. The application of the model allows you to determine whether the insurance company in Indonesia has a satisfactory or unsatisfactory financial condition. To the authors best knowledge, previous research using sharia insurance companies data find the alternative dicriminant model with the same variable as Altman model.

Keywords: Financial distress, Insurance companies, Dicriminant Analysis

Topic: Financial Management and Accounting