Determinants of Profitability of General Insurance Companies in Indonesia

Abstract

This study aims to analyze the factors that affect the profitability of general insurance companies in Indonesia. The research population consisted of conventional general insurance companies that obtained operating licenses in Indonesia from the Financial Services Authority (OJK) during the 2012-2017 observation period. The study sample consisted of 69 companies determined by purposive sampling. The study uses secondary data from the annual Indonesian Insurance Statistics issued by the Financial Services Authority (OJK). The research method used was descriptive statistic and panel data regression with the Generalized Least Square (GLS) statistical method using the Random Effect Model (REM). The results showed that Leverage and Underwriting Risk had a significant negative effect on Return on Assets, Company Size had a significant positive effect on Return on Assets, while Liquidity and Tangibility had no effect on Return on Assets. The implication in this study is that companies need to maintain and reduce the ratio of Leverage and Underwriting Risk, because both are proven to have a negative effect on profitability. Besides, the company needs to increase the Company Size, because it is proven to have a positive effect on profitability.