Comparing Three Models to Evaluate Financial Soundness of Life Insurance Companies in Indonesia

This research aims to compare three models to evaluate the financial soundness of life insurance companies in Indonesia. The three models are RBC (risk-based capital) as regulatory assessment from Indonesia Financial Services Authority (Otoritas Jasa Keuangan); CARAMELS (capital adequacy, asset quality, reinsurance and actuarial issues, management soundness, earnings and profitability, liquidity, sensitivity to market risk) from The International Monetary Fund; and FSR (Financial Strength Rating) from Standard and Poor’s. The theory used in this research is financial performance theory as elaborated by Bertoneche & Knight (2001); Steffan (2008); Needles, Frigo & Powers (2004); Beaver (1966); and Outreville (1998). This case study research uses mixed-method and secondary data. The result concludes that life insurers have healthy financial condition using three models. Although an insurer has the best result on RBC, it doesn’t necessarily show the best results on CARAMELS and FSR model. Therefore, the synthesis of three models is needed to measure financial soundness comprehensively using both quantitative and qualitative indicators.