ANALYZING THE RELATIONSHIP BETWEEN CAPITAL AND RISK IN INDONESIAN LIFE INSURANCE COMPANIES

Abstract

This study aims to investigate the correlation between capital and risk within Indonesian life insurance firms, focusing on the regulatory framework of Risk-Based Capital (RBC) that dictates the balance of capital against company-held risks. The 2SLS (Two-Stage Least Squares) and GMM (Generalized Method of Moments) methods are applied in this research. The research finds a positive correlation between capital levels and risks in these firms. The findings indicates that the GMM approach more effectively models investment and underwriting risks, whereas the 2SLS method is better in modelling the capital ratio.