The effect of capital ratio on risk, efficiency and profitability of insurance companies: evidence from Singapore and Thailand

Abstract

This research study examines the importance of capital ratios in assessing the financial health of insurance companies in the context of Singapore and Thailand. The primary objective is to investigate the extent to which capital ratios provide informative insights into the risk, efficiency, and profitability of insurance companies. The study covers both life and non-life insurance companies during the period from 2017 to 2021. The findings show that higher capital ratios correspond to lower liquidity risk, improved efficiency, and increased profitability. These results emphasize the importance of maintaining adequate capital reserves to ensure financial stability and enhance operational performance in the insurance sector. In conclusion, risk-based capital ratios not only serve as indicators for solvency but also reflect liquidity risk, efficiency, and profitability. Adequate capital reserves are crucial for the financial stability of insurance companies. This research study expands the understanding of the relationship between capital ratios and performance metrics, providing valuable insights for stakeholders involved in managing and assessing the financial health.