Title: Dynamic financial model of life insurance and family takaful companies in Malaysia

Authors: Muhamad Abduh; Syaza Nawwarah Zein Isma

Addresses: School of Business and Economics, Universiti Brunei Darussalam, Jl. Tungku Link, Gadong BE1410, Brunei Darussalam ' Universiti Sains Islam Malaysia, Negeri Sembilan, Malaysia

Abstract: The ability to understand and identify factors affecting solvency of life insurance and family takaful company is crucial to various stakeholders of an insurance industry. The purpose of this study is to empirically study firm-specific and economic factors affecting solvency of life conventional insurance and family takaful companies in an emerging economy and well-regulated financial industry of Malaysia. Equity-to-asset and equity-to-technical reserve ratio are used as proxy for solvency. The investigation was done from year 2008 to 2012 on 11 life insurance and six family takaful companies using balanced panel data regression model. The study found that expenses and investment income are statistically significant and positively related to solvency of life insurance business. Meanwhile, company size and liquidity are statistically significant and negatively related to solvency of life insurers' solvency. For family takaful, takaful leverage and contribution growth have significant positive effect, while, expenses and company size have significant negative effect on solvency.

Keywords: life insurance; takaful firms; solvency; Malaysia; dynamic modelling; financial models; family firms; family businesses; emerging economies; expenses; investment income; firm size; takaful leverage; contribution growth; Islamic finance.

DOI: 10.1504/MEJM.2016.077144

Middle East Journal of Management, 2016 Vol.3 No.1, pp.72 - 93

Received: 22 Jan 2016
Accepted: 26 Jan 2016

Published online: 21 Jun 2016 *

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