Analysis of the Duration Gap Between Investment Assets and Liabilities in Life Insurance Companies in Indonesia

Futty Pratiwi; Zaäfri Ananto Husodo

doi:10.59261/inkubis.v8i2.347

Authors

Futty Pratiwi Universitas Indonesia
Zaäfri Ananto Husodo Universitas Indonesia

DOI:

https://doi.org/10.59261/inkubis.v8i2.347

Keywords:

duration gap, life insurance, asset-liability management, Interest rate risk

Abstract

Background: The life insurance industry faces interest rate risk arising from the mismatch between the duration of investment assets and long-term liabilities.

Objective: This study examines the duration gap profile of the life insurance industry in Indonesia and identifies the factors influencing this gap, with a particular focus on the impact of implementing investment asset reclassification regulations based on the Financial Services Authority Circular Letter Number 23/SEOJK.05/2024 concerning the Form and Composition of Periodic Reports of Insurance Companies and Reinsurance Companies (SEOJK 23/2024).

Methods: This study employs a quantitative approach with a panel data design to analyze the duration gap in the Indonesian life insurance industry.

Results: Using panel data from 42 Indonesian life insurance companies (2,352 observations; May 2021–December 2025), this study finds that the industry maintained a consistently positive duration gap, increasing from 2.6 to 3.9 years following SEOJK 23/2024 due to longer asset duration. Fixed-effects estimation shows that the regulation significantly widened the duration gap, while larger company size reduced it, indicating stronger asset–liability management. Solvency and market share were also significant, whereas product mix and macroeconomic variables were not.

Conclusion: This study provides the first empirical evidence that the Indonesian life insurance industry has consistently maintained a positive duration gap, indicating structural interest rate risk. SEOJK 23/2024 significantly widened the duration gap, while company size reduced it, underscoring the need for firm-specific asset–liability management and risk-based regulatory supervision.

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