Comparing Financial Statements: How Business Models Shape Financial Performance

The differing characteristics of banking and insurance businesses are reflected in the financial statement structures, revenue sources, and risks faced by AMAR and AHAP throughout 2024.

Jakarta, JurnalPost.com – Financial statements are often viewed merely as a collection of figures regarding a company's assets, revenue, expenses, and profits. However, when analyzed more deeply, these reports provide a clear picture of how a company conducts its business while managing the risks inherent in its activities.

This is evident in the comparison between PT Bank Amar Indonesia Tbk (AMAR) and PT Asuransi Harta Aman Pratama Tbk (AHAP). Both operate within the financial services sector, yet they function under different business models.

AMAR conducts banking operations, while AHAP operates in the general insurance sector. These differences are subsequently reflected in the financial statement structures and risk profiles of each company.

Comparison of AMAR and AHAP Financial Statement Components

Source: Processed from AMAR and AHAP financial reports for the 2024 period.

AMAR and Banking Activities

As a bank, AMAR's primary activities involve the collection and distribution of funds. This character is reflected in the company's asset components, which include cash, current accounts, placements with banks, securities, loans, fixed assets, and other assets.

Based on 2024 financial data in the reports used for this comparison, AMAR's total assets reached approximately IDR 4.87 trillion. Net loans were recorded at approximately IDR 2.55 trillion, while net interest income reached approximately IDR 1.16 trillion.

AMAR also booked other operating income of approximately IDR 510.81 billion. However, in the same period, the company recorded impairment loss expenses of approximately IDR 832.83 billion.

This item relates to the risk of declining asset quality and is one of the components that must be noted when reading a bank's financial condition.

In terms of ratios, Loan to Deposit Ratio (LDR) for AMAR was recorded at 267.68 percent. Meanwhile, Liquidity Coverage Ratio (LCR) reached 4,367.48 percent and Net Stable Funding Ratio (NSFR) was 169.26 percent.

These three ratios provide an overview of the company's loan distribution, liquidity, and funding aspects. However, each ratio has a different calculation basis and cannot be compared directly.

AHAP Relies on Premiums and Underwriting

Unlike AMAR, AHAP's activities as a general insurance company are more related to premiums, claims, underwriting, and investments.

In 2024, AHAP recorded gross premiums of IDR 756.83 billion, while net premium income reached IDR 274.31 billion. In the same period, claim expenses were recorded at IDR 159.87 billion.

From underwriting activities, the company generated IDR 114.73 billion. AHAP also recorded investment results of IDR 11.14 billion and a pre-tax profit of IDR 5.82 billion.

Regarding risk-based capital adequacy, the solvency ratio or Risk Based Capital (RBC) for AHAP was recorded at 256 percent. Meanwhile, the investment adequacy ratio stood at 133 percent.

These indicators are essential parts of assessing an insurance company's ability to meet its obligations and maintain an adequate financial condition.

Revenue Sources Determine Financial Structure

The difference in business models between the two companies is clearly visible when their revenue sources are compared.

AMAR derives revenue primarily from banking activities, specifically interest income and other operating income. Meanwhile, AHAP derives revenue from insurance premiums, underwriting results, and investments.

Differences are also visible in the asset and liability structures. AMAR's assets are largely related to loans, securities, and fund placements, while its liabilities are related to third-party funds.

For AHAP, company assets are related to investments, premium receivables, reinsurance receivables, and reinsurance assets. Its liabilities are largely related to obligations arising from insurance contracts.

Thus, the figures in financial statements cannot be separated from the business activities that generate them.

A bank's financial structure will reflect its fund collection and distribution activities, whereas an insurance company will show more influence from premium, claim, underwriting, reinsurance, and investment activities.

Credit Risk and Insurance Risk

Differences in business activities also mean that the sources of risk for both companies are not the same.

For AMAR, credit risk is one of the risks directly related to fund distribution activities. When customers are unable to meet their obligations, credit quality can decline, increasing the potential for non-performing loans and the need to establish an Allowance for Impairment Losses (CKPN).

AMAR also faces liquidity risk because it must maintain the ability to meet customer withdrawal requests and operational needs.

Changes in interest rates can affect interest income and expenses as well as the value of financial instruments. Furthermore, banking activities also face operational risks that can stem from system disruptions, cybersecurity, process errors, and fraud or fraud.

Meanwhile, AHAP's risks are more related to insurance activities. Claims that are larger or more frequent than expected can increase claim expenses and affect the company's results.

Underwriting risk also arises when the set premiums are not commensurate with the level of risk assumed. In such conditions, the premiums received may be insufficient to cover claims and incurred costs.

On the other hand, changes in market conditions and interest rates can affect the value and results of investments. AHAP must also ensure the availability of liquid assets to meet claim payment obligations when they fall due.

Reading Financial Statements Contextually

The comparison of AMAR and AHAP shows that reading financial statements is not enough by just looking at the magnitude of asset, revenue, or profit figures.

Each figure needs to be understood within the context of the company's business activities.

For AMAR, loans, interest, deposits, and liquidity are important parts of understanding the company's activities. Meanwhile, for AHAP, premiums, claims, underwriting, reinsurance, and investments are the components that better reflect its business activities.

These differences also show that financial risks do not always originate from the same sources.

For AMAR, credit risk relates to the customer's ability to meet loan obligations. For AHAP, insurance risk relates to the company's ability to manage claims and determine premiums based on the level of risk assumed.

Therefore, the use of financial indicators must be adjusted to the character of each industry. Banking financial ratios cannot always be used to assess an insurance company, and vice versa.

Conclusion

The financial statements of AMAR and AHAP provide an overview of two different business characters within the financial services industry.

AMAR operates with a banking business model related to loans, interest, deposits, and liquidity. Meanwhile, AHAP runs a general insurance business related to premiums, claims, underwriting, reinsurance, and investments.

These differences are the reason why the financial statements of both companies need to be read based on their respective business characteristics.

With this approach, financial figures are not just administrative records, but can also provide a picture of how a company conducts its business activities and manages risks throughout the 2024 period.

Data sources: Reports and presentations of PT Bank Amar Indonesia Tbk, audited financial reports of AMAR 2024, and Annual Report 2024 PT Asuransi Harta Aman Pratama Tbk.