5 things I learned from the 2019 LPI Capital AGM

LPI Capital sells and distributes premier general insurance in Malaysia, Singapore and Cambodia. It was incorporated as a private limited company in 1962 and listed as a public company in December 1972.

LPI has been helmed by founder and chairman Teh Hong Piow, the third richest man in Malaysia, for more than 40 years. He received a round of applause when he entered the meeting hall at LPI’s 2019 annual general meeting. Shareholders showed a sense of respect to the board of directors and management partly due to LPI’s remarkable stock price performance since it listed:

Source: Google Finance

As at 31 December 2018, LPI owns 21 branches in Malaysia and one in Singapore under its wholly-owned subsidiary Lonpac Insurance. Its Cambodian business is managed by its 45%-owned Campu Lonpac Insurance Plc.

Here are five things I learned from the 2019 LPI Capital AGM:

1. Gross written premiums increased by about 3.5% year-on-year from RM1.42 billion to RM1.47 billion in 2018. In comparison, the gross written premiums for the overall Malaysian general insurance industry only increased marginally by 1.5% from RM17.65 billion to RM17.92 billion. In 2018, LPI owned about 8.1% market share in the Malaysian general insurance market.

2. Fire insurance contributed to 42.4% of LPI’s total gross written premiums in 2018 followed by miscellaneous, motor, and marine, aviation & transit insurance. LPI’s fire and motor insurance grew 11.1% and 10.6% year-on-year respectively. Its fire insurance segment accounted for 18% market share of the fire industry in 2018.

Source: LPI Capital 2018 annual report

3. LPI’s combined ratio stood at 67.4% in 2018 compared against the industry’s 91.4%. Its combined ratio weakened from 64.0% in 2017 which resulted in a reduced underwriting profit from RM305.8 million in 2017 to RM303.5 million in 2018. The directors commented that the increase was mainly due to the increase in motor and medical insurance claims as the combined ratio of other insurance classes remained constant and manageable.

Source: 2019 LPI AGM presentation slides

A combined ratio below 100% indicates that the company is making an underwriting profit. Therefore, the lower the combined ratio, the more profitable an insurance company. In 2018, LPI only paid out RM67.40 in claims for every RM100 it received in premiums, and earned the residual RM32.60 as its underwriting profit.

4. The Malaysian general insurance industry is undergoing a phased liberalisation process as set out by Bank Negara Malaysia (BNM). The motor tariff has been fully liberalised and the fire tariff is currently under review by BNM. The industry is experiencing changes and uncertainty as the ongoing liberalisation puts pricing pressure on insurers particularly on the more profitable fire insurance segment for LPI. The take-up of general insurance is further affected by the soft property market and postponed/cancelled mega-infrastructure projects in Malaysia. However, the directors believe that LPI is well-managed and ready for the challenges ahead.

5. LPI’s operating revenue rose by approximately 2.7% year-on-year from RM1.47 billion in 2017 to RM1.51 billion in 2018. Its net profit attributable to shareholders increased marginally from RM313.8 million in 2017 to RM314.0 million in 2018.[U9]  Malaysia makes up for 95.3% and 97.8% of LPI’s operating revenue and profit before tax respectively.

Read more: 7 things to know about LPI Capital before you invest

Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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