AnalysisBursa

8 things I learned from the 2020 Tune Protect AGM

Incorporated in 2011 and listed on Bursa Malaysia in 2013, Tune Protect Group Berhad underwrites and reinsures non-life insurance products. It is well-known for its travel insurance products that are often bundled with AirAsia flight tickets. In 2019, AirAsia owned a 13.7% direct stake in the company.

Over the years, the company has been plagued by bad news and recent demand for travel insurance has declined due to COVID-19. As a result, Tune Protect’s share price has dropped from an all-time high of RM2.53 in June 2014 to RM0.35 (as at 28 August 2020), which represents an 85.8% capital loss.

Since 2012, Tune Protect has had four group CEOs. Six out of the eight current senior management members joined the company in 2019-2020. Like many shareholders, I question the reason behind the high turnover of its senior management. So I attended the company’s recent annual meeting to see if I could uncover anything.

Here are eight things I learned from the 2020 Tune Protect AGM:

1. A shareholder pointed out that each tenure of Tune Protect’s past three CEOs was less than two years. Chairman Ng Siek Chuan remained tight-lipped about the reasons behind the departure of these CEOs. He only briefly commented that Tune Protect intends to be a ‘disruptor’ and will embrace change when it needs to at the right time. Suitable candidates for the post have been identified and will be announced once regulatory approval is obtained. At the time of the AGM, the post remained vacant and the group CFO How Kim Lian replied most of the shareholders’ questions.

2. The CFO attributed the deterioration of the company’s financial performance in the past few years to a number of reasons. First, the company was affected by the move made by the Malaysian Aviation Commission (MAVCOM) in 2016 to disallow additional services such as travel insurance to be bundled with air ticket purchases by default.

He added that the company’s airline partners altered the user interface of their mobile applications in 2019 and this adversely impacted its travel insurance performance. I am a bit surprised such tweaks actually affected them, and that Tune Protect has not found a workaround solution since.

3. Tune Protect was hardest hit by COVID-19 in March and April 2020 when most of its airline partners grounded their fleets. The company’s travel segment was affected severely during this period while its non-travel segment remained relatively intact. The number of travel insurance policies sold by the company in April 2020 decreased 98% month-on-month and was at its the lowest in the first half of 2020.

The CFO believed the worst was over as Southeast Asian countries gradually eased domestic travel restrictions starting May 2020 and undertook stimulus packages to revive their tourism industry. As international borders opened up slowly in the second half of 2020, health and travel insurance were made mandatory by the governments of United Arab Emirates and Oman, as well as by Emirates Airlines. Further, Tune Protect received an invitation from a regional airport to extend its insurance coverage to its travellers. At the moment, it is still uncertain how these initiatives will benefit Tune Protect.

4. No dividend was given for FY2019 as the company chose to conserve cash to prepare for the uncertainties that lie ahead. It may consider distributing special and interim dividends in the future provided that the business’ fundamentals remain solid. Tune Protect paid more than 40% of net profit as dividend to shareholders between 2013 and 2018, in line with its target.

5. Despite the 10.6% year-on-year drop in gross written premiums to RM463.9 million, Tune Protect’s net profit increased 2.4% year-on-year to RM50.7 million. The company’s net claim incurred ratio dropped from 34.2% in 2018 to 32.3% in 2019, compared to the industry average at 58.1%. It also attributed its improved performance to better investment results and lower management expenses as a result of better operational efficiencies.

For instance, it had stopped hiring and replacing staff except for critical roles. Marketing spending has also been reprioritised from brand-generic advertising spending to product-specific targeted marketing in order to drive sales conversion. It also aimed to sell more non-motor insurance to improve its profitability.

6. As at June 2020, Tune Protect’s investment portfolio consisted of 91% fixed income or debt securities. To take advantage of the existing low interest rate environment, it has shifted its investments from money market or deposit funds to conservative government-guaranteed bond funds with favourable credit ratings to improve its yield. The average credit rating of its fixed income or debt securities is double-A rated.

7. Some products owned by Tune Protect are quite creative including the Pay-As-You-Drive usage-based protection plan. This product is relevant to the current situation as employees reduce commute because of work-from-home arrangements.

It aims to launch a mobile application to allow customers to purchase and claim insurance on the go. Medical coverage related to COVID-19 has also been extended to all existing Tune Sihat Medical Plan policyholders as part of its corporate responsibility.

8. Tune Protect collaborates with a number of partners to cross-sell its insurance products. It aims to tap into its partners’ customer base to broaden its customer reach. For example, it partners with Teleport — a logistics company backed by its shareholder, AirAsia — to offer insurance with personal accident coverage to its riders and couriers.

A number of shareholders raised the need to diversify beyond travel insurance and reduce the dependence on its partnership with AirAsia. A shareholder also pointed out that AirAsia X made huge losses and wondered about its impact on Tune Protect. The CFO mentioned that he could not comment on as AirAsia X is a separate entity and didn’t give any more details.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

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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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