KUALA LUMPUR: The coming 2019 fire insurance review could be an immediate concern for LPI Capital Bhd
given that the segment contributes about 40% to its total revenue.
However, Kenanga research says the negative impact could be mitigated by improving presence in other insurance classes.
In a note, the research house said the coming review of fire class insurance in 2019 is likely to lead to margin compression due to competition.
Meanwhile, the group's motor segment continues to demonstrate encouraging transaction volumes following its detariffication while the group is planning to deleverage its exposure in the construction and engineering sectors by venturing into other classes.
In its recently announced earnings, LPI recorded 1Q19 core net profit of RM77.2mil, which came within Kenanga's and consensus expectations.
"YoY, 1Q19 revenue grew by 3% on better gross premiums from the group’s key Fire and Motor insurance segments (+4%) but was offset by poorer performance by the Marine, Aviation & Transit (-18%) and Miscellaneous (-16%) insurance segments," said the research house.
"Net earned premium grew by 9% from a higher retention ratio (65.8%, +3.9ppt), but operating profit expanded by only 5% following a higher combined ratio incurred (73.9%, +0.7ppt).
"This was an accumulation of a higher claims incurred ratio (47.4%, +0.3ppt as improved motor claims was negated by higher miscellaneous claims) and net commission ratio (+5.2%, +1.6ppt) but lower management expense ratio (21.2%, -1.3ppt) was registered."
Kenanga maintained market perform on LPI with a higher target price of RM16.50 from RM16.30 previously.
Limited time offer:
Just RM5 per month.
