Affin Hwang maintains 'Hold' on LPI, TP at RM15.90

  • Analyst Reports
  • Monday, 21 Oct 2019

KUALA LUMPUR: LPI Capital Bhd will continue to face industry headwinds such as stiff competition, higher risk claims and moderating industry growth, says Affin Hwang Capital research.

The research house said in a note that it anticipates potentially lacklustre gross written premium (GWP) growth in the motor and fire classes as well as higher claims ratio due to higher hospitalisation claims, persistent motor claims and the risk of large event marine, aviation and transit losses in 2020E.

"According to BNM, the industry trends are showing that general insurance claims ratio are creeping up, from 57.5% (2017) and 58% (2018) to 59.6% as at June19.

"These were attributable to the medical & health insurance class (due to medical inflation, estimated at mid-teens growth in 2019), persistently high motor claims (due to rising accident cases) and more large-scale MAT claims," it said.

Affin Hwang added that expectations of flat car sales growth in 2020 and more competition in the fire insurance market could potentially increase downside risks to its 2020E GWP assumption of 4% y-o-y.

More positively, the research house noted that LPI adopts a prudent underwriting policy and stays away from price discounting.

The research house is also positive over a taskforce in the insurance industry to identify the cost drivers and bring down medical costs.

"Recommendations to the authorities and a concerted effort to bring medical cost lower will be a catalyst for the general insurance players’ profits, in our view," it said.

In the domestic market, the general insurance industry saw a 1.4% year-on-year decline in GWP for 1H19.

For 1H19, the motor insurance industry saw flat growth y-o-y while fire insurance grew 2.5% y-o-y.

Affin Hwang reiterated its hold rating on LPI with a target price of RM15.90.
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