"[LPI] Management concurs that impact, if any, would be gradual. That being said, referred business from Public Bank would still support this segment’s GEP despite adverse market conditions," it added.
The research house maintained its outperform rating on the stock with an unchanged target price of RM15.90.
Bank Negara is undertaking a review of the liberalisation of fire class insurance, which is likely to be presented by end of June 2020.
According to the research house, fire insurance makes up about 40% of LPI's gross earned premium and about 65% of underwriting surplus before management expenses.
However, it said any loss of business from an adverse result in the review will not be as detrimental as expected as the segment is heavily exposed to non-housing fire policies such as industrials, which are typically subject to below-tariff rates and therefore not affected by the review.
Kenanga also expects Bank Negara will not entirely deregulate fire class insurance owing to its high value to the insurance sector.
The central bank partially implemented premium rate adjustments in 2017 as opposed to the complete detariffication as with the motor class.
In other segments, the group's motor insurance margins appear to have stabilised in a liberalised environment with FY19 net claims incurred ratio of about 75% from 50% to 60% previously.
Kenanga also said new national car launches could drive sales while the 22% year-on-year decline in the miscellaneous segment's underwriting surplus was stemmed by unfavourable rates from now scrapped products.
"We anticipate FY20 to feature less of such products with managements’ more detailed review of offerings, while the possible resurgence of national infrastructure projects could be a plus for this segment," it said.
For the near term, Kenanga believes the outlook in the insurance industry could be challenging due to economic uncertainties arising from the Covid-19 pandemic and geopolitical instabilities.
To mitigate this, LPI is looking to offer a greater range of products for medical, health and liabilities while widening its agency force.
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