The lower net profit is due to higher claims incurred ratio during the period

by AUFA MARDHIAH / graphic TMR

LPI Capital Bhd (LPI) recorded a net profit of RM74.75 million for its third quarter of ended Sept 30, 2022 (3Q22), compared to RM105.38 million in 3Q21.

The group also recorded an increased revenue of RM429.64 million 3Q22 from RM427.91 in 3Q21.

In a filing to Bursa yesterday, LPI founder and chairman Tan Sri Dr Teh Hong Piow stated that the performance of the group’s wholly owned insurance subsidiary, Lonpac Insurance Bhd, continued to be impacted by higher claims incurred ratio as business and social activities resumed to pre-pandemic levels.

“For 3Q22, Lonpac’s claims incurred ratio surged to 42.5% from 33.6% reported in 3Q21. Motor insurance had contributed to the deterioration in claims experience with its claims incurred ratio surging to 66.9% from 55.8% in financial year 2021 (FY21). Both motor claims frequency and claims reserves reported significant increases during the quarter.

“Miscellaneous accident insurance similarly reported deteriorating claims experience with its claims incurred ratio registering higher at 50.5% from 38.4% reported in 3Q21. With higher management expense ratio at 22.2% and commission ratio at 6.5%, Lonpac’s combined ratio increased to 71.1% compared to the low 59.4% achieved in 3Q21,” he said.

Lonpac’s underwriting profit for the quarter under review fell by 30.5% to RM72.2 million from RM103.9 million in 3Q21 due to the higher combined ratio.

The lower underwriting performance was also due to a higher unearned premium reserve, which resulted in a lower net earned premium income for 3Q22 at RM250.1 million, despite a 14.3% increase in gross premium income for 3Q22 at RM409.2 million compared to RM357.9 million in FY21.

Gross premium income increased by double digits in both the fire and miscellaneous accident insurance classes.

Lonpac reported a profit before tax (PBT) of RM87.8 million for 3Q22, a decrease of 24.3% from the 3Q21’s profit of RM116 million.

LPI’s PBT for 3Q22 was 21.3% lower at RM103.3 million compared to RM131.3 million in 3Q21, while its net profit attributable to shareholders fell by 29.1% to RM74.7 million.

The reduced net profit was caused in part by an increase in taxation rates resulted from the implementation of the Prosperity Tax. LPI’s net return on equity was 3.6% for the quarter under review, down from 5.1% earlier, with earnings per share reported at 18.77 sen, down from 26.45 sen in 3Q21.

“Lonpac’s motor claims incurred ratio increased to 77.3% for the nine months ended Sept 30, 2022 (9M22), up from 59.3% in 9M21. Increased repair costs and greater third-party bodily injury claims quantum all contributed to a decline in motor claims experience. miscellaneous accident insurance reported higher claims incurred ratio of 53.4% in FY21 compared to 41.8% in FY21, owing mostly to higher claims incurred reported for medical and engineering insurances.

As a result, Lonpac’s claims incurred ratio for 9M22 fell to 45.4% from 36.1% in FY21. With a management expense ratio of 22.4% and a commission ratio of 5.3%, Lonpac’s combined ratio for the period under review grew to 73.1%, up from 62.4% in the previous equivalent period,” Teh further added.

While Lonpac’s gross premium income was 5% higher at RM1.26 billion for the nine-month period, reflecting the country’s strong economic performance, its net earned premium income was 4.6% lower at RM720.7 million compared to RM755.6 million in the previous corresponding period, due to higher unearned premium reserve provided.

Meanwhile, Lonpac reported an underwriting profit of RM194.2 million for 3Q22, 31.7% lower than 3Q21. Lonpac’s PBT was 24.8% lower in 9M22, at RM223.9 million, compared to RM297.9 million in 9M21.

Separately, Kenanga Investment Bank Bhd (Research) maintained their target price of RM14.10 for LPI but upgraded their call to ‘Outperform’ from ‘Market Perform’, from the underpricing of the stock’s strong fundamentals in a normalising sector landscape.

LPI’s stock price closed at RM12.34 yesterday.