What makes LPI Capital a stand out general insurer

INSURER LPI Capital Bhd stands out for its unique gross written portfolio (GWP) mix and lucrative partnership with Public Bank Bhd, as well as its solid dividend yields. 

With those as some of the underlying reasons, a local research house is eyeing the counter for some good returns. 

In an initiation research note released on May 14, MIDF Amanah Investment Bank Bhd (MIDF Research) has tagged LPI Capital with a ‘Buy’ call, and a 52-week target price (TP) of RM14.52. The counter has three ‘Buy’ and three ‘Hold’ calls among the analysts tracked by Bloomberg, with a consensus TP of RM13.46. 

On May 16, the counter closed at RM12.10, valuing the company at RM4.82 billion. 

More than two decades ago, the company was known as London & Pacific Insurance Co Bhd. Then, in 1999, it became known as LPI Capital Bhd. It provides general insurance principally through its wholly owned subsidiary Lonpac Insurance Bhd. 

Lonpac Insurance remains LPI Capital’s sole operational arm for all its insurance activities in Malaysia and Singapore. LPI Capital’s insurance activities in Cambodia are undertaken by Campu Lonpac Insurance plc, in which LPI Capital holds a 45% stake. The remaining 55% stake is split between Public Bank Bhd (4%) and Public Bank’s wholly owned subsidiary, Cambodian Public Bank plc (51%). 

The report noted that LPI Capital was ranked fourth in market share in the Malaysian general insurance sector (as of 2022; in 2021, it was ranked second). The main revenue and income contributor remains Malaysia — overseas contributions are limited due to the highly competitive Singaporean market, and the small and relatively nascent stage of development of the Cambodian insurance sector. 

LPI Capital’s portfolio deals exclusively with general insurance-related premiums, with fire making up the largest proportion, followed by others, motor and MAT (marine, aviation and transit). 

“This differs from the average industry mix whereby motor makes up the largest proportion, while exposure to fire is much lower. 

“Despite being subject to more competitive pricing due to Bank Negara Malaysia’s (BNM) de-tariffication programme, fire insurance is still associated with higher surplus margins due to its low claim’s ratio. A low claims ratio is mostly due to the absence of lumpy claims, compared to insurance policies covering major catastrophe risks and larger ticket items,” according to the report. 

In contrast, MIDF Research noted that LPI Capital’s motor exposure was below the industry average, as it remained cautious in selecting and underwriting policies. It added that motor insurance, also subject to BNM’s de-tariffication measures, was associated with very high claims ratios due to competitive pricing — and subsequently lower surplus margins. 

As of financial year ended Dec 31, 2023 (FY23), the report noted that LPI Capital holds a sizeable 16.8% market share of local fire insurance, making it the largest fire insurer in Malaysia. However, this figure has declined since FY19’s 18.8%, due to the increasing competitiveness. 

It added that LPI Capital was now shifting its focus towards other insurance classes for a “healthier diversified approach”. Most notably, it has been aggressively growing its motor insurance portfolio (in selected subsegments), though growth has been more moderate in the last two years. 

MIDF Research report also noted that LPI Capital’s extensive distribution network of agents and bancassurance partners has helped entrench its leading position within the fire insurance supply chain. 

It said its agency force remains the largest distribution channel of its insurance products, accounting for 46% of GWP in 2023. 

Another notable means of distribution is with financial institution partners, which contributed to 21% of FY23’s GWP. 

“This primarily concerns LPI Capital’s relationship with Public Bank (of which major shareholder Consolidated Teh Holdings is a mutual shareholder). Public Bank, one of the largest banks in Malaysia, commands a sizeable proportion of residential mortgage and hire purchase market share — two major components of LPI Capital’s growth,” it said. 

For FY23, LPI Capital posted a net profit of RM313.7 million, up 24% from FY22, on the back of revenue of RM1.9 billion which was 17% higher than the year before. TMR 

  • This article first appeared in The Malaysian Reserve weekly print edition