BOARD OF DIRECTORS

CHAIRMAN'S REVIEW

It is my pleasure to present on behalf of the Board of Directors, the Annual Report and the Audited Financial Statements of LPI Capital Bhd and its subsidiaries (“LPI Group”) for the financial year ended 31 December 2007.

PERFORMANCE REVIEW
I am pleased that the LPI Group continued to perform well in 2007 on the back of a sustainable economic growth marked by increased market competition and competitive premium pricing. The LPI Group achieved a significant milestone for the year when its revenue crossed the RM500 million mark for the first time, while its pre-tax profits surpassed the RM100 million mark once again for the third consecutive year. The Group registered a revenue of RM551.6 million and a pre-tax profi t of RM121.8 million in 2007.

Growing Financial Strength
For the financial year under review, the LPI Group’s revenue grew significantly by 16.5% to a record high of RM551.6 million from RM473.5 million in 2006 on the back of an increase in premium income of 16.5% from RM424.4 million to RM494.3 million.

The Group’s pre-tax profit rose by 10.2% to RM121.8 million from RM110.5 million in 2006. Consequently, the Group’s earnings per share (“EPS”) improved to 63.8 sen from 56.6 sen in 2006. Its Return on Equity (“ROE”) also strengthened to 23.7% from 20% in 2006.

I am pleased that the strategic business measures undertaken by Lonpac which included improved work processes, prudent and selective underwriting policy, product differentiation development, extensive distribution channels, customer service delivery and risk management initiatives, have accordingly translated into an underwriting profit of RM59.2 million. The quality of our business portfolio remained healthy as evidenced by the underwriting surplus recorded in all classes of insurance.

Strong and Healthy Balance Sheet
The Group’s balance sheet remained strong and healthy. Total assets edged upwards to RM792.4 million from RM754.7 million in 2006, registering a growth rate of 5%. The Group’s total investment portfolio grew from RM662.1 million in 2006 to RM673.3 million.

Increased Solvency Margin Surplus
As at 31 December 2007, Lonpac’s total admitted assets was RM565.7 million, registering a higher solvency margin surplus of RM75.5 million above the minimum required margin of RM490.2 million. The strong and healthy solvency margin has further enhanced Lonpac’s financial standing and security profile in the insurance industry.

AWARDS AND RECOGNITION
The LPI Group’s continued commitment to excellence in financial and management practices, good corporate governance and the consistent delivery of shareholder value have once again been duly recognised with the conferment of the following during the year:

The Group will certainly continue to strive further for higher standards in its quest for excellence to enhance its long-term shareholder value.

BUSINESS DEVELOPMENT
With the impending market liberalisation, competition in the insurance industry is bound to increase and become even more aggressive. In addition, customers are more knowledgeable and assertive in this age of internet technology. They have access to wider choices to make informed decisions on their insurers. To remain relevant, it is necessary to constantly monitor the market, be vigilant and ready to respond speedily. Business strategies are continuously reviewed and repositioned where necessary to widen and deepen our market penetration for sustained growth. This include continuous strengthening of all major areas of operations like business development, underwriting skill, claims management, delivery systems, IT infrastructure, financial and management accounting and customer service.

To boost our competitive edge, seminars and training programmes are conducted regularly by professionals for the Management, staff and agents to continuously upscale their technical competencies and professional skills.

On the underwriting and business development front, understanding the needs of our insuring public is utmost importance. With this in mind, many initiatives were undertaken during the year which, amongst others, included the enhancement of our E-Motor insurance system and the implementation of Business Intelligence (“BI”) tools. With the BI system, vital information on our customers and business are tracked and managed effectively to provide timely customer service and develop commercially viable insurance products. Consequently, two (2) new insurance products, namely TravelNet and Safe Deposit Box were launched and well received by the insuring public during the year. For the protection of the insured, Lonpac’s TravelNet covers also losses against acts of terrorism, only one of a few insurers in the industry providing such cover. Customer care has always been and will always remain our main priority. Existing customer loyalty programmes like Lonpac E-Assist and Lonpac Home-Assist have certainly increased our customer base. Continuous efforts would be channelled to improve further on our service standard and develop new customer service care programmes. In August 2007, the Group expanded its insurance operations overseas to Cambodia with the setting up of a joint venture insurance company, namely CampuBank Lonpac Insurance Plc with Public Bank Berhad. This joint venture with Public Bank Berhad is expected to contribute positively to the Group’s growth given the Group’s existing strong synergy with the Public Bank Group.

PROSPECTS
The Malaysian economy remained favourable in 2007 with sustainable growth despite uncertainty in the global economic environment amidst the high crude oil prices. Building on the growth momentum in 2007, the Malaysian economy is expected to register robust growth for 2008. Consequently, the insurance industry is poised to grow in tandem and enjoy the benefi ts of the country’s improving economic performance. Prospects for the LPI Group for the year 2008 therefore remain bright. I am pleased to announce that A.M. Best, a worldwide insurance-rating and information agency, has assigned a financial strength rating of “A-“ (Excellent) and an issuer credit rating of “a-“ to Lonpac in November 2007. Best’s financial strength rating provides an opinion of an insurer’s financial strength and ability to meet ongoing obligations to policyholders whilst its issuer credit rating provides an opinion of an entity’s ability to meet its senior obligations. In this respect, the “A-” financial strength and “a-“ issuer credit ratings reflect Lonpac’s track record of profitable operation, diversified business composition, distribution capabilities and adequate capitalisation. A.M. Best also anticipates that with its well spread premium production sources, Lonpac will be able to sustain its ongoing business growth in the near future.

Bank Negara Malaysia issued the Risk-Based Capital (“RBC”) Framework as the new capital adequacy framework for all insurers in April 2007. The RBC framework is scheduled for full implementation effective from 1 January 2009, with parallel calculation commencing for the financial quarter ended 31 March 2007. During the parallel calculation period, Lonpac’s capital adequacy ratio (“CAR”) level has been consistently above its internal target capital level and also BNM’s supervisory target capital level of 130%. Lonpac has thus indeed proven it has the financial resilience and sound risk management infrastructure to maintain a capital adequacy level that commensurate with its risk profiles. I am happy to report that Lonpac is ready for the full implementation of the RBC framework.

As in previous years, Lonpac has once again successfully renewed its treaty reinsurance arrangement for the next underwriting year 2008 well before the close of 2007. With its reinsurance programme in place, the LPI Group will continue to focus its business strategies to meet the many challenges ahead and deliver yet another year of positive results for 2008.

DIVIDENDS
The LPI Group continued to pursue a consistent high dividend payout policy to reward our loyal shareholders as evidenced by the past years’ dividend payments. During the year under review, an interim dividend of 30 sen per share less 27% taxation amounting to RM30.2 million was paid in July 2007. For the financial year ended 31 December 2007, I am pleased to announce the Board’s recommendation of a Special Dividend of 25 sen per share less 26% taxation and a Final Dividend of 55 sen per share less 26% taxation amounting to RM81.5 million, subject to approval from the shareholders at the Annual General Meeting on 13 February 2008. The strong dividend of 110 sen would provide a gross and net dividend yield of approximately 14% and 10% respectively based on the previous year’s average market price. This, the Board believes, would place LPI as one of the superior dividend paying counters on Bursa Securities.

DIRECTORSHIP
Two Board members, namely Mr. Lee Chin Guan and Mr. Geh Cheng Hooi resigned during the year after having served as Independent Non-Executive Directors for the past 12 years. The Board would like to record its deep appreciation to Mr. Lee and Mr. Geh for their dedication, invaluable advice and contributions to the Group through the years. The Board wishes them good health and all the best in their future endeavours. The Board would like to welcome Dato’ Haji Abdul Aziz bin Omar who joined the Board as Independent Non-Executive Director on 9 October 2007.

ACKNOWLEDGEMENT
On behalf of the Board, management and staff, I would like to extend our deepest appreciation to all our valued agents, brokers, reinsurers, policyholders and other business associates for their relentless support, confidence, trust and contributions to the Group’s growth and success. We look forward to another successful year of partnership and profitable growth. The Board and Management would also like to thank Bank Negara Malaysia and other relevant Regulatory Authorities for their guidance and advice.

To the management and staff, I wish to place on record my heartfelt gratitude for your invaluable contribution, loyalty, team spirit, diligence and whole-hearted commitment shown during the year. I am confident that with effective teamwork and good guidance from the Board, we will be able to achieve yet another year of quality service and phenomenal growth for the LPI Group.

Last but not least, my sincere appreciation to the shareholders and my fellow Board members for their unwavering support towards the success of the Group.

Tan Sri Dato' Sri Dr. Teh Hong Piow
Chairman