To our valued shareholders,
It gives me great pleasure to report that LPI Capital Bhd (“LPI") and its wholly-owned subsidiary Lonpac Insurance Bhd (“Lonpac") put in a commendable performance for the financial year ended 31 December 2017. The performance is all the more laudable within the context of the operating environment in the previous year, when Phase 2 of the Liberalisation Framework was implemented thereby engendering keener competition in both Motor and Fire classes of insurance. From this perspective, it is clear that the LPI Group has put the right strategies and people in place to make the most of the opportunities presented by the new regime.
As we expected, liberalisation has placed additional pressure on insurers to create greater value for their customers, and the price competition brought about by the influx of new players has compressed margins. This is evident from Lonpac’s total gross written premiums for the year under review, which registered growth of 11.2% as compared against the previous year. Its claims incurred ratio increased slightly to 38.5% from 38.3%, contributing to the slight increase in our combined ratio to 64.0% from 63.7%.
LPI’s profit before tax (“PBT") moderated to RM403.7 million from RM518.9 million, representing a year-on-year (“y-o-y") decline of 22.2%. However, stripping out the one-time gains from the divestment of equity investments in 2016 of RM150.4 million, the operational PBT would have grown 9.6% reflecting a strengthening in our business performance .
I am pleased to announce that the Board of LPI has declared a second interim single tier dividend of 45 sen for the financial year ended 31 December 2017, bringing our total dividend payout to 72 sen per share.
Our Strategy and Prospects
While uncertainty continues to dominate the external operating environment, the Malaysian economy has managed to sustain its recovery and is expected to remain steady in 2018. The Ringgit continues to recover from multi-year lows in 2017 due to the net inflow of foreign funds as well as the weakening of US Dollar against other currencies. Foreign fund inflow has been encouraging as it suggests that the fundamentals and prospects of the country are healthy and have improved from the previous year.
Forecasts for the Malaysian economy were buoyed by the country’s performance in third quarter (“Q3") 2017 where Gross Domestic Product (“GDP") expansion exceeded expectations by growing 6.2%. Driven by stronger than expected domestic demand, the performance led research houses to improve their forecast for the Malaysian economy by several percentage points.
According to Bank Negara Malaysia Governor Tan Sri Muhammad Ibrahim, the Malaysian economy was on course to reach the upper ranges of the 5.2%-5.7% growth rate pegged for 2017. The better-than-expected performance caused ratings agency RAM Ratings to revise its GDP growth forecast for 2017 higher, and has pegged growth for 2018 to come in at 5.2%.
Despite the positive indicators, we are firmly aware that we are operating in a period of prolonged volatility where prospects and operating conditions can swing wildly at any time. The prolonged political uncertainties around the world may introduce turbulence into global markets, which may in turn have a knock-on effect on Malaysia’s growth prospects. Additionally, global commodity prices, particularly crude oil price, have yet to stabilise thereby adding to commercial and industrial instability.
Nevertheless, we believe that the Group, with its long-standing prudential approach to risk management, is adequately equipped to manage uncertainties as they rise, and should continue to perform well in the coming year. Additionally, the Group’s efforts to make the most of the new opportunities arising from the new liberalised premium structure has proven fruitful, and will provide additional buffer against new market challenges.
As per the Group’s DNA, priority will be placed on prudential and organic growth in growing our business despite the growing number of competitors in the marketplace. We expect to see more changes in the insurance landscape as liberalisation gains greater traction, but are confident of defending our market share. To support our presence in the new liberalised regime, we have created a Product Development team, which is focused on integrating all factors to meet customer demand and make the most of opportunities presented by liberalisation.
One key observation that we have made over the last few years is the growing number of technologically savvy customers with a preference for managing their insurance portfolios themselves online. The Group’s existing web platform and various digital tools have become increasingly popular with this segment of the community, but we believe that more can be done to capitalise on this new trend.
In 2017, Lonpac established its Digital Strategy Department to enhance its digital offerings by leveraging on various platforms including mobile apps, social media and an enhanced web platform. This investment in technology will help them better engage with the new online generation to further expand its business segments and strengthen its market position. The Department will also establish a comprehensive digital strategy to transform Lonpac into a true digital business by the end of 2019.
We foresee technology as a major factor which will dramatically affect the insurance industry with the emergence of insurance technology (“insuretech") as well as the shifting mindsets of our customers. Customer satisfaction is a key pillar of our business philosophy and we will be putting in the necessary enhancements to meet the needs of the digital generation. In addition, our investment in technology will also help us bring costs down as we improve operational efficiencies through greater automation and digitisation.
Developing our Sustainability Programme
LPI produced its first Sustainability Report in 2016, which was issued together with the Company’s Annual Report 2016. Since then, senior management from Lonpac and LPI have worked closely together with the Sustainability Committee to improve our reporting methodology and to make our sustainability programme more robust. I am pleased to report that we have made much headway in our sustainability initiatives during this past year and that we continue to improve on our benchmarking and reporting processes.
In this second report, we have reviewed and revised our materiality matrix by consulting a broader range of stakeholders. In the course of this revision, we discovered that stakeholder expectations and our own expectations were not entirely aligned. Our next course of action is to examine the disparity between the stakeholder groups to see if we can better fulfil our sustainability role and to narrow the gap between them.
We are also leveraging on technology to better dispense with our sustainability goals. The practice of using e-statements and paperless payments may seem elementary, but they have gone far in helping us reduce the size of our environmental footprint. But more importantly, technology is helping us foster a paperless culture to bring about change on a larger scale. Our sustainability activities for 2017 are documented in our Sustainability Report 2017, which can be found in the Company’s Annual Report 2017.
On behalf of LPI’s Board of Directors, I would like to thank the Management and staff of LPI Group for their efforts and hard work in securing yet another year of strong results. Operating conditions have become more challenging with the implementation of the liberalisation framework, but with greater challenge also comes greater rewards. Our team has demonstrated that they have the necessary quality to seize these opportunities and we look forward to even better performances in future.
The Board would also like to thank our customers and shareholders who have supported us through good times and bad. My hope is that you have felt richly served by the LPI Group, be it in terms of the insurance products you have purchased or in terms of the returns from your investment with us. We remain committed to creating value for you through our products and services, as well as through the returns from your investment in us.
To our regulators and governing authorities, we would like to extend our gratitude for your support and advice extended to us throughout the year. The Group remains committed to the constructive development of the insurance industry as well as nation building as a whole, and we look forward to future opportunities to work together.
Last but not least, I would like to express my personal thanks to my fellow Board members for their advice and contributions in steering the Company. We would not have performed as remarkably as we did without your effort, and I look forward to another productive year together with all of you on the Board.
Tan Sri Dato’ Sri Dr. Teh Hong Piow
Non-Independent Non-Executive Chairman
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