Liberalisation of fire insurance will be area of concern for LPI
KUALA LUMPUR: The further liberalisation of the fire insurance expected to be reviewed in current year 2020 (CY20) will be an area of concern for LPI Capital Bhd (LPI), analysts note, but Budget 2020’s funding allocation for the rural and general infrastructure works where LPI is a major infrastructure player will be a boon for the group.
While the group continues to remain steadfast in growing its top line and earnings growth steadily, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) remained cautious of LPI’s growth prospects given the unfavourable claims environment and the escalating competition in the general insurance segment due to the motor and fire liberalisation.
“In addition, the further liberalisation of the fire insurance expected to be reviewed in CY20 will also be an area of concern as fire alone accounts for about 68 per cent of total group’s underwriting surplus before management expenses,” MIDF Research remarked in its results review on the group.
With regards to Bank Negara’s planned review of fire class insurance, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) opined that the group could take a breather given the one year extension of the review for a potential liberalisation.
According to Kenanga Research, potential bummers in the near-term could come from the Miscellaneous business segment, which covers construction and engineering items.
“We believe that as the segment could be in a lull, it could further dampen the group’s immediate prospects as competitive rates and frequent claims could undermine the group’s profitability.
“On the flipside, this could be cushioned by be er performances registered in the motor and marine, aviation and transit businesses,” Kenanga Research said.
Meanwhile, MIDF Research observed that the first nine months of financial year 2019 (9MFY19) combined ratio rose to slightly above 70 per cent for the first time in five years, illustrating the increasingly tough operating environment.
“Nonetheless, the industry’s overall combined ratio stood at 93.2 per cent as of the first half of CY19 (1HCY19) indicates further headroom for the group to grow its portfolio,” the research arm noted.