KUALA LUMPUR (April 27): Insurer LPI Capital Bhd's 42.8% year-on-year increase in net claims in the first quarter ended March 31, 2018 (1QFY18) to RM101.9 million is a concern. Amanah Investment Bank Bhd said today expectation of higher-than-expected claim expenses poses a threat to LPI's profitability.

MIDF said in a note that as LPI's 1QFY18 earnings came in within estimates, the research house maintained its LPI FY18 numbers at this juncture. However, MIDF said it fine-tuned its FY19 forecast after taking into account LPI's higher-than-expected claims expenses.

"Accordingly, we revised our growth assumption on claims to approximately +15.0%yoy. This will contract our core net profit assumption by -10.3% to RM358.0 million.

"Throughout the year, we believe the group is expected to improve its performance based on the consistent premium growth, driven by the group's main classes of general insurance namely fire and motor. While we are optimistic on the growth trajectory of the group's revenue, we believe challenging industry's headwinds such as higher-than-expected claim expenses also poses threat to its profitability," MIDF said.

Kenanga Investment Bank Bhd said LPI's 1QFY18 claims incurred ratio (CIR) at 47.1% is lower than its peers CIR at between 50% and 75%.

"We believe (LPI's) CIR should normalise back to the low-40% level for the remaining quarters (vs. our FY18E/FY19E assumption of 41%)," Kenanga said.

MIDF and Kenanga's notes on LPI followed LPI's 1QFY18 results announcement yesterday. LPI said 1QFY18 net profit increased to RM72.5 million from RM70.56 million a year earlier.