KUALA LUMPUR (April 7): LPI Capital Bhd reported a 14.3% increase in net profit for its first quarter ended March 31, 2016 (1QFY16) to RM65.39 million or 19.7 per share from RM57.2 million or 17.23 sen per share a year ago, thanks to a stronger performance from its wholly-owned insurance subsidiary Lonpac Insurance Bhd.

In its filing to Bursa Malaysia today, LPI reported a revenue of RM320.56 million for 1QFY16, which was 9.9% higher than its 1QFY15 revenue of RM291.73 million.

LPI founder and chairman Tan Sri Dr Teh Hong Piow said Lonpac had registered an impressive 21.8% jump in pre-tax profit for 1QFY16 to RM64.9 million from RM53.3 million a year ago, which was largely due to higher underwriting profit.

"Underwriting profit for Lonpac came in at RM50 million, 18.8% higher than the RM42.1 million reported in the first quarter of 2015.

"This was on the back of an improvement in its combined ratio from 70.7% to 67.8%, which in turn was attributed to the reduction in its claims incurred ratio from 49.1% to 43.1%," he said in a separate statement from the group today.

Teh commented that Lonpac had managed to grow its gross premium income by 7.9% to RM401.7 million during 1QFY16 from RM373.24 million in 1QFY15 despite facing stiff competition.

"This was the result of our efforts in strengthening sales force as well as expanding agency network and global partnerships.

"Lonpac's better performance has translated into higher net return on equity for LPI at 4% as at March 31, 2016, compared with 3.5% a year ago," he said.

However, Teh cautioned that the slower growth in premium income for the Malaysian insurance industry is expected to continue in 2016.

"With the impending liberalisation, the industry players are competing to build their market shares, resulting in margin compression.

"The group will continue to prioritise its shareholder return by ensuring profits will not be compromised while growing its business," he said.

Bank Negara Malaysia has recently unveiled a roadmap for a phased liberalisation of motor and fire tariffs as a start of a gradual process towards pricing motor and fire insurances based on their risk exposures.

The first phase of the tariff liberalisation will be effective from July 1, 2016, which will allow insurers to introduce new products at market rates, while the second phase, which will commence on July 1, 2017, will see the removal of rates for motor comprehensive and motor third party fire and theft policies.

There will also be gradual adjustments to fire tariff rates in the second phase of liberalisation.

"We expect to see fierce competition for motor business, particularly with the removal of tariff rates in the second phase of liberalisation; however, as Lonpac's motor business contributes approximately 25% of its total portfolio currently, the impact on its profitability will not be as significant," said Teh.

At noon market close today, LPI shares rose four sen or 0.26% to RM15.42 for a market capitalisation of RM5.1 billion.