This article first appeared in The Edge Financial Daily, on April 8, 2016.

KUALA LUMPUR: LPI Capital Bhd saw a 14.3% year-on-year (y-o-y)  rise in net profit in its first quarter ended Mar 31, 2016 (1QFY16) to RM65.39 million from RM57.2 million, thanks to a stronger performance from its wholly-owned insurance unit, Lonpac Insurance Bhd.

LPI’s bourse filing yesterday showed LPI’s1QFY16 revenue rose 9.9% y-o-y to RM320.56 million from RM291.73 million. 

LPI founder and chairman Tan Sri Dr Teh Hong Piow, in a statement, said Lonpac’s pre-tax profit jumped 21.8% to RM64.9 million in the quarter under review, from RM53.3 million a year ago, largely on 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%,” said Teh. 

Teh also said Lonpac grew its gross premium income by 7.9% to RM401.7 million in 1QFY16, from RM373.24 million in 1QFY15.

“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 Mar 31, 2016, compared with 3.5% a year ago,” he added.

But Teh cautioned that slower premium income growth for the Malaysian insurance industry is expected to continue in 2016, especially with the impending liberalisation of the insurance industry.

Bank Negara Malaysia recently unveiled a road map for a phased liberalisation of motor and fire tariffs.

The first phase of the tariff liberalisation will be effected from July 1, and will allow insurers to introduce new products at market rates. The second phase, to commence a year later, will see the removal of rates for motor comprehensive and motor third party, fire and theft policies.

“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.