LPI Capital - Trimming Its Risk Exposure

We gather LPI’s insurance subsidiary, Lonpac Insurance, is taking efforts to minimize its risk exposure to lumpy contracts, which includes its engineering insurance to MRT projects. Lonpac also plans to still be a dominant player in fire and other non-motor segments to sustain premiums growth while preparing itself for the anticipated tariff removal in two to three years. Maintain BUY with its FV at RM15.75, pegged to a 19.4x (three-year PE band) of its FY13 EPS. 

No.2 in various non-motor segments. For 9MCY12, Lonpac was fifth and fourth in the general insurance (GI) and non-motor GI markets respectively. It is worthy to note that Lonpac is now ranked second in four GI segments – bonds, engineering, workmen compensation and fire premiums. Moving forward, it plans to grow its market share and continue being a dominant player
in its strongest segments.

Risk exposure lumpy but minimal. Lonpac aims to ensure that there is no lumpy risk exposure to any particular segment of its business. The insurer's strength in bonds, engineering and workmen coverage bodes well with its status as the appointed insurer to some Economic Transformation Programme (ETP)-related construction projects. The construction sector had grown by 15.5% y-o-y and Lonpac confirmed that it has some exposure to the Kuala Lumpur Mass Rapid Transit (MRT) projects. However, it has ceded most of its
risk exposure to reinsurers. We estimated that the net risk is <0.01% of the total insurance exposure to MRT projects.

Maintain BUY. We retain our forecasts and maintain our BUY call, with our FV at RM15.75. We like LPI Capital for its robust business, strong underwriting strength (with low combined ratios), and attractive dividend yields at >6%.

Source: RHB