LPI Annual Report 2009 (Summary)

  LPI Annual Report 2009

Underwriting Surplus before Management Expenses By Class

RM’000                           Underwriting Surplus before management expenses
                                                                        2009                  2008
Fire                                                               93,030                68,603
Motor                                                           19,312                30,366
Marine, Aviation & Transit                       6,100                  5,290
Miscellaneous                                                54,997               38,083
Total                                                           173,439              142,342


SUMMARY OF GROUP FINANCIAL PERFORMANCE
At A Glance


                                                              2009 RM’000          2008 RM’000
Profit Before Taxation                                  161,335               141,564
Profit After Taxation                                     126,088               104,247
Total Assets                                              1,488,697               856,201
Shareholders’ Equity                                    900,673               363,741
Basic Earnings Per Share (sen)                           91.6                     75.7
Return on Equity (“ROE”)                                14.0%                14.0%*
Operating Margin                                              21.7%                 22.1%
Net Claims Incurred                                          46.7%                 51.2%

*Restated ROE after taking into account of FRS 139 adoption.



Profit Before Taxation By Segment
                                                                    2009 RM’000      2008 RM’000
General Insurance Operations                           126,311              108,679
Investment Holding                                             34,097                32,322
Financing of Leases                                                    (1)                   (34)
                                                                        160,407              140,967
Share of profit after tax of
equity accounted associated
company                                                                  928                    597
Profit Before Taxation                                       161,335              141,564



RM’000                 Fire          Motor       M.A & T#     Miscellaneous      Total
Gross premium     229,381    194,406       23,446          228,013        675,246
%                          34.0         28.8              3.5                 33.7             100.0
Underwriting
surplus before
management
expenses               93,030      19,312       6,100           54,997         173,439

Underwriting
surplus after
management
expenses               69,319       (9,724)      4,085           33,964           97,644


# Marine, Aviation and Transit




Class                  Total no. of policies    No. of policies per underwriting staff
                             2009        2008              2009         2008
Fire                    284,170     274,520          18,945      17,158
Motor                463,615     416,608          42,147       37,873
Marine, Aviation
& Transit             26,791       26,114            3,349        3,264
Miscellaneous    263,618     197,109            5,492        4,693
Total              1,038,194      914,351          12,661      11,875




Gross Premium By
Agents                                 27.3%
Financial Institutions             25.8%
Direct                                  14.7%
Broker                                 12.4%
Reinsurance Arrangement       5.6%




The statistics of claims registered and settled in 2008 and 2009 are as follows



Classes                         No. of claims registered             No. of claims settled
                                          2009      2008                         2009          2008
Fire                                    2,202      2,119                      1,188            915
Marine                                  849         719                         427            340
Personal Accident              5,667      6,730                       5,106        6,127
Miscellaneous                    2,404      1,768                       1,448           808
Health                                3,319      2,701                       2,589        1,841
Workmen Compensation    2,412      2,928                         997         1,183
Motor                              17,716    18,547                       8,892        7,264
Liability                              1,380      1,029                          467           219
Bond                                    333         123                          213             23
Aviation                                   1             0                              1               0
Engineering                           840        717                           321           161
Total                               37,123    37,381                      21,649      18,881



LPI has been consistent in its dividend payment since listed
in 1993. The gross dividend per share paid by LPI since
1993 is depicted below:

Year    Gross Dividend per share (sen)
2008     85.0
2007   110.0 N1
2006   105.0 N1
2005    70.0 N1
2004    60.0 N2
2003    25.0
2002    15.0*
2001    15.0*
2000    15.0*
1999    12.5*
1998    27.5
1997    40.0
1996    40.0
1995    30.0
1994    25.0
1993    18.0

* Tax Exempt

N1 - Including a special dividend of 25 sen less taxation

N2 - Including a special dividend of 30 sen less taxation

BALANCE SHEETS

AT 31 December 2009

                                                                      Group                    

                                                           2009              2008 

                                                           RM’000        RM’000 

Restated Restated

Assets

Plant and equipment                              6,290            6,435 

Investment properties                            9,487          10,947

Investment in subsidiaries                            -                     -     

Investment in associate                        12,230          11,482 

Investments                                                 -          725,903 

Available-for-sale financial assets       671,348                  - 

Held-to-maturity investments              172,515                 - 

Loans and receivables, excluding

 insurance receivables                         536,985         27,622

Insurance receivables                           69,904          60,735

Tax recoverable                                           -                    - 

Cash and cash equivalents                      9,938         13,077 

total assets                                      1,488,697        856,201 

equity

Share capital                                       138,723       138,723 

Treasury shares, at cost                        (8,628)         (8,611) 

Reserves                                            770,578        233,629

shareholders’ equity                            900,673        363,741

liabilities

Insurance liabilities

-  Claims liabilities                                229,021       242,654 

-  Premium liabilities                             222,545       188,258 

Deferred tax liabilities                                  557                   -     

Borrowings                                            72,880                  -     

Insurance payables                                 37,505         34,422 

Other payables                                      15,416          12,988 

Taxation                                                 10,100         14,138 

total liabilities                                        588,024        492,460 

total shareholders’ equity 

and liabilities                                       1,488,697      856,201

http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/750d1c101e37ba4b482576b10032f4e8/$FILE/LPI-Page%20116%20to%20ProxyForm%20(3.2MB).pdf

Property/Casualty Insurance Accounting 101

Let us investigate how the PC insurance business works on an income statement and balance sheet.  Premium revenue (also known as earned premium) is used to fund claim payments (loss expense), sales commissions for insurance agents (commission expense), and operating expenses (OPEX).  Insurers typically express each of these expenses as ratios to earned premiums.  Claim expenses, for example, typically consume 75% of an insurer's net revenues.

Adding together these three ratios produces the combined ratio - an insurance company's key underwriting profit measures.  A combined ratio under 100 indicates an underwriting profit.  A combined ratio exceeding 100 indicates an underwriting loss.

Companies with combined ratios exceeding 105 for more than a short time have a difficult time recouping their losses via investment earnings, and this type of poor underwriting track record suggests that an insurer's competitive position is unusually weak.  Insurers unable to earn even the occasional underwriting profit will produce the industry's poorest returns and may be tempted to accept large investment risks to boost profitability.

Insurers also make money from investment income, which they often report as a ratio of premiums.  Adding the investment ratio to the combined ratio yields the operating profit ratio.  In many instances, investment income is a key profit determinant because it offsets underwriting losses.

On the balance sheet, the key asset for most insurers is investments.  In addition to float, most insurers invest a large portion of their own retained earnings as well.  The investments account reveals the size of an insurers investments relative to its asset base and details the asset allocation employed.  As a starting point, look for insurers with no more than 30% invested in equities (unless the company is run by Warren Buffett).

Finally, unearned premiums represent premiums received but not yet considered revenue.  This oddity reflects an accounting convention.  When an insurer receives a premium, it is deemed to earn it gradually across the year.  After all, if a customer cancels a policy, the insurer must refund that portion of the coverage not consumed.  After six months, an annual auto policy would be 50% earned, but half the premium would be considered revenue.  Before this occurs, the premiums are held in the unearned premium account, and the insurer is free to invest them.

Nirvana for an insurer is being able to consistently earn underwriting profits on a large, growing customer base.  In effect, this insurer would be getting paid to profit from investing other people's money and could retain this float indefinitely (as long as it grows).  Unfortunately, for investors, these situations rarely occur.