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.
