KUALA LUMPUR: LPI Capital Bhd's (LPI) margin is expected to improve due to the revival of the economy as well as its new-age/digital marketing strategy.
LPI's potential medical cost containment partnerships with big-tech companies in cross-selling opportunities might give a further boost, said Affin Hwang Capital.
Its analyst Tan Ei Leen said the adoption of analytics in the business to improve valuation, fraud prevention, automation of policy would also help in margin improvement due to lower claims, overheads and commissions.
"We expect the insurance industry's gross written premiums (GWP) to recover in the fourth quarter (Q4) of 2021 and to see a follow-through in 2022, subsequent to a weaker year in 2020, whereby Malaysia's general insurance market declined 1.0 per cent year-on-year (YoY)," she said in a research report today.
Affin Hwang said the transition of most states to Phase II of the National Recovery Plan, with the latest being Kuala Lumpur and Selangor (effective September 10), was a positive indication of a revival in business activities and interstate travel.
This may benefit the insurance industry's premium growth.
As at the point of writing, Affin Hwang said the overall Covid-19 vaccination rate in Malaysia had reached 56 per cent of the population and most business sectors (including hotels) were allowed to open.
She said the industry's GWP had risen 3.5 per cent YoY in the first half of 2021, although a pullback was expected in the second half of the year due to the Full Movement Control Order.
"We forecast an industry growth rate at about 2.0 per cent YoY for 2021, down from our previous projection of 5.0 per cent YoY."
The firm has projected a lower net claims ratio at about 40.4 per cent for 2021 due to the gradual easing of the pandemic.
"We expect a more normalised level of claims ratio of circa 48 per cent on the back of a normalised GWP growth rate of 3.5 per cent to 4.0 per cent."
She said the implementation of the second Phased Liberalisation framework for the fire class had been delayed and was likely in 2022 where pricing of premium will be subject to a +/- 30 per cent deviation from the schedule.
"Based on our estimate of a 10 per cent reduction in the GWP value of LPI's insurance business, this could potentially cause its 2022's earnings net profit to decline by 9.0 per cent."
Affin Hwang has downgraded LPI to a "hold" with lower target price of RM14.50 per share due to a two per cent adjustment to - 9.6 per cent in its earnings revisions.