An Investor’s Overview Of Malaysian Insurers, LPI Capital And Allianz Malaysia

The general insurance industry in Malaysia is growing. Over the past five years, the industry has grown its premiums at a compound annual rate of 7%, according to Malaysia’s central bank, Bank Negara Malaysia.

Within the industry, there are many Malaysia-based and foreign-based insurers. In this article, I want to look at two insurance companies that are listed in Malaysia and which conduct business there. They are Allianz Malaysia Bhd (KLSE: 1163.KL) and LPI Capital Berhad (KLSE: 8621.KL).

I will be studying the two insurers’ growth in gross written premiums and net profit, their combined ratios, and their returns on equity. Doing so can help investors better understand the two giant Malaysian insurers and gain insight into the economic characteristics of the country’s insurance industry.

The table below shows the changes in Allianz Malaysia and LPI Capital’s gross written premiums and net profit from 2011 to 2015:

Source: Companies’ earnings releases

The gross written premium is the amount of insurance business that an insurer underwrites in any given year. It is analogous to ‘revenue’. From the table above, we can see that the two Malaysian insurers have managed to post some decent growth numbers.

Moving on to the combined ratio, it the percentage of each dollar of premium earned by an insurer that is paid out either to its policyholders or to cover its operational costs.

The lower the combined ratio, the more profitable an insurance business is. The table below shows the combined ratios for the two insurers along with that of Malaysia’s general insurance industry:

Source: Companies’ filings and Bank of Negara Malaysia data

We can see that LPI Capital has a significantly lower combined ratio when compared to both the industry average and Allianz Malaysia.

Lastly, we come to the return on equity. It measures how much profit a company can generate with each dollar of shareholders’ capital it possesses. In general, the higher the ROE is, the better it could be.

Here’s how the two insurers’ ROEs have looked like from 2011 to 2015:

Source: S&P Global Market Intelligence

We can see that both companies have managed to grow their ROEs steadily over the years. This shows that both insurers have managed to improve their profitability even as their businesses expand.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.