AM Best has affirmed Malaysia’s Lonpac Insurance, Financial Strength Rating and Long-Term Issuer Credit Rating at ‘A’ (Excellent) and “a” (Excellent), respectively. Both ratings carry a stable outlook.
Company profile
Lonpac, a subsidiary of LPI Capital Bhd, is a mid-sized non-life insurer in Malaysia, holding an approximate market share of 8% based on the 2022 gross direct premium.
Established in 1999 following the merger of London and Pacific Insurance Company Berhad and Pacific & Orient Insurance Co. Berhad, Lonpac offers a variety of personal and commercial lines of business, including motor, property, personal accident, and marine.
The business’s portfolio has a moderate level of diversification across various lines, with a primary focus on Malaysian-originated businesses.
A significant strategic advantage for Lonpac is its established partnership with Public Bank Berhad, which provides the company with access to profitable property business through banking channels.
Performance indicators
As of 31 October 2023, the company’s operating performance has remained favourable, backed by steady underwriting profit and investment activity.
Although AM Best anticipates the maintenance of strong performance by Lonpac, it also cautions that normalising claims, a hardening reinsurance market, and the ongoing gradual flexibility around motor and property insurance pricing in Malaysia might curtail underwriting margins going forward.
AM Best observed the insurer’s five-year average combined ratio at 67.5% and return-on-equity ratio standing firm at 28.3% between 2018 and 2022, underpinning Lonpac’s strong operating performance.
The cessation of COVID-19 movement restrictions has resulted in an increased volume of claims in 2022 and into 2023, but the underwriting profits for property and bond business have held strong, supported by favourable reinsurance commission income and low net loss experience — key aspects of Lonpac’s technical profitability.
The evaluation by AM Best highlighted that Lonpac maintained the strongest level of risk-adjusted capitalisation at the end of 2022, as measured by Best’s Capital Adequacy Ratio (BCAR). The firm’s financial stance is projected to sustain this level in the short to medium term.
Despite high dividends payouts over the previous five years, Lonpac has successfully grown its capital through retained earnings. Its investment strategy leans on the conservative side, with a portfolio comprised mainly of cash, bonds, and debt-focused unit trust funds.
However, the reliance on third-party reinsurance for the underwriting of significant limit risks and management of catastrophe exposure was noted as moderate.
