LPI Capital : Annual General Meeting 2024

LPI External - Confidential

LPI CAPITAL BHD 196201000175 (4688-D)

(Incorporated in Malaysia)

Minutes of the 63rd Annual General Meeting (AGM) conducted as a virtual AGM at the Broadcast Venue at 29th Floor, Menara Public Bank, 146 Jalan Ampang, 50450 Kuala Lumpur, Malaysia on Friday, 5 April 2024 at 10.00 a.m.

PRESENT AT	DIRECTORS
BROADCAST	Mr Tee Choon Yeow - Chairman of Meeting
VENUE :	(Non-IndependentNon-Executive Chairman)
	Mr Tan Kok Guan
	(Executive Director/ Chief Executive Officer)
	IN ATTENDANCE
	Ms Kong Thian Mee
	(Company Secretary)
PARTICIPATED	DIRECTORS
REMOTELY :	Mr Lee Chin Guan
	(Independent Non-Executive Director)
	Ms Chan Kwai Hoe
	(Independent Non-Executive Director)
	Ms Soo Chow Lai
	(Independent Non-Executive Director)
	Dato' Chia Lee Kee
	(Independent Non-Executive Director)
	Encik Mohamed Raslan Bin Abdul Rahman
	(Independent Non-Executive Director)
	SHAREHOLDERS AND PROXIES
	The attendance of shareholders and proxies via
	https://tiih.onlineas per Attendance List in
	Appendix I.
	BY INVITATION - AUDITORS
	Ms Lee Yeit Yeen
	(External Auditors, Messrs. KPMG PLT)

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LPI External - Confidential

WELCOME ADDRESS

On behalf of the Board, Mr Tee Choon Yeow, the Chairman of Meeting welcomed all the participants to the Meeting.

INTRODUCTION

The Chairman of Meeting informed the Meeting of the following :-

1. The Board had resolved that the 63rd AGM of the Company be convened as a virtual meeting, and carried out in the manner as guided by the Securities Commission Malaysia Guidance on the Conduct of General Meetings for Listed Issuers and the Companies Act 2016.
2. Shareholders and proxies were not allowed to be physically present for the 63rd AGM as this was a virtual meeting. Instead, shareholders and proxies were invited to participate remotely by using the Remote Participation and Voting (RPV) facilities.
3. This AGM was conducted with only the essential individuals present at the broadcast venue.

The Chairman of Meeting introduced himself and those who were present at the broadcast venue, namely the Executive Director cum Chief Executive Officer (CEO), Mr Tan Kok Guan, and the Company Secretary, Ms Kong Thian Mee. He further introduced the following Directors who had participated in the AGM remotely :-

1. Mr Lee Chin Guan - Independent Non-Executive Director
2. Ms Chan Kwai Hoe - Independent Non-Executive Director
3. Ms Soo Chow Lai - Independent Non-Executive Director
4. Dato' Chia Lee Kee - Independent Non-Executive Director
5. Encik Mohamed Raslan Bin Abdul Rahman - Independent Non-Executive Director

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LPI External - Confidential

REMOTE PARTICIPATION AND VOTING PROCEDURE (RPV)

The Chairman of Meeting explained that pursuant to Paragraph 8.29A(1) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, the Company must ensure that all resolutions set out in the Notice of the 63rd AGM are voted by poll.

The Chairman of Meeting further informed that the Company had appointed the Share Registrar, Tricor Investor & Issuing House Services Sdn Bhd (Tricor), as Poll Administrator to conduct the online remote voting, while an independent scrutineer, Coopers Professional Scrutineers Sdn Bhd (CPS) had been appointed to validate the votes cast at the 63rd AGM.

The online remote voting for the resolutions had commenced at the beginning of the Meeting.

The RPV procedure was briefed by Tricor.

QUORUM

The Company Secretary confirmed that the requisite quorum for 63rd AGM was met, and the Meeting was called to order at 10.00 a.m. by the Chairman of Meeting.

NOTICE OF MEETING

In accordance with Best Practices of the Malaysian Code on Corporate Governance by Securities Commission, the Company had given at least 28 days' Notice of the Company's 63rd AGM to the shareholders. The notice convening the Meeting, having been circulated to all the members of the Company well within the regulatory requirements, was taken as read.

ORDINARY BUSINESS

AUDITED FINANCIAL STATEMENTS

AND REPORTS OF DIRECTORS AND AUDITORS

The Audited Financial Statements of the Company and the Group for the financial year ended 31st December 2023 and the Reports of the Directors and Auditors were laid before the Meeting, in accordance with the Company's Constitution and Bursa Malaysia Listing Requirements.

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LPI External - Confidential

Shareholders' approval was not required for the Audited Financial Statements pursuant to Sections 248(2) and 340(1)(a) of the Companies Act 2016. Hence, this matter was not put up for voting.

The Chairman of Meeting invited Mr Tan Kok Guan (Mr Tan KG), the Executive Director cum CEO to present the LPI Group's performance in 2023 to shareholders, which was reflected as below :-

Financial Performance

Malaysia's economy was affected by slowing global economic growth, rising interest rates and declining exports in 2023. Despite the challenging operating environment, Malaysia had reported creditable economic growth for 2023, supported by resilient domestic demand. However, the progress of the global economic recovery and the escalation of geopolitical conflicts continue to pose risks to Malaysia's continued economic growth.

Despite the uncertain and competitive market environment, LPI Group reported an impressive performance for financial year 2023. For the 12 months ended 31 December 2023, LPI Group's Operating Revenue increased by 16.5% to RM1,905.4 million from RM1,634.9 million in financial year 2022. The increase in revenue was mainly contributed by higher insurance revenue, as well as higher interest and dividend incomes. Insurance revenue accounted for 93.5% of total Operating Revenue in financial year 2023.

The LPI Group's Profit Before Tax for financial year 2023 grew by 15.6% to RM394.9 million from RM341.7 million year-on-year. The increase was mainly due to a higher investment return, which increased by 62.5% to RM149.3 million from RM91.9 million in financial year 2022, contributed by higher investment income and net fair value gains. The Insurance Service Result for financial year 2023 was also 2.7% higher year-on-year.

Meanwhile, Net Profit Attributable to Shareholders rose 24.4% to RM313.7 million compared to the RM252.2 million achieved in financial year 2022. The higher net profit was also partly due to the absence of the one-off Prosperity Tax that was imposed in financial year 2022.

LPI's Net Return on Equity for financial year 2023 improved to 13.7% from 11.4% in financial year 2022 while Earnings Per Share increased to 78.75 sen from 63.31 sen.

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LPI External - Confidential

Lonpac Insurance Bhd, the wholly-owned insurance subsidiary of LPI, reported a 20.6% higher Profit Before Tax of RM369.5 million for financial year 2023 as compared to RM306.3 million achieved in financial year 2022. The improved profitability of Lonpac was partly due to the strong performance of its investment portfolio.

For the 12 months ended 31 December 2023, Lonpac's Net Claims Incurred Ratio rose marginally to 45.0% from 43.2% reported in financial year 2022. Lonpac experienced a slight deterioration in its insurance claims, particularly in the Fire and Medical sectors of business, during the year under review.

With Management Expenses Ratio at 20.7% and Net Commission Ratio higher at 8.4% from 7.1%, Lonpac's Combined Ratio for financial year 2023 increased to 76.9% from 75.2% reported in financial year 2022.

Lonpac's Insurance Service Result for financial year 2023 was reported 2.7% higher at RM293.7 million from RM286.1 million in financial year 2022.

Despite the competitive market environment, Lonpac managed to improve its Gross Premium Income by 6.2% to RM1.73 billion from RM1.63 billion written in the financial year of 2022, with all major insurance classes posting commendable growth.

Fire Insurance remained the core business of Lonpac contributing 39.8% of its total Gross Written Premiums while Motor Insurance contributed 23.7%, Miscellaneous class of insurance 30.4% and Marine & Aviation 6.1%. Fire Insurance remained the biggest contributor to Lonpac's Insurance Service Result.

With the improved performance reported by the Group in financial year 2023 as compared to 2022, the Board of Directors had declared a second interim dividend of 40.0 sen per share. This second interim dividend payment, which comes up to RM159.4 million in total, is part of the Group's continuing efforts to reward shareholders for their ongoing support. Together with the first interim dividend of

26.0 sen, amounting to RM103.5 million which was paid in September 2023, the total dividend payout for financial year 2023 was RM262.9 million, representing

83.8% of the Group's Net Profit Attributable to Shareholders.

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LPI External - Confidential

Questions from Minority Shareholder Watch Group (MSWG)

On behalf of the Board, the CEO answered the questions raised by MSWG as per their letter dated 29 March 2024. The questions from MSWG and the answers provided by the Board were as follow :-

Operational & Financial Matters

Question 1(a)

In FY2023, LPI reported higher net profit of RM313.73 million (+24.4% y-o-y) compared to RM252.22 million in FY2022, driven by higher investment income (RM123.5 million vs RM100.17 million) and fair value gain on investments of RM25.8 million versus -RM8.3 million in the year before.

1. Meanwhile, LPI's Insurance Service Result grew marginally at 2.66% to
   RM293.72 million from RM286.1 million previously, primarily due to net reinsurance costs of RM661.2 million vs net reinsurance income of RM11.29 million in FY2022 (page 156 of Annual Report 2023). LPI incurred higher reinsurance premiums paid, totalling RM610.17 million vs RM400.92 million in FY2022 (page 232 of AR2023).
   Notably, reinsurance rates have increased owing to the increased frequency of insured losses and the hardening of the global reinsurance market (page 25 of AR2023).
   Will the elevated reinsurance rates persist in the near term? What has been the quantum of revision in reinsurance rates between LPI and reinsurers lately? By percentage, how has the reinsurance rate changed y-o-y for each class of business?

Answer 1(a)

Due to the hardening of the global reinsurance market, the Company experienced material increase in treaty reinsurance terms in FY2023. The reinsurance market did not softened in early 2024 and the Company renewed its FY2024 treaty programme at similar terms as per FY2023.

The reinsurance premiums paid (net of reinsurance commission) for its treaty programme increased by 27% from FY2022 to FY2023, in which Fire class increased by 36%, Motor class by 16%, Marine, Aviation & Transit by 5% and Miscellaneous class by 20%. This was mainly due to lower reinsurance commissions earned and higher Excess of Loss premium paid.

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LPI External - Confidential

Question 1(b)

1. The increase in flooding opened new opportunities for insurers to promote additional flood coverage to the public, especially given that flood insurance take-up remains low at 33% (as of the first half of 2023), compared to 31% in 2022.
   How has the take-up of flood coverage changed year-on-year with the purchase of LPI's fire and motor insurance? What is the room for growth for this segment?

Answer 1(b)

The flood take-up rates for Fire and Motor insurances for 2022 and 2023 were as follows :-

		Flood Take-up Rates
	Fire Insurance	Motor Private Car	Fire &
			Motor Combined
2022	63.5%	10.5%	32.8%
2023	64.5%	13.2%	34.0%

The flood take-up rate for Fire insurance had increased to 64.5% in 2023 from 63.5% in 2022, while the take-up rate for Motor private cars was still relatively low at 13.2%.

The Company is offering competitive premium rate to entice its motor policyholders to extend flood cover for their motor policies in view of the increased frequency of flooding in various parts of Malaysia.

Question 1(c)

1. Amid rising reinsurance rates globally, to what extent did LPI increase the cover rate for its products, especially in the Fire and Motor segment? What is the average increase in cover rate across the industry for the two business classes?
   As underwriting risks and reinsurance rates increase, has LPI exited/ceased covering certain segments/geographical areas? Has LPI seen such development among market players?

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LPI External - Confidential

Answer 1(c)

The Company did not increase the premium rate of its products arising from the increase in its reinsurance costs. Most of its products are priced based on the risk exposure of the portfolio and the risk elements of each insured.

The Company did not exit or cease covering any segments/geographical areas as a result of the increase in reinsurance costs. The Management also not aware of such practice among market players.

Question 2

LPI's underwriting result was also impacted by the deterioration in the performance of specific segments of its business over the last two years. These segments require reassessment going forward (page 25 of AR2023).

Which are the segments required reassessment that LPI referred to? Has the Group finalised the review of the segments? If yes, what is the outcome of the review?

Answer 2

In FY2023, Lonpac Insurance experienced a slight deterioration in its insurance claims, particularly in the Fire and Medical insurance sectors of business. The Management has reviewed the underwriting acceptance of certain segments of Fire risks and revised the pricing of the affected Medical portfolio. With the tightening of underwriting, the Management hopes these sectors of business will be able to report better performance in FY2024.

Question 3

As of September 2023, LPI's market share ranking in the Malaysian general insurance market had dropped two more notches to sixth, despite its market leader position in the Fire and Bonds segments.

The further decline in market share ranking was primarily due to the market consolidation of two insurers, which resulted in the merging of their respective portfolios.

As market players consolidate to form more extensive and formidable forces, what are LPI's strengths and weaknesses in dealing with competition from larger players? How does LPI respond to such an evolving landscape?

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LPI External - Confidential

Answer 3

Insurers will have an almost immediate increase in market share and improved ranking after a merger. Whilst market ranking is an important indicator of the size of an insurer, LPI's strategy has always been on a sustainable growth path by focusing on strategic sectors that can provide us with a steady and sustainable stream of profits.

LPI will only look into and consider any mergers if the right opportunity arises that meets its strategic business direction of creating value for the company and ultimately, the shareholders. The Company will continue to strengthen its distribution channels especially its agency network and intensify its collaboration with its bancassurance partners to grow its desired portfolios.

Question 4

Unlike Annual Report 2022 (page 112 of AR2022), LPI did not publish the Net Claims Incurred Ratio (NCIR) by Class of Business in AR2023.

Why did LPI not include this ratio in its annual report, which could have helped shareholders better gauge each segment's underwriting performance? What are the NCIR (latest and retrospective numbers) for every class of business based on MFRS 17? Which class of business recorded an improved claim ratio, and vice versa?

Please illustrate the expected claim experience for different business classes in FY2024.

Answer 4

The Company did not publish the Net Claims Incurred Ratio (NCIR) in Annual Report 2023 because the concept of "net earned premiums" is no longer applicable under MFRS 17. Therefore, the NCIR is unable to be computed based on MFRS 17 format.

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LPI External - Confidential

The NCIR by class of business is presented below by extracting from the internal management accounts :-

	2023 (%)	2022 (%)
Fire	21.8	15.5
Motor	69.8	77.1
Marine, Aviation & Transit	22.1	35.7
Miscellaneous	46.8	45.1
Total	45.0	43.2

Sustainability Matters

Question 1

LPI's net written premiums for climate-friendly risks totalled RM12 million in 2023, compared to RM8 million in FY2022. This number is insignificant compared to LPI's gross written premium of RM1.73 billion in FY2023.

1. What is the market potential by market size for ESG-friendly insurance products in Malaysia?
2. How comprehensive and competitive is LPI's green products offering compared to other market players?
3. Additionally, Lonpac plans to offer coverage for electric vehicles (EVs) (page 26 of AR2023).

With Malaysia reporting exponential growth in EV sales in 2023, how soon will Lonpac launch related insurance products to seize the fast-growing segment's underwriting opportunities?

Answer 1

The market share of ESG-friendly insurance was relatively small as compared to the traditional insurance products in Malaysia. The common ESG-friendly products were primarily focusing on the protection of electric vehicles (EV) for motor insurance and solar panels for fire insurance.

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