VISION MISSION CORPORATE. To be the preferred premier insurance solutions provider.

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3 COVER Over the years, we have taken the time to showcase some of the approaches of LPI Capital Bhd. This year, our annual report is about some of the key tenets that we hold close and dear to our hearts. The theme this year centres on how we approach the element of Value and coded it into every aspect of the business and the interaction of our core values into how we conduct ourselves and our responsibilities to our insured, our stakeholders, our people and our community.

4 VISION To be the preferred premier insurance solutions provider. CORPORATE MISSION Our primary focus is to provide innovative insurance products supported by customer-centric service excellence. We aim to provide our insured an easy channel for all their insurance needs. Our brand is representative of the way we conduct ourselves and the approach to organisational development. We aim to create an environment for our people that is fair, caring and accountable. Our drive is to create value for our stakeholders, anchored to our vision and corporate mission. We strive for sustainability through financial and technical strength based on recognised and proven standards.

5 OUR CORE VALUES Represent the way we conduct ourselves and our responsibilities to our insured, our stakeholders, our people and our community. L Aspire to be the LEADER in the insurance industry in Malaysia and in the region. O Commitment to OPERATIONAL EXCELLENCE guided by integrity and professionalism. N Creating NEW AND INNOVATIVE market-relevant insurance products. P PROVIDING a fair, caring and merit based working environment. A ADOPTING a proactive and accountable approach to stakeholders. C CRAFTING a premier insurance brand identified for good corporate governance and corporate responsibility.

6 CONTENTS HIGHLIGHTS 02 Vision & Corporate Mission 03 Our Core Values 06 Notice Of Annual General Meeting 08 Financial Calendar 10 Performance At A Glance 11 Simplified Group Statements Of Financial Position 12 Corporate Information 13 Group Corporate Structure 14 Corporate Profile OVERVIEW 20 Corporate Milestones Since Customer Care 24 LPI Capital In The News 26 Ten-Year Group Financial Summary 30 Segmental Analysis 32 Group Quarterly Performance 33 Statement Of Value Added ACHIEVEMENT 34 Awards & Recognition 36 Record Of Past Awards LEADERSHIP 40 Board Of Directors 42 Board Of Directors Profile 48 Letter To Our Stakeholders ACCOUNTABILITY 58 Corporate Governance Statement 77 Enterprise Risk Management 83 Ethics, Integrity And Trust 85 Statement On Risk Management And Internal Control 88 Audit Committee Report 94 Statement On Internal Audit Function MANAGEMENT PERSPECTIVE 96 Senior Management Profile 98 Heads Of Department CHAIRMAN S REVIEW 106 Overview 108 Business Operations Review 117 Outlook For 2015 CORPORATE RESPONSIBILITY 120 Corporate Responsibility 134 Human Capital Development 142 Calendar Of Significant Events

7 FINANCIALS 149 Analysis Of The Financial Statements 157 Statement Of Responsibility By Directors FINANCIAL STATEMENTS 158 Directors Report 163 Statements Of Financial Position 164 Statements Of Profit Or Loss 166 Statements Of Profit Or Loss And Other Comprehensive Income 167 Statements Of Changes In Equity 170 Statements Of Cash Flows 172 Notes To The Financial Statements 252 Statement By Directors 253 Statutory Declaration 254 Independent Auditors Report To The Members Of LPI Capital Bhd 256 Bursa Malaysia Securities Berhad Listing Requirements Compliance Information 258 Malaysian Economy: Review And Outlook 265 Analysis Of Shareholdings 269 Authorised And Issued Share Capital 273 Particulars Of Property Held By The Group 274 International Network 275 Group Corporate Directory Form Of Proxy

8 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the 54 th Annual General Meeting of LPI Capital Bhd will be held at Sabah Room, Basement II, Shangri-La Hotel Kuala Lumpur, 11 Jalan Sultan Ismail, Kuala Lumpur, Malaysia on Monday, 9 March 2015 at a.m. for the following purposes: AGENDA As Ordinary Business 1. To receive the Audited Financial Statements for the financial year ended 31 December 2014 and the Reports of the Directors and Auditors thereon. Ordinary Resolution 1 2. To re-elect the following Directors, who are retiring by rotation in accordance with Article 97 of the Company s Articles of Association, and who being eligible, offer themselves for re-election: i. Mr. Tan Kok Guan ii. Dato Haji Abdul Aziz bin Dato Dr. Omar Ordinary Resolution 2 Ordinary Resolution 3 3. To consider and if thought fit, to pass the following Ordinary Resolutions in accordance with Section 129 of the Companies Act, 1965: i. THAT Tan Sri Dato Sri Dr. Teh Hong Piow, retiring pursuant to Section 129 of the Companies Act, 1965, be and is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting. Ordinary Resolution 4 ii. THAT Tan Sri Datuk Seri Utama Thong Yaw Hong, retiring pursuant to Section 129 of the Companies Act, 1965, be and is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting. Ordinary Resolution 5 4. To approve the payment of Directors fees of RM465, for the financial year ended 31 December Ordinary Resolution 6 5. To re-appoint Auditors for the financial year ending 31 December 2015 and to authorise the Directors to fix the Auditors remuneration. Ordinary Resolution 7 By Order of the Board KONG THIAN MEE MAICSA Company Secretary Kuala Lumpur 13 February ANNUAL REPORT 2014

9 NOTICE OF ANNUAL GENERAL MEETING NOTES: 1. Only depositors whose names appear in the Record of Depositors as at 27 February 2015 be regarded as members and entitled to attend, speak and vote at the meeting. 2. A member entitled to attend and vote at the meeting is entitled to appoint not more than 2 proxies (or in the case of a corporation, a duly authorised representative) to attend and vote in his/ her stead. A proxy may but need not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 3. Where a member of the Company is an authorised nominee as defined in the Securities Industry (Central Depositories) Act, 1991, it may appoint not more than 2 proxies in respect of each securities account it holds in ordinary shares of the Company standing to the credit of the said securities account. 4. Where a member appoints 2 proxies, the appointment shall be invalid unless he specifies the proportion of his shareholdings to be represented by each proxy. 5. Where a member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for multiple beneficial owners in one securities account ( omnibus account ), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each omnibus account it holds. An exempt authorised nominee refers to an authorised nominee defined under the Securities Industry (Central Depositories) Act, 1991 which is exempted from compliance with the provisions of subsection 25A(1) of the said Act. 6. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing or, if the appointer is a corporation, either under its common seal or under the hand of an officer or attorney duly authorised. 7. The instrument appointing a proxy must be deposited at the office of the Share Registrar, Tricor Investor Services Sdn Bhd at Level 17, The Gardens North Tower, Mid Valley City, Lingkaran Syed Putra, Kuala Lumpur, Malaysia not less than 48 hours before the time set for the holding of the meeting or at any adjournment thereof. EXPLANATORY NOTES ON RESOLUTIONS 3 AND 5: In accordance with Recommendation 3.1 of Malaysian Code on Corporate Governance 2012, the Nominating Committee ( NC ) of the Company had conducted an annual assessment on the independency of the independent directors and recommended the same for Board approval. Based on the annual assessment carried out by the NC, the Board had determined that Tan Sri Datuk Seri Utama Thong Yaw Hong and Dato Haji Abdul Aziz bin Dato Dr. Omar have remained objective and continued to bring independent and objective judgements to the Board deliberations and decision making as a whole. GROWTH DRIVEN VALUE CREATION 7

10 FINANCIAL CALENDAR Financial Year 2014 QUARTERLY RESULTS 8 April 2014, Tuesday Announcement date Unaudited consolidated results for the 1 st quarter ended 31 March July 2014, Friday Announcement date Unaudited consolidated results for the 2 nd quarter ended 30 June October 2014, Wednesday Announcement date Unaudited consolidated results for the 3 rd quarter ended 30 September January 2015, Wednesday Announcement date Audited consolidated results for the 4 th quarter and financial year ended 31 December ANNUAL REPORT 2014

11 DIVIDENDS ANNUAL GENERAL MEETING 25 July 2014, Friday Notice date 28 January 2015, Wednesday Notice date 13 February 2015, Friday Notice of 54 th Annual General Meeting 13 August 2014, Wednesday Entitlement date 16 February 2015, Monday Entitlement date 9 March 2015, Monday 54 th Annual General Meeting 21 August 2014, Thursday Interim dividend payment date 26 February 2015, Thursday Interim dividend payment date 1 st interim single tier dividend of 20 sen per ordinary share 2 nd interim single tier dividend of 55 sen per ordinary share GROWTH DRIVEN VALUE CREATION 9

12 PERFORMANCE AT A GLANCE GROUP FINANCIAL HIGHLIGHTS OPERATING RESULTS (RM 000) Operating Revenue 1,169,693 1,119,022 Gross Written Premiums 1,149,162 1,105,678 Operating Profit 342, ,277 Profit Before Tax 341, ,801 KEY STATEMENTS OF FINANCIAL POSITION DATA (RM 000) Total Assets 3,377,206 3,202,331 Total Liabilities 1,724,336 1,595,788 Total Equity 1,652,870 1,606,543 FINANCIAL RATIOS (%) Profitability Ratios Return on Equity ( ROE ) Return on Assets Operating Margin Net Claims Incurred Productivity Ratios Gross Written Premiums Income per Employee (RM 000) 1,630 1,609 No. of Policies Issued per Employee 2,331 2, ANNUAL REPORT 2014

13 SIMPLIFIED GROUP STATEMENTS OF FINANCIAL POSITION % 9.3% 0.9% 24.3% 3.7% 10.8% 0.9% 19.4% 0.3% 0.3% 0.7% 0.6% 19.4% 0.5% 19.2% 41.2% 0.5% 44.6% ASSETS Plant and equipment Investment properties Investment in associated company Other investments Reinsurance assets Loans and receivables, excluding insurance receivables Insurance receivables Deferred acquisition costs Cash and cash equivalents % 42.5% 2.7% 4.2% 0.4% 6.5% 2.4% 4.5% 0.5% 6.9% 42.4% 43.2% EQUITY & LIABILITIES Share capital Reserves Insurance contract liabilities Insurance payables Deferred tax liabilities, borrowings and other payables Tax payable GROWTH DRIVEN VALUE CREATION 11

14 BOARD OF DIRECTORS Non-Independent Non-Executive Chairman Tan Sri Dato Sri Dr. Teh Hong Piow PSM, SSAP, SPMJ, SIMP, SSIJ, DSAP, DPMJ, Datuk Kurnia Sentosa Pahang, JP Hon LLD (M sia), FIBM (M sia), EFMIM (M sia), FCIB (UK), FCIS (Aust), FCMI (UK), FICM (UK), FInstAM (UK) Independent Non-Executive Co-Chairman Tan Sri Datuk Seri Utama Thong Yaw Hong PSM, SUMW, SIMP, DSAP, DIMP, JMN, SMP, JBS, AMN BA (Econs Hons), MPA (Harvard), AMP (Harvard), D.Econ (Hon) Chief Executive Officer/ Executive Director Mr. Tan Kok Guan Chartered Insurer B.Sc. (Hons.), MBA, ACII, AMII Independent Non-Executive Director Dato Yeoh Chin Kee DIMP FCPA (Aust), F Fin (Aust) (Retired on 1 January 2015) Non-Independent Non-Executive Director Mr. Tee Choon Yeow B.Com., CA (NZ), CA (M sia), FCPA (Aust) Independent Non-Executive Director Dato Haji Abdul Aziz bin Dato Dr. Omar DIMP ACA (England & Wales), CA (M sia), FIBM (M sia) Independent Non-Executive Director Mr. Quah Poh Keat FCCA (UK), CA (M sia), CPA (M sia), ACMA (UK), Fellow MIT (M sia) CORPORATE INFORMATION COMPANY SECRETARY Ms. Kong Thian Mee Chartered Secretary MAICSA Tel No. : (03) corporate@lonpac.com REGISTERED OFFICE 6 th Floor, Bangunan Public Bank, 6, Jalan Sultan Sulaiman, Kuala Lumpur, Malaysia. Tel No. : (03) / Fax No. : (03) AUDITORS Messrs KPMG Chartered Accountants Level 10, KPMG Tower, 8, First Avenue, Bandar Utama, Petaling Jaya, Selangor, Malaysia. Tel No. : (03) Fax No. : (03) SHARE REGISTRAR Tricor Investor Services Sdn Bhd Level 17, The Gardens North Tower, Mid Valley City, Lingkaran Syed Putra, Kuala Lumpur, Malaysia. Tel No. : (03) Fax No. : (03) is.enquiry@my.tricorglobal.com STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad (Listed since 8 January 1993) HEAD OFFICE 6 th Floor, Bangunan Public Bank, 6, Jalan Sultan Sulaiman, Kuala Lumpur, Malaysia. Tel No. : (03) / Fax No. : (03) WEBSITE INVESTOR RELATIONS Mr. Tan Kok Guan Tel No. : (03) kgtan@lonpac.com Mr. Looi Kong Meng Tel No. : (03) kmlooi@lonpac.com AGM HELPDESK Tel No. : (03) / / Fax No. : (03) corporate@lonpac.com 12 ANNUAL REPORT 2014

15 GROUP CORPORATE STRUCTURE As At 31 December % (Malaysian Company) LONPAC INSURANCE BHD UNDERWRITING OF GENERAL INSURANCE 45 % (Overseas Company) CAMPU LONPAC INSURANCE PLC UNDERWRITING OF GENERAL INSURANCE Notes: on pages 196 to 197 of this Annual Report. GROWTH DRIVEN VALUE CREATION 13

16 CORPORATE PROFILE ABOUT US LPI Capital Bhd ( LPI ), formerly known as London & Pacific Insurance Company Bhd, was established on 24 May 1962 as a private limited company. LPI was registered as an approved insurer on 9 April 1963 under the Malaysian Insurance Act 1963, and has been a cornerstone of the local insurance industry ever since. The Company was publicly listed on 8 January 1993 on the Second Board of the Malaysian stock exchange before being transferred to the Main Market of Bursa Malaysia Securities Berhad ( Bursa Securities ) on 17 January We presently operate in 3 markets: in Malaysia and Singapore through our wholly-owned Lonpac Insurance Bhd ( Lonpac ) and in Cambodia through our 45%-owned Campu Lonpac Insurance Plc. LPI s insurance business was transferred to Lonpac through a rationalisation scheme conducted on 1 May As one of the leading insurers in Malaysia, we have weathered both domestic and global market turmoil over the past 52 years. This is an achievement that we attribute to the strength and vision of our Management and Board of Directors, and to the loyalty and support of our staff and stakeholders. We remain steadfastly focused on customer satisfaction, which is the keystone of our operations, and committed to our goal of creating shareholder value. OUR CORE BUSINESS LPI Group aims to maintain its status as a leading Malaysian general insurer through it s wholly-owned subsidiary, Lonpac. Our focus remains squarely placed on growth and maximising profitability, improving shareholders returns, increasing market share and improving performance set against international benchmarks. Increased volatility in both domestic and international markets have made the need for reliable financial security all the more important. As an insurer, we have a duty to provide a safety net for them in times such as these, and we are intent on fulfilling our obligations to them. At the same time, our overseas units are continuing to show signs of positive growth, particularly in the Cambodian market which is coming into its own as a mature economic entity. The trend in Cambodia is expected to continue as foreign investment, primarily from China, Japan and Korea, continues to pour into the local market. Lonpac s branch in Singapore is also showing signs of growth following a portfolio overhaul. As a mature market, growth in Singapore is unlikely to rival the pace set in Cambodia, but we remain optimistic that we can play a niche role there. PRESENCE IN DOMESTIC MARKET The domestic market is highly competitive, and is expected to be even more so when tariffs are lifted and the industry liberalised in Nonetheless, we are committed to our philosophy of organic and prudent growth, and have the utmost confidence in our award-winning service standards and extensive experience to see us through the coming years. Our key value propositions are: Diverse Product and Service Range LPI Group s insurance vehicle, Lonpac, offers a wide range of general insurance products covering various classes including: Our diverse product range has given us extensive reach in various markets ranging from individual to corporate clients. Our strategy to build expertise in various insurance markets is part and parcel of our risk management plan, although we are pleased to report that all market segments are positive revenue generators. Key to our success is our customer-centric approach, which prioritises customer satisfaction. Our innovations in products and services are all tailored towards this end goal as customers form the basis of our success. 14 ANNUAL REPORT 2014

17 CORPORATE PROFILE marketing team was developed internally under a rigorous human development programme to meet both customers and our own operational benchmarks. The Group also has a stable of qualified insurance agents located throughout the country who are registered with Persatuan Insurans Am Malaysia. Lonpac presently operates 21 branches in Malaysia and a branch in Singapore. In addition, Campu Lonpac Insurance Plc, LPI s 45%-owned entity, provides insurance solutions in Cambodia. We provide our clients with 3 exclusive value-adding programmes, namely Lonpac E-Assist, Lonpac Home-Assist and Lonpac Travel Assist programmes. These programmes are designed to ensure that clients have quick and easy access to support services in time of need. Lonpac E-Assist is a complimentary 24-hour emergency car assistance programme covering minor roadside repairs, emergency towing services, car rental services and arrangements for hotel accommodation for our comprehensive private car insurance policyholders. Lonpac Home-Assist is a complimentary referral assistance programme for home-related services provided to all Lonpac s Houseowner and Householder policyholders. Lonpac Travel Assist is a complimentary medical and emergency assistance programme provided to the persons covered under Lonpac s TravelNet, BizTravel and Easy Travel policies. Our operations are supported by a robust Customer Relationship Management System which provides our staff in all departments with an integrated view of customer details in order to help them provide better and more comprehensive services. This is part of our plan to improve customer loyalty and boost retention through better service. We will continue to innovate our products and services to meet the growing expectations of our customers who are similarly growing more sophisticated in their insurance needs. Our commitment is to provide superior option to both local and international alternatives. Extensive Distribution Network LPI Group s distribution channels take advantage of various opportunities through its own in-house marketing team. The LPI Group is constantly upgrading its Information Technology infrastructure and systems to bring them in line with our drive to increase the level of efficiency of our operations. An enhanced IT infrastructure translates to better quality services for customers especially in terms of application processing and turnaround time. Superior Delivery Standards Our excellent customer service is driven by a corporate culture that has been prioritising customers needs since the Group s formation in All staff members are trained to the highest level of professionalism in line with our mission goals. We are continuously working to improve our customer service to differentiate ourselves from rivals. We established a Customer Service Centre in 2004 to fulfil this commitment to our customers. Our website serves as a portal for our customers to manage their policies, as well as to share feedback and make inquiries of us. The website is maintained regularly to provide up-todate information on our policies and product offerings to our customers. This website also provides corporate information for investors and shareholders as part of our commitment to transparency and good corporate governance. Strong Financial Rating International insurance rating agency A.M. Best Asia-Pacific Limited ( A.M. Best ) has renewed Lonpac s financial strength rating of A- (Excellent) and its issuer credit rating of a-, with a stable outlook attached to both ratings. The ratings affirmations acknowledges Lonpac s track record of maintaining profitable growth in market share over the past 5 years even as foreign insurers continued to increase their presence in Malaysia s non-life insurance market. GROWTH DRIVEN VALUE CREATION 15

18 CORPORATE PROFILE A.M. Best also noted that Lonpac could be re-rated upwards if it were able to achieve its business plans in the liberalised regime as liberalisation was expected to have an impact on claims ratio volatility, which could in turn impact Lonpac s projected growth and profits. AWARDS AND ACCOLADES LPI Group has amassed a number of awards and accolades in recognition of its strong, sustained financial performance and excellence in key financial areas including corporate governance. These awards stand as a testament to the Group s sound corporate strategy and its continued commitment to quality. Best Brands in Financial Services General Insurance (Annually, from 2011 to 2014) The BrandLaureate BestBrands Signature Awards was conferred on LPI Group in the Best Brands in Financial Services General Insurance segment. LPI Group has received this award for 4 consecutive years since The award is designed to honour excellence among brands in Malaysia and throughout the world. Chubb Multinational Solutions Outstanding Affiliate World-Class Service Award (Annually, from 2007 to 2014) The Chubb Multinational Solutions Outstanding Affiliate World-Class Service Award is an annual recognition awarded by the Chubb Group of insurance companies. Lonpac was recognised for the 7 th consecutive year for its efficient policy issuance and service levels and for the tenure of its relationship with Chubb. Lonpac was nominated for the award by Chubb Multinational Account Coordinators and on the recommendations of Chubb s Affiliate Network Managers. Edge Billion Ringgit Club Member (Annually, from 2010 to 2014) LPI Group was admitted as a member of the Edge Billion Ringgit Club for 5 consecutive years under the Finance Sector category. The Billion Ringgit Club was established to recognise Malaysia s biggest and best performing companies. MSWG - ASEAN Corporate Governance Transparency Index, Findings and Recognition 2014 The Malaysian Chapter LPI Group was one of the Top 10 winners in the Top Corporate Governance Recognition category by the Minority Shareholder Watchdog Group ( MSWG ). The award recognises LPI Group s commitment to good corporate governance practices as part of the MSWG s efforts to raise the overall standard of governance in Malaysian publicly listed companies. RSA Global Network Recognition Award (2013) LPI Group was awarded the RSA Global Network Recognition Award for the first time in March This biennial award recognises LPI Group s contribution of support and service to the RSA Group. Corporate Governance Excellence (Annually, from 2005 to 2011) LPI Group is proud to have received the Malaysian Business CIMA Enterprise Governance Merit Award for 7 consecutive years since The award recognises companies for their organisational excellence in delivering performance while conforming to set standards and practices. Winners were evaluated on business and corporate governance principles and best practices, including risk management, internal controls, communications and adherence to regulations, financial and operational performance. Malaysian Corporate Governance Index s Most Prompt AGM Award and Distinction Award (Annually, from 2009 to 2011) LPI Group received the Most Prompt AGM Award and Distinction Award from the MSWG for 3 consecutive years in its annual Malaysian Corporate Governance Index. The Most Prompt AGM Award was conferred for LPI Group s move to hold its annual general meeting less than 60 days after its financial year end. The Group also received the Distinction Award in recognition of its commendable and excellent corporate governance practices. This followed its Winner of the Top 3 (Overall) Award from the same group the previous year. The annual Malaysian Corporate Governance Index creates awareness and encourages best corporate governance practices among public listed companies in Malaysia. Its awards recognise companies for their exemplary corporate governance track record over the previous year. Malaysian-Asean Corporate Governance Index s Most Prompt AGM Award (2013) In 2013 MSWG s Corporate Governance Index awards were expanded to include countries in the ASEAN region, and LPI Group is proud to report it received the Most Prompt AGM Award on 16 December The Group s continued success in this expanded field is a strong endorsement of its continued commitment to enhance its corporate governance reputation not just in Malaysia but also in the region. 16 ANNUAL REPORT 2014

19 CORPORATE PROFILE Enhanced Shareholder Value (Annually, from 2005 to 2010) Sectoral Winner (2005, 2006, 2008) Global professional services consultant KPMG awarded LPI Group its KPMG Shareholder Value Award under the Financial Services category for 6 years running beginning LPI Group has also been recognised as the Sectorial Winner 3 times-in 2005, 2006 and The KPMG award recognises corporate excellence in enhancing levels of disclosure and setting exemplary best practices. Excellence in Annual Corporate Reporting (2006, 2009, 2011) LPI Group received a Certificate of Merit in the National Annual Corporate Report Awards in 2006, 2009 and 2011, factual and reader-friendly annual reports. The award stands as a testament to the Group s commitment to a high standard of corporate governance and disclosure through its annual corporate reporting. Best Insurance Company, Malaysia (2011) Lonpac won the Best Insurance Company, Malaysia award at the World Finance Insurance Awards The award recognises industry leaders, individuals, teams and organisations which have reached a benchmark of achievement and best practice in the financial and business world. Best Return to Shareholders (2008, 2010) LPI Group was one of the winners of the Malaysian Business CIMA Enterprise Governance Awards under the Best Return to Shareholder. The insurer has won this award twice-in 2008 and General Insurance Company of the Year (2010) Lonpac was the 1 st Malaysian company to be awarded the prestigious General Insurance Company of the Year Award at the 14 th Asia Insurance Industry Awards The award recognises Lonpac s commitment to its customers and its solid financial performance. Best Insurer (2009, 2010) Lonpac was recognised as the 3 rd Best Insurer Overall by Region Asia 2010 by Euromoney, beating competition from larger insurers in more mature markets including Japan, China, India and Korea. This recognition built on Lonpac s success the previous year when it was declared the winner in all 5 categories for Malaysia in the Euromoney 2009 awards, and consequently received the Best Insurer in Malaysia award. The 5 categories were: Management Accounting Excellence (2006, 2007) LPI Group received a Certificate of Finalist and a Certificate of Merit in the National Award for Management Accounting in 2006 and 2007 respectively. These awards recognise LPI Group s commendable management accounting practices, which lead to value creation and excellent business performance. RESPONSIBLE CORPORATE CITIZENSHIP We are committed to the execution of Corporate Responsibility ( CR ) vision through the implementation of initiatives serving the community at large. The Group undertakes initiatives that help the underprivileged in a number of areas including education and employment. We are also committed to the goals of environmental conservation. The Group believes that CR is a natural extension of our efforts to maintain a strong corporate governance culture which will strengthen our corporate image and reputation. LPI Group is also committed to the betterment of our staff by raising their value, contribution, productivity and efficiency. LPI GROUP S COMMITMENT We are committed to providing clients with competitive and innovative products and services. We are also committed to investing in human capital development to enhance our core competencies and productivity. LPI Group will continue to deliver healthy returns and enhanced long-term value to our shareholders. We are also committed towards the improvement of the Malaysian community and to help drive the progress of the nation. GROWTH DRIVEN VALUE CREATION 17

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21 VALUE FOR OUR INSURED Our innovative range of insurance products are directly tailored to the needs and expectations of our insured. The cornerstone of achieving value for our insured is through operational excellence guided by integrity and professionalism.

22 CORPORATE MILESTONES SINCE Pacific Insurance Company Limited ( LPICL ) was incorporated as a private limited company as an approved insurer under the Malaysian Insurance Act, st dividend of 25% tax exempt per ordinary share of RM1.00 each and Pacific Insurance Company Sdn Bhd ( LPICSB ) with effect from 15 April The share capital increased to RM6,000,000 ordinary shares of RM1.00 each from an initial paidup capital of RM1,000,000 in 1963, through 1:2 bonus issue and share allotment. company and changed its name to London and Pacific Insurance Company Berhad ( LPICB ) on 30 December RM8,000,000 ordinary shares of RM1.00 each through 1:3 rights issue at RM to RM11,000,000 ordinary shares of RM1.00 each through allotment of 7½% Convertible Preference Shares of RM0.50 each The share capital increased to RM19,800,000 ordinary shares of RM1.00 each through 4:5 bonus issue listed on the Second Board of Bursa Securities, then known as the Kuala Lumpur Stock Exchange. st RM10 million annual profit before tax with RM13.9 million profit before tax in the year of LPICB, was incorporated on 12 July RM29,700,000 ordinary shares of RM1.00 each through 1:2 bonus issue Head Office to Bangunan Public Bank, No. 6, Jalan Sultan Sulaiman, Kuala Lumpur. appointed by the Ministry of Human Resources to administer an insurance scheme Foreign Workers Compensation Scheme, to provide coverage for industrial accident to foreign workers as provided under Section 26(2) of the Workmen s Compensation Act RM53,460,000 ordinary shares of RM1.00 each through 2:5 bonus issue and 2:5 rights issue at RM transferred to the Main Market (then known as Main Board) of Bursa Securities on 17 January reinsurance agreement with a panel of reinsurers on the Foreign Workers Compensation Scheme, witnessed by Dato Lim Ah Lek, Minister of Human Resources. launched on 22 May 1997 in conjunction with LPICB s 35 th Anniversary RM106,920,000 ordinary shares of RM1.00 each through 1:1 bonus issue. on 1 May 1999 to transfer the entire insurance business from LPICB to Lonpac. Capital Bhd on 3 May website on 30 October RM107,355,000 ordinary shares of RM1.00 each through Employees Share Option Scheme ( ESOS ) exercise RM107,398,000 ordinary shares of RM1.00 each through ESOS exercise. 20 ANNUAL REPORT 2014

23 CORPORATE MILESTONES 2002 celebrated a new business partnership with NIPPONKOA Insurance Co. Ltd ( NIPPONKOA ), witnessed by Dato Chan Kong Choy, Deputy Minister of Finance. RM118,137,000 ordinary shares of RM1.00 each through subscription of new ordinary shares by NIPPONKOA RM120,159,000 ordinary shares of RM1.00 each through ESOS exercise Centre on 29 July RM128,901,000 ordinary shares of RM1.00 each through ESOS exercise RM138,723,000 ordinary shares of RM1.00 each through ESOS exercise. st RM100 million annual profit before tax with RM103.6 million profit before tax in the year insurance company named Campu Lonpac Insurance Plc. This is for the purpose of carrying out general insurance business in Cambodia, pursuant to approvals received from Bank Negara Malaysia and relevant Cambodian regulatory authorities for the first time RM221,323,980 ordinary shares of RM1.00 each through 1:2 bonus issue and 1:10 rights issue at RM7.00. company to win the General Insurance Company of the Year Award at the 14 th Asia Insurance Industry Awards for the first time st RM200 million annual profit before tax with RM200.1 million profit before tax in the year st RM1 billion annual gross premium income with RM1.03 billion gross premium income in the year for the first time st RM300 million annual profit before tax with RM341.9 million profit before tax in the year. GROWTH DRIVEN VALUE CREATION 21

24 CUSTOMER CARE Customer care is a cornerstone of our operations because at Lonpac, the customer is at the centre of our work. We are always striving to ensure customer satisfaction in all our customers dealings with us and have made it a key performance benchmark since our start more than 50 years ago. We view our customers as lifelong clients and work towards ever greater excellence in keeping them satisfied. This aspiration continues to drive us towards greater heights in the area of customer care even as we improve our core operations to make them more convenient and efficient for all our customers. ENHANCING ONLINE TRANSACTIONS We have continued our efforts to modernise our customer care programme as part of the Group s overall strategy to streamline its entire business value chain. As our customers have become increasingly technologically savvy, we are leveraging on electronic means to better provide information and access to them via smart devices and through our online portal. For example, our online insurance system 1 has been updated in 2014 to allow electronic payment of policies via interbank transfers, which allows our customers to make payment from the bank of their choice. Moreover, the new functionality has allowed us to make premium refunds and claims payment to our customers via electronic credits. Finally, we have launched a new exclusive product the Smart Driver Personal Accident which is exclusive to all comprehensive motor policyholders. The new product grants additional peace of mind to motor policyholders when they travel, and also provides additional protection for a variety of potential issues. The addition of these new functionalities complements other services available via Lonpac s online insurance system, which provides access to all main classes of insurance. The addition of these new services adds further value for our customers by allowing them to manage comprehensively their policies with us. 1 Our online insurance system can be accessed at 2 Customers can sign up for our Travel Club at Online access by our customers has continued to grow steadily as shown by the increase in portal usage by 42% in December 2014 when compared against the corresponding period in The plan moving forward is to add more features to the portal. Some plans identified for the future include: insurance not currently available. friendly and simple to access. GIVING OUR CUSTOMERS PEACE OF MIND ON THEIR TRAVELS Membership in our Travel Club programme is complimentary and available for immediate registration online. 2 The Travel Club programme is our way of showing our customers that we care by making it as easy and convenient as possible for our customers to get the peace of mind they deserve both at work and at play. The Club has seen enrolment of 2,010 members since its launch. Meanwhile, travel insurance premiums have increased 35.1% as at December 2014 as compared to as at December This makes the Travel Club programme a win-win proposition for both our business and our customers. 22 ANNUAL REPORT 2014

25 CUSTOMER CARE EMERGENCY CAR ASSISTANCE WHEREVER AND WHENEVER We are working together with Persatuan Insurans Am Malaysia to establish a call centre to handle emergency car assistance calls. This service, promoted as Accident Assist, went live in June Accident Assist is the end-result of a number of consultations held with various governmental and non-governmental associations. Accident Assist provides a number of benefits to customers, including claims notification and towing services for private passenger cars that have comprehensive, third-party as well as fire and theft insurance coverage. Lonpac customers requiring car assistance need only call the Accident Assist Hotline number, , to receive timely assistance. EXTRA BENEFITS FOR LONPAC POLICYHOLDERS Benefits for Comprehensive Private Car Insurance Policyholders Our Comprehensive Private Car Insurance policyholders enjoy exclusive value-added services via our Lonpac E-Assist programme in the event of a breakdown or accident. Lonpac E-Assist provides a whole host of benefits including 24-hour minor roadside repair and emergency towing services. It also provides rental car referral services as well as arrangements for hotel accommodation if necessary. More information is available on our website at Benefits for Houseowner and Householder Policyholders Homeowners who have purchased Houseowner and/ or Householder Insurance from us can depend on our Lonpac Home-Assist programme which provides value-added benefits in the form of referral services in a number of areas. At Lonpac, we recognise that when our customers encounter misfortune, the last thing they need is to worry about whom to contact for home repairs and how they should do so. We presently offer referral services for the following areas: electrical, plumbing, locksmithing, air conditioning and pest control. OUR CONTINUED COMMITMENT TO EXCELLENCE IN CUSTOMER CARE Lonpac thanks its customers for their continued support, and would like to take this opportunity to restate its commitment to them. We are always eager to hear feedback from them as we are continually looking for ways to improve our customer care. Comments and complaints can be submitted at any of our branches or online by ing complaint@lonpac.com. A feedback form is also available on our website at GROWTH DRIVEN VALUE CREATION 23

26 LPI CAPITAL IN THE NEWS 24 ANNUAL REPORT 2014

27 GROWTH DRIVEN VALUE CREATION 25

28 TEN-YEAR GROUP FINANCIAL SUMMARY 2014 OPERATING RESULTS (RM 000) Operating Revenue 1,169,693 Gross Written Premiums 1,149,162 Operating Profit 342,032 Profit Before Tax 341,949 Profit For The Year 283,016 KEY STATEMENTS OF FINANCIAL POSITION DATA (RM 000) Total Assets 3,377,206 Total Liabilities 1,724,336 Share Capital 221,324 Total Equity 1,652,870 SHARE INFORMATION Per share (sen) Basic Earnings Net Dividend Per share (RM) Net Tangible Assets 7.47 Share Price as at 31 December (RM) Market Capitalisation (RM 000) 3,997,111 FINANCIAL RATIOS (%) Profitability Ratios Return on Equity ( ROE ) 17.1 Return on Assets 8.4 Operating Margin 29.2 Net Claims Incurred 44.0 Productivity Ratios No. of Employees 705 Gross Written Premiums Income per Employee (RM 000) 1,630 No. of Policies Issued per Employee 2,331 No. of Claims Settled per Claims Staff 1,176 Valuation on Share Net Dividend Yield 5.0 N3 Dividend Payout Ratio 58.6 Price to Earnings Multiple (times) 14.1 Price to Book Multiple (times) 2.4 N1 - The Total Assets and Equity for the years were without the effect of FRS 139, Financial Instruments: Recognition and Measurement. N2 - The Basic Earnings Per Ordinary Share and ROE for the years were without the effect of bonus and rights issues during the year ANNUAL REPORT 2014

29 YEAR ENDED 31 DECEMBER ,119,022 1,039, , , , , , , ,763 1,105,678 1,033, , , , , , , , , , , , , , , ,637 99, , , , , , , , , , , , , , , ,247 87,770 78,128 74,703 3,202,331 2,749,262 2,405,215 2,246,462 1,894, ,201 N1 792,389 N1 754,690 N1 716,347 N1 1,595,788 1,376,618 1,223,631 1,086, , , , , , , , , , , , , , ,723 1,606,543 1,372,644 1,181,584 1,160, , ,741 N1 370,001 N1 396,234 N1 390,200 N N N N N ,859,891 3,218,051 2,992,300 2,917,050 1,900,505 1,310,932 1,678,548 1,297,060 1,151, N N N N ,609 1,550 1,486 1,345 1,244 1,154 1, ,352 2,296 2,304 2,134 1,912 1,836 1,473 1,454 1,363 1,170 1,127 1,082 1,054 1,036 1,008 1, , N3 4.9 N3 7.1 N3 7.7 N3 6.2 N3 5.8 N N3 9.5 N4 6.1 N N3 - Based on previous year s average market price N4 - Based on current year s closing market price The figures for 2011 to 2014 presented above are based on MFRS whereas 2010 and prior are based on FRS. GROWTH DRIVEN VALUE CREATION 27

30 TEN-YEAR GROUP FINANCIAL SUMMARY 2014 PRODUCTION AND PROFITABILITY 379, , , , , , ,912 1,033,860 1,105,678 1,149,162 99, , , , , , , , , , , , , , , , , , , , GROSS WRITTEN PREMIUMS (RM 000) OPERATING PROFIT (RM 000) PROFIT BEFORE TAX (RM 000) STRONG FINANCIAL POSITION GROWTH 716, , , ,201 1,894,506 2,246,462 2,405,215 2,749,262 3,202,331 3,377, , , , , ,673 1,160,242 1,181,584 1,372,644 1,606,543 1,652, TOTAL ASSETS (RM 000) TOTAL EQUITY (RM 000) Note: The Total Assets and Equity for the years were without the effect of FRS 139, Financial Instruments: Recognition and Measurement. The figures for 2011 to 2014 presented above are based on MFRS whereas 2010 and prior are based on FRS. 28 ANNUAL REPORT 2014

31 TEN-YEAR GROUP FINANCIAL SUMMARY 2014 ENHANCING SHAREHOLDER VALUE MARKET CAPITALISATION AND SHARE PRICES SHARE PRICE (RM) EARNINGS PER SHARE (SEN) RETURN ON EQUITY (%) Note: The Basic Earnings Per Share and ROE for the years from were without the effect of bonus and rights issues during the year The figures for 2011 to 2014 presented above are based on MFRS whereas 2010 and prior are based on FRS MARKET CAPITALISATION (RM) 1,151,400,900 1,297,060,050 1,678,548,300 1,310,932,350 1,900,505,100 2,917,050,320 2,992,300,480 3,218,050,960 3,859,890,560 3,997,111, Special Final Interim Dividend payout ratio TOTAL NET DIVIDENDS (SEN) GROWTH DRIVEN VALUE CREATION 29

32 SEGMENTAL ANALYSIS For The Year Ended 31 December 2014 OPERATING REVENUE 92.6% 97.2% 7.4% 2.8% PROFIT BEFORE TAX 97.2% 75.0% 2.8% 25.0% TOTAL ASSETS 91.2% 66.4% 8.8% 33.6% Within Malaysia Outside Malaysia General Insurance Investment Holding 30 ANNUAL REPORT 2014

33 SEGMENTAL ANALYSIS For The Year Ended 31 December 2014 GROSS WRITTEN PREMIUM BY CLASS % 36.4% 24.0% 23.6% 9.2% 9.3% 29.2% 30.7% UNDERWRITING SURPLUS BEFORE MANAGEMENT EXPENSES BY CLASS % 54.7% 10.9% 10.0% 4.5% 3.2% 24.7% 29.9% Fire Motor Marine, Aviation & Transit Miscellaneous GROWTH DRIVEN VALUE CREATION 31

34 GROUP QUARTERLY PERFORMANCE 2014 RM 000 First Quarter Second Quarter Third Quarter Fourth Quarter Year 2014 FINANCIAL PERFORMANCE Operating revenue 277, , , ,168 1,169,693 Operating profit 62,390 68,391 77, , ,032 Profit before taxation 62,674 68,551 77, , ,949 Profit attributable to owners of the Company 50,581 51,181 64, , ,016 Earnings per ordinary share (sen)* Net dividends per share (sen) RM 000 First Quarter Second Quarter Third Quarter Fourth Quarter Year 2013 FINANCIAL PERFORMANCE Operating revenue 258, , , ,649 1,119,022 Operating profit 51,075 62,644 71,977 71, ,277 Profit before taxation 51,091 62,507 71,894 71, ,801 Profit attributable to owners of the Company 42,112 46,579 60,357 52, ,440 Earnings per ordinary share (sen)* Net dividends per share (sen) * Quarterly earnings per ordinary share is based on the weighted average number of ordinary shares in issue during the quarter whereas the yearto-date earnings per ordinary share is based on the weighted average number of ordinary shares in issue during the year. 32 ANNUAL REPORT 2014

35 STATEMENT OF VALUE ADDED Value added is a measure of wealth created by the Group through various business activities. The Statement of Value Added shows the total wealth created and how it was distributed to stakeholders, including the Government, as well as reinvestment for the replacement of assets and further expansion of the business of the Group. Value Added 2014 RM RM 000 Net earned premium 653, ,720 Other income 230, ,524 Net claims incurred (287,342) (282,305) Other expenses excluding staff costs and depreciation (173,468) (169,845) Finance costs (1,132) (1,342) Share of profit after tax of equity accounted associated company 1, Value added available for distribution 423, ,618 Distribution of Value Added 2014 RM RM 000 To employees : Staff costs 77,202 68,487 To the Government : Tax expense 58,933 55,361 To providers of capital : Dividend to shareholders 165, ,217 To reinvest in the Group : Depreciation Retained earnings 4, ,226 4,330 47,223 Total distributed 423, , % 39% 29% 16% Employees Government Providers of capital Reinvestment in the Group 18% 14% 20% 17% GROWTH DRIVEN VALUE CREATION 33