What Investors Need to Know about Great Eastern’s Latest Earnings

Great Eastern Holding Limited (SGX: G07), one of the oldest insurance establishments in Singapore, announced its earnings yesterday.

The insurer is a majority owned subsidiary of Oversea-Chinese Banking Corp. Limited (SGX:O39), which is also known as OCBC. Great Eastern mainly provides life assurance products and general insurance products. You can catch the previous quarter’s report here.

Operational Results

Gross premiums collected (the revenue of the company) was down 4% to $2.124 billion in the third quarter of 2014 compared to the same quarter last year. Profit from life assurance fell 27% to $174.4 million while profit from general assurance followed suit with a 47% plunge. As a whole, profit from insurance fell by a 28% to $180.7 million.

To gain more insight on this profit decline from the insurance side, we can look at the operating profit which is defined as “premiums minus claims, surrenders, commissions, expenses and changes in reserves, plus net investment income”. On this count, operating profit rose by 7.5% to $149 million from year ago. On the other hand, the non-operating profit, which mainly comprises of changes in fair value of assets and liabilities, fell 84.5% to $14.1 million. As it is with investing, we should look at the longer term record of the company instead of worrying over fair value adjustments over quarterly periods.

Weighted new sales was $213.9 million for the quarter, a decrease of 22% compared to the third quarter last year. Singapore ended up with $125 million in weighted new sales, a 34.6% drop from a year ago. According to the insurer, Singapore suffered from lower sales from the bancassurance channel (sales arising from agreements with banks). On top of that, sales in third quarter of 2013 were boosted by a peak in the number of maturing policies sold during the group’s centennial celebrations, and a number of new product offerings; thus, making it a tougher comparable for the current quarter. The drop in weighed new sales in Singapore was offset by 5.5% rise in sales coming out of Malaysia.

For the investment in shareholders’ fund, profits also declined by 4%. Lower disposal of investments, was the reason for the slight fall in profit.

As a whole, profit fell by 31% to about $194.6 million for the quarter. Profits for the first nine months of 2014 is still up 31% year-on-year, and currently stands at $677.2 million. The results of the first nine months was partly boosted by a disposal of a joint venture, and a favourable comparable quarter from adjustments of fair value of assets and liabilities.

Foolish Summary

Acting Group CEO, Mr. Norman Ip had this comment to make on the current quarter:  

“The Group has continued to deliver growth in operating profit. We also achieved improvement in margins through shifting its channel and product mix. Nonetheless, we are aware of the challenges posed by upcoming regulatory developments and increasingly intense competition. As such, we will continue to invest in expertise, systems and processes to enable us to operate more efficiently in this new environment.”

For the third quarter of 2014, the insurer’s net asset value per share came in at $11.77, a 10% increase from 31 Dec 2013. At its closing price yesterday of $23.71, Great Eastern is priced at around two times its book value and has a dividend yield of 2.3%.

To keep up to date on the latest financial and stock market news, sign up for a FREEsubscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can GROW your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

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