Great Eastern Holding Limited’s Latest Earnings: What’s Next After A Profit Decline?

Great Eastern Holding Limited (SGX: G07), one of the most established insurance providers in Singapore and Malaysia, reported its earnings for the fiscal first-quarter (three months ended 31 March 2015) last Friday.

Founded in 1908, Great Eastern is currently a subsidiary of Oversea-Chinese Banking Corp Limited (SGX: O39). The insurer commands around S$67.4 billion in total assets and has a customer base of around 4.7 million policyholders. Great Eastern provides life assurance and general insurance products through three distribution channels – a tied agency force, bancassurance, and a financial advisory firm.

With that, let’s get going with the insurer’s latest set of figures

Financial highlights

For the quarter, gross premiums (analogous to “sales” for Great Eastern) inched up by 1% year over year to $1.875 billion. Meanwhile, the company’s two profit-segments – namely profit from insurance business and profit from investments in Shareholders’ fund – had grown by 7% to S$205.6 million and declined by 34% to S$45.6 million, respectively.

The larger profit from insurance business had come about mainly due to higher profit contributions from Non-participating Funds and a jump in un-realised mark-to-market gains from equity investments, particularly for stocks with exposure to China.

As for the decline in profit from investments in Shareholder’s Fund, it is primarily due to the presence of a one-off gain of $39.1 million which happened in the same period a year ago.

With that, and after deduction of expenses, Great Eastern earned a profit attributable to shareholders of S$220.5 million, down 5% from a year ago.

Given that the book value of an insurer can be a pretty decent proxy for gauging its underlying economic value, changes in the metric can be worth watching for investors. On that front, Great Eastern ended 31 March 2015 with a net asset value per unit of S$13.13, up 17.4% from the NAV per unit of S$11.18 seen a year ago.

Operational highlights

For the quarter, Total Weighted New Sales (TWNS) came in 6% lower at $209.6 million, mainly caused by a 14% dip in sales through the bancassurance channel in Singapore, partially offset by a 12% increase in sales in Malaysia.

Meanwhile, New Business Embedded Value (NBEV), a measure of long-term economic profitability for the insurer, remained largely unchanged at $85.2 million when compared to the selfsame figure of $85.3 million a year ago.

Investors should also take note of the following development with Great Eastern: On 14 April 2015, the insurer had sold a part of its stake in New China Life Insurance Company Ltd. The sale comprised of 85 million shares of New China Life and brought in total sales proceeds of HK$4,305 billion (around S$762.8 million) for Great Eastern. The net profit from the sale is likely to come up to S$123 million and that’s something which wasn’t reflected in the company’s financials in the latest earnings release.

Insurers are required by regulators to hold certain amount of capital on their balance sheet so as to be able to absorb losses in times of distress. And on that front, Great Eastern reported in its earnings release that its Capital Adequacy Ratios in both Singapore and Malaysia “remained well above the minimum regulatory ratios of 120% and 130% respectively, reflecting [its] strong capital position.”

Norman Ip, Acting Group CEO for Great Eastern, had the following to say about the reporting quarter:  

“The Group has continued to deliver growth in profit from insurance business. Operating profit was higher and there were higher unrealised mark-to-market gains from equity investments. Moving into the second quarter of the 2015, there are several industry developments such as the launch of direct purchase insurance and a web portal that compares life insurance products in Singapore, as well as the implementation of GST in Malaysia.

As we monitor the impact of these developments, we remain focused on improving and expanding our suite of products to meet customers’ needs and strengthening our distribution capabilities.”

At its closing price of $24.67 last Friday, Great Eastern is trading for around 1.9 times its latest book value.

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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 James Yeo doesn’t own shares in any companies mentioned.