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Latest Earnings From Great Eastern Holding Limited: Declining Insurance Profit But Growth Still Seen

Great Eastern Holding Limited (SGX: G07) is an insurer providing mainly life assurance and general insurance products.

The firm is the oldest life insurance group in Singapore and it currently has a presence in other geographical markets including Indonesia, Vietnam, Brunei, China, and Myanmar.

With Great Eastern releasing its earnings for the quarter and year ended 31 December 2015 earlier this morning,  let’s dig into it to see how the company has performed.

Revenue and earnings

Gross premiums for the reporting quarter increased by 12% year-on-year to S$2.53 billion. For the year, the insurer’s gross premiums had expanded by 7% to S$8.75 billion.

Great Eastern’s profit attributable to shareholders for the reporting quarter had grown by 5% from a year ago to S$218.8 million. But for the year, the insurer’s profit attributable to shareholders had fallen by 11% to S$785.4 million.

A 19% decline in profit from insurance business to S$652.5 million for the year had more than offset a 29% jump in profit from shareholders’ fund’s investments (to S$263.4 million) and a 9% increase in fees and other income (to S$79.8 million). These had led to the aforementioned profit decline for Great Eastern.

Despite the lower profit, Great Eastern has kept its total dividend for 2015 unchanged from that seen in 2014. The board of directors has recommended a final and special dividend of S$0.40 per share and S$0.05 per share for the reporting quarter; together with the interim dividend of S$0.10 per share, Great Eastern’s dividend for the whole of 2015 would be S$0.55 per share.

Financial strength and growth

As an insurer, a good proxy for the change in Great Eastern’s economic value would be the change its book value per share. Investors may be happy to note that in 2015, Great Eastern’s book value per share had climbed by 6% from S$12.41 a year ago to S$13.61.

Great Eastern’s balance sheet has improved slightly from a year ago with its leverage ratio (total assets over total equity) declining from 11.07 to 10.45.

Business highlights and a future outlook

The table below shows the growth in Great Eastern’s total weighted new sales for both the quarter and year:

Great Eastern total weighted new sales
Source: Great Eastern’s earnings release

Great Eastern commented that the higher total weighted new sales in the fourth-quarter “was driven by strong sales of new products launched through the bancassurance channel in Singapore.” For the year, growth was seen in both Singapore and Malaysia. For the former, Great Eastern’s business had benefitted from the aforementioned sales through the bancassurance channel; for the latter, there was growth seen in the “sales of both conventional and takaful investment-linked products.”

Next, we can look at new business embedded value (NBEV), which Great Eastern has said is a “measure of long-term profitability.” Here’s how the metric has changed over the past year:

Great Eastern new business embedded value
Source: Great Eastern’s earnings release

In 2015, the NBEV margin from the agency channel had grown whereas that from the banacssurance channel had slipped; both were the result of a shift in the product mix. Meanwhile, there was also a shift in the channel mix which affected the insurer’s NBEV margin. All told, Great Eastern ended 2015 with a NBEV margin of 39.5%, down from the 41.4% seen a year ago.

In the earnings release, Great Eastern’s chief executive Khor Hock Seng had mentioned that the insurer’s “focus on expanding [its] product range to meet customers’ needs and strengthening [its] distribution capabilities has borne good results”. He also mentioned that Great Eastern’s “multi-channel distribution model was a key driver of success as [the company] harnessed the channels to deepen and broaden market penetration.”

Commenting on the company’s future, Khor said the following:

“We will continue to pursue a disciplined and prudent strategy as we grow our franchise across our key markets in an increasingly uncertain and competitive business environment. We will continue to pursue a disciplined and prudent strategy as we grow our franchise across our key markets in an increasingly uncertain and competitive business environment.”

At Great Eastern’s closing price of S$19.55 yesterday, the insurer has a price-to-book ratio of 1.44.

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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 Esjay doesn't own shares in any companies mentioned.