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Decline in valuation of investments erodes growth in operating profits for Great Eastern - 2018 Annual Report

2020/02/04

Source: Canva

Great Eastern Holdings (GE)

Source: GE

Founded in 1908, GE is the oldest and most established life insurance group in Singapore and Malaysia, operating via three distribution channels. With over SGD 85.0 billion in assets and more than four million policyholders, GE also operates in Indonesia and Brunei.

FY 2018 Financial Highlights:

Source: GE FY 2018 Supplementary Information

  • GE’s FY 2018 operating profit grew by 4% year-on-year to reach SGD 625.3 million.
  • However, non-operating profit dropped by 57% year-on-year to SGD 48.9 million in FY 2018, while profit from shareholder’s fund declined by 79% to SGD 66.5 million.
  • As a result, GE’s profit attributable to shareholders in FY 2018 declined by 29% to SGD 740.7 million when compared to FY 2017.
  • Further, GE’s Total Weighted New Sales (Single Premium x 10% + New Regular Premium) for FY 2018 dropped by 6% year-on-year.
  • Correspondingly, New Business Embedded Value (a measure of the long-term profitability of new sales) dropped by 3% compared to same period last year.

Performance Drivers:

Source: GE FY 2018 Supplementary Information

GE achieved growth in its operating profit, driven by both its Singapore and Malaysia insurance business. However, a decline in the company’s non-operating profit and profit from shareholder’s fund resulted in an overall drop in GE’s profit attributable to shareholders in FY 2018.

Performance Drivers (Positive Factors)

  • Operating Profit – Singapore & Malaysia

GE’s operating profit is defined as premiums less claims, surrenders, commissions, expenses and changes in reserves, plus net investment income (dividends, coupons, etc.). The company’s operating profit grew by 4% year-on-year to SGD 625.3 million in FY 2018, driven by both the company’s insurance business in Singapore and Malaysia.

  • Total Weighted New Sales – Malaysia & Emerging Markets

GE’s FY 2018 Total Weighted New Sales in Malaysia improved by 4.4% to SGD 368.7 million. This sales growth was contributed by both agency and bancassurance channels. Sales via the agency channel increased slightly by 0.4% to SGD 317.6 million, while sales via the bancassurance channel improved by 40.6% to SGD 35.0 million.

Total Weighted New Sales in Emerging Markets (Indonesia and Brunei) also showed an increase – from SGD 19.3 million in FY 2017 to SGD 24.2 million in FY 2018.

  • New Business Embedded Value – Malaysia & Emerging Markets

FY 2018 New Business Embedded Value in Malaysia increased by 20.9% year-on-year to SGD 253.6 million. Meanwhile, New Business Embedded Value in Emerging Markets rose by 25.8% to SGD 7.8 million in FY 2018. Further, GE recorded a higher margin as a result of change in product mix.

Performance Drivers (Negative Factors)

  • Total Weighted New Sales – Singapore

GE’s FY 2018 Total Weighted New Sales in Singapore was SGD 842.2 million, a 10.4% decrease compared to FY 2017. This decrease was caused by lower sales via both agency and bancassurance channels. Sales via the agency channel declined by 1.4% to SGD 430 million, while sales via the bancassurance channel dropped by 19.1% to SGD 393.5 million.

  • New Business Embedded Value – Singapore

New Business Embedded Value in Singapore for FY 2018 decreased by 18.6% year-on-year to SGD 266.2 million. Nevertheless, GE still recorded a higher margin as a result of change in product mix.

  • Non-Operating Profit – Lower Valuation of Investments

GE’s non-operating profit includes changes in the fair value of assets and liabilities, realized gains/losses on sale of investments, changes in liability discount rates, as well as other non-recurring items. The company’s FY 2018 non-operating profit dropped by 57% year-on-year to SGD 48.9 million, due to lower valuation of investments on the back of unfavorable financial market conditions in 2018, particularly in the last quarter. This contrasted with the gains from the exceptionally higher valuation and sale of investments in FY 2017.

Source: GE Annual Report FY 2018

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