MEDIA RELEASE
For Immediate Release
Great Eastern Reports Net Profit of $33.6 million
in Q3-09
Results included impact of $213.3
million loss from GLC redemption offer
Nine months’ net profit increased
88% to $368.3 million
Singapore, 27 October 2009: Great Eastern Holdings
Limited reports Profit Attributable to Shareholders of $33.6 million
for the third quarter of 2009, a year-on-year drop of 75%. For the
first three quarters in 2009, the Group registered a profit of $368.3
million, a year-on-year increase of 88%.
Q3-09 results included a non-recurring pre-tax loss of $213.3 million
relating to Great Eastern’s one-time offer to redeem the GreatLink
Choice (“GLC”) policies. This loss was largely offset
by investment-related gains from improvements in equity and credit
markets.
Redemption of GreatLink Choice Policies
On 31 Jul 2009, Great Eastern announced that it would make a one-time
redemption offer to all its GLC policyholders who held some 592 million
in-force GLC units. These policyholders were given an option to have
their GLC units redeemed at $1.00 each, less total annual payouts
to-date.
GLC is a series of investment-linked insurance products with the
underlying investments in CDO (collateralised debt obligations)
instruments. The products were originally designed with built-in
loss protection levels and wide diversification across various industries
and geographical regions. However, the global financial crisis has
badly affected many financial instruments including the GLC products
which have had their loss protection cushion severely eroded by
a number of credit events. To address GLC policyholders’ concerns,
Great Eastern decided to make a one-time redemption offer as a gesture
of goodwill, on a voluntary basis and without any admission of liability.
At the close of the offer period on 28 Aug 2009, approximately 87%
of the 592 million units were redeemed.
The underlying CDO instruments are now held as investments in the
Group Shareholders’ Fund and are accounted for at fair value.
Great Eastern has assessed that significant credit risks could affect
the repayment of the principal for GLC 4 and 5 and has disposed
of the principal portion of these CDO instruments in Sep 2009, while
retaining the interest portion. As at 30 Sep 2009, the fair value
of the GLC-related CDOs in the Shareholders’ Fund was $192.8
million, comprising mainly the CDOs held previously under GLC 1,
2 and 3, plus the value of the interest portion for GLC 4 and 5.
Great Eastern will continue to manage the residual credit default
risks of the CDOs relating to GLC 1, 2 and 3.
In its Q2-09 financial results, Great Eastern had estimated the
financial impact of the redemption offer to be in the region of
$250 million, assuming 100% redemption. The actual non-recurring
loss is lower at $213.3 million because not all the units were redeemed
and also because of the higher fair value for the CDOs. The breakdown
of the loss is as follows:
Insurance Operations
For life assurance operations, Q3-09 new sales measured on a weighted
basis fell 17% year-on-year from $227.3 million to $188.9 million.
On a quarter-by-quarter basis, there are encouraging signs that
customers are gaining the confidence to purchase new insurance and
savings policies.
In Singapore, weighted new sales registered $120.8 million in Q3-09,
which was more than double the new sales of $57.5 million in Q2-09,
and $57.2 million in Q1-09. There was a noticeable increase in sales
across all distribution channels.
In Malaysia, weighted new sales declined by 18% in Q3-09 compared
to Q3-08, driven by a sharp decline in single premium sales. Last
year’s performance had benefited from a one-off sale of a
single premium product relating to the Group’s centennial
celebrations.
In the other regions of Asia, weighted new sales continued to grow
strongly in Q3-09. China and Indonesia in particular delivered sales
in Q3-09 that equalled the total sales for the first half of the
year.
Profit from Insurance Operations
Profit from insurance operations in Q3-09 increased to $211.5 million
(Q3-08: $144.9 million), boosted by the recovery of the equity and
credit markets in Singapore.
9M-09 profit of $620.4 million (9M-08: $193.2 million) included
non-recurring profit contributions of $210.4 million that was reported
in Q1-09 as a result of the move to the new risk based regulatory
capital framework in Malaysia and the exercise to achieve portfolio
matching of assets and liabilities in Singapore.
Profit from Investments
Investments in the Shareholders’ Fund suffered a loss of $195.3
million in Q3-09 (Q3-08: profit of $5.6 million) as a result of
a loss of $213.3 million from the one-time redemption offer made
to GLC policyholders.
Fees and Other Income
Fees and other income declined 16% to $16.8 million in Q3-09 (Q3-08:
$20.0 million) as a result of a decrease in the assets under management
in Lion Global Investors Limited ($27.5 billion on 30 Sep 2009 compared
to $31.9 billion on 30 Sep 2008).
Management and Other Expenses
Management and other expenses decreased by 30% in Q3-09 to $14.7
million (Q3-08: $21.0 million) as the Group continued to manage
its expenses prudently.
Total Assets
The Group’s total assets as at 30 Sep 2009 amounted to $47.4
billion, a 7% increase over the asset size of $44.2 billion as at
31 Dec 2008. Net asset value per share was $7.14, 12% higher than
31 Dec 2008’s value of $6.36.
Key Development
Great Eastern has announced today that it is making a one-time redemption
offer to its GreatLink Choice policyholders.
GreatLink Choice (“GLC”) is a series of investment-linked products
with underlying investments in CDO (collateralised debt obligations)
instruments. The products were designed with built-in loss protection
levels and wide diversification across various industries and geographical
regions. However, the global financial crisis has badly affected
many financial instruments. The market values of the GLC products
are at steep discounts to par due to several credit events that
have effectively eroded the loss protection cushion.
Under the offer, Great Eastern will redeem 594 million GLC units
at $1.00 each, less the total annual payouts received to-date. The
offer will be open for acceptance from 3 August to 28 August 2009.
Great Eastern will take delivery of the underlying CDO instruments
and will account for the fair value of these instruments at the
close of the offer period. The financial impact of the offer will
be reflected in the Q3-09 financial results and is conservatively
estimated to be in the region of $250 million.
Mr Ng Keng Hooi, Group CEO said: “We are comfortable with these
products as they were designed with built-in loss protection levels
and diversification amongst at least 115 reference entities, spread
across various industries and geographical regions. However, the
global financial crisis has created much uncertainty for many investors
all over the world. Market sentiments have been severely impacted
and many financial instruments have been badly affected by the crisis.
“To address GLC policyholders’ concerns in these extraordinary times,
we have taken a decision to make this one-time offer, as a gesture
of goodwill, to redeem these products. Our offer is voluntary, and
is made without any admission of liability. Further, this offer
applies to GLC products only. It will not apply to any other Great
Eastern products. Other than GLC products, Great Eastern did not
sell any other similar structured products to its policyholders.”
Outlook for the Year
The Group’s overall performance in its earnings from insurance
operations and its investments will continue to be affected by the
economic recovery of local and regional countries. While the economic
outlook as a whole is positive in Asia, the extent and pace of recovery
remain uncertain, as it is dependent to a large extent on the developments
and sustainable recoveries in the economies of USA and Western Europe.
Group CEO Mr Ng Keng Hooi said, “With improving economic
conditions in the markets that we operate in, we are seeing that
customers are gaining confidence in purchasing new policies. There
is also a lot of customer goodwill after the GLC redemption offer
which is boosting the morale of the Singapore agency force and the
Great Eastern brand. We are confident that the sales momentum will
remain strong into the final quarter.”
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About Great Eastern
Great Eastern is the most established and largest life insurance
group in Singapore and Malaysia. With $47 billion in assets and
3.8 million policyholders, it has two successful distribution channels
- the tied agency force and bancassurance. The Company also operates
in China, Indonesia, Vietnam and Brunei.
Great Eastern is a subsidiary of OCBC Bank, Singapore’s longest
established local bank with assets of $183 billion and a network
of more than 480 branches and representative offices in 15 countries
and territories. Great Eastern’s subsidiary, Lion Global Investors
Limited, is one of the largest asset management companies in Southeast
Asia.
Financial Highlights 
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