Great Eastern’s net profit plummets 24% to S$385.7m in 2011

As the severe deterioration in the investment climate caused unexpected losses for the group in 2H11.

Great Eastern Holdings Limited reported profit attributable to shareholders of S$385.7 million for the financial year ended 31 December 2011, compared with S$507.2 million in 2010. For the quarter ended 31 December 2011, net profit was S$68.9 million, compared with S$85.1 million in Q4-10.

The decrease in 2011 was caused by unrealised mark-to-market losses as the investment climate deteriorated severely in 2H-11, a period which saw credit and swap spreads widening and equity prices declining. While falling interest rates provided some uplift to the prices of fixed income investments, liability valuations were also higher, offsetting the gains. Despite the challenging investment climate, the investment portfolios of the insurance funds and Shareholders’ Fund remained sound with no significant impairment charges, and generated growth in net investment income for the full year.

In 2011, total weighted new sales for the Group rose by 10% to S$798.3 million, from S$723.8 million in 2010. In Singapore, bancassurance sales registered strong growth from deeper penetration into the premier banking customer segment and a significant shift towards regular premium products. The agency business continued to be stable, with a successful shift in product mix towards regular premium, protection-based products.

For full-year 2011, the Group registered profit from insurance operations of S$411.8 million, compared with S$460.0 million in 2010. Despite strong underwriting performance, overall insurance profit declined as the global investment climate deteriorated severely in 2H-11.

Specifically, credit and swap spreads widened, and equity prices fell, resulting in unrealised market losses in asset valuations. The fall in asset valuations, coupled with the net impact of falling interest rates on the balance sheet, resulted in the decline in investment profit, which is a component of profit from insurance operations. Nonetheless, the investments in the insurance funds remained sound and there were no significant impairment charges.

In Q4-11, insurance profit was S$61.2 million, 17% lower than Q4-10. This was largely the result of unrealised markto-market losses arising from widened swap spreads.

Against the backdrop of volatile interest rate movements over several quarters, the discount rate used to value the liabilities of the Singapore insurance funds (other than those liabilities valued on the Long Term Risk Free Discount Rate as specifically stipulated by regulations) was changed from Singapore Government Securities (SGS) yields to zero-coupon SGS yields with effect from 1 July 2011. This change resulted in a closer matching of the value of assets and liabilities and had an overall positive financial impact of S$68.1 million, of which S$50.4 million related to periods prior to 1 July 2011.

Profit from investments in Shareholders’ Fund was S$85.0 million in 2011, and S$35.9 million in Q4-11, lower than the corresponding periods in 2010. The declines were largely caused by the mark-to-market losses in held-for-trading investments as a result of the challenging investment climate in 2011, which stood in contrast to the mark-to-market gains recorded in 2010 amid better market conditions. Fees and other income were stable at S$69.0 million for 2011. Full-year expenses rose to S$92.3 million, reflecting the increased staff costs to support growing business activities as well as the interest expenses arising from the inaugural debt-raising exercise that took place in January 2011.

The Group’s total assets increased from S$53.4 billion as at 31 December 2010 to S$55.6 billion as at 31 December 2011.

The Capital Adequacy Ratios of the Group’s insurance subsidiaries in both Singapore and Malaysia exceeded 200%, well above the minimum regulatory ratios of 120% and 130% in Singapore and Malaysia respectively.

An interim tax exempt (one-tier) dividend of 10 cents per ordinary share for the financial year 2011 was paid on 6 September 2011. Despite a lower net profit, the Group’s capital position remains strong and its long-term prospects are favourable. The Directors have therefore recommended, for Shareholders' approval at their Annual General Meeting, the payment of a final tax exempt (one-tier) dividend of 27 cents per ordinary share. Upon approval, this dividend will be paid on 9 May 2012. This brings the total dividend payment for the financial year 2011 to 37 cents per ordinary share.