Not so great: Great Eastern profit down to S$40.4m

It’s a plunge from last year’s third quarter profit of S$168.6m.

Great Eastern Holdings Limited explained that last year's third quarter was an exceptional quarter of high earnings as a result of good investment performance amidst favourable market conditions.

"In comparison, financial markets in Q3-11 were less favourable, brought about by adverse credit conditions in the Eurozone and concerns over slackening global economic growth. This affected investment performance and resulted in unrealised mark-to-market losses. Year-on-year underwriting profit continued to grow but overall insurance profit declined owing to the adverse market conditions as well as the net impact of falling interest rates on liability valuations," said the company's announcement.

Great Eastern reported:

The Group’s profit from insurance operations after incorporating investment results was S$81.4 million in Q3-11, and this was 49% lower than the corresponding period last year. During the quarter, concerns about sovereign debts in the Eurozone and worries over slackening global economic growth sparked off a deterioration in the global credit markets and a significant widening of credit spreads. The values of financial assets were adversely impacted, resulting in unrealised mark-to-market investment losses. While year-on-year underwriting profit continued to grow, overall insurance profit declined owing to the adverse market conditions as well as the net impact of falling interest rates on liability valuations. The investment portfolio of the insurance funds remained sound and there were no significant impairment charges required.

To achieve a closer matching of the value of assets and liabilities 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 under the regulations, was changed from Singapore Government Securities (SGS) yields to zero-coupon SGS yields with effect from 1 July 2011. This change is in compliance with regulations, and its effect was a reduction in policy liabilities and an overall financial impact of S$88.6 million comprising S$38.2 million in the current quarter and S$50.4 million in respect of the periods prior to 1 July 2011.

Profit from investments in Shareholders’ Fund posted a loss of S$13.1 million in Q3-11, which was mostly brought about by the declines in the fair value of our trading portfolio amidst the unfavourable investment climate during the quarter.

In Q3-11, fees and other income came in at S$16.2 million. Expenses rose to S$22.9 million, reflecting the increase in staff costs to support business growth.

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