Published October 28, 2009

Great Eastern profit slumps 75% in Q3

One-time loss of $213.3m from GreatLink Choice policies redemption

By LYNETTE KHOO

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GREAT Eastern Holdings reported a 75 per cent year-on-year slump in net profit to $33.6 million for the third quarter ended Sept 30, 2009, dragged by a one-time loss of $213.3 million it incurred from redeeming GreatLink Choice (GLC) policies.

The one-time loss was, however, lower than estimated.

Profit from insurance operations in the third quarter jumped 46 per cent to $211.5 million, helped by the recovery of the equity and credit markets.

Gross written premiums during the quarter, however, fell 16 per cent to $1.79 billion due to a sharp drop in single premiums. Fees and other income also declined 16 per cent year on year to $16.8 million, dragged by a decrease in the assets under management in Lion Global Investors.

But under prudent cost controls, management and other expenses slipped 30 per cent to $14.7 million.

'With improving economic conditions in the markets that we operate in, we are seeing that customers are gaining confidence in purchasing new policies,' said group chief executive Ng Keng Hooi. 'We are confident that the sales momentum will remain strong into the final quarter.'

For the first nine months, Great Eastern's net profit jumped 88 per cent to $368.3 million, largely driven by a more than three-fold rise in profit from insurance operations to $620.4 million from $193.2 million.

The group's total assets grew 7 per cent over the first nine months to $47.4 billion, while net asset value per share grew by 12 per cent to $7.14 over the same period.

Like many financial instruments, the GLC products' loss protection cushion was severely eroded by a number of credit events triggered by the global financial crisis.

To address GLC policyholders' concerns, Great Eastern made a one-time redemption offer in July 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.

The actual non-recurring loss of $213.3 million from its offer turned out to be lower than the $250 million estimated, as not all the units were redeemed and the fair value for the collateral debt obligations (CDOs) was higher.

As at Sept 30, the fair value of the GLC-related CDOs in the shareholders' fund was $192.8 million. At the close of the offer period on Aug 28, about 87 per cent of the 592 million units were redeemed.

Investments in the shareholders' fund suffered a loss of $195.3 million in the third quarter compared to a profit of $5.6 million a year ago as a result of this redemption.

But for this goodwill gesture, Great Eastern was recently conferred the 'Most Admired Financial Institution' Award by the Securities Investors Association of Singapore (SIAS) at SIAS 10th Anniversary & Investors' Choice Awards.