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PR Newswire
08-02-2014, 11:19 AM
The Edge Weekly:
Great Eastern offers value and growth
By Goola Warden
Great Eastern Holdings, the insurance arm of Oversea-Chinese Banking Corp, doesn’t just offer investors deep value but solid long-term growth prospects.
The company said this week that its embedded value (EV) stood at $9.2 billion as at end 2013, a 7% improvement on the previous year. That translates to an EV per share of $19.47, which is more than 10% above its current share price. Embedded value is the present value the future profits from policies in force plus net asset value. It is essentially the value of the insurance business assuming it doesn’t write another policy.
Great Eastern is perhaps the only major insurer in Asia that trades at less than its embedded value. Yet, it is growing strongly too. For FY2013, operating profit rose 12% y-o-y to $559.6 million. Total weighted new sales increased 27% y-o-y $1,043.0 million.
Sales in Singapore rose 36% riding on the strength of its multi-channel distribution strategy. Other than receiving a boost from the successful recapture of the high volume of participating fund policies that matured during the year, the agency and financial advisory channels also registered higher sales of protection products and made further inroads into the affluent and high net worth customer segments. The bancassurance channel did well in regular premium savings policies, along with an increase in the sales of protection products.
Sales in Malaysia also increased by 13% y-o-y, on the back of sale in conventional regular premium investment-linked products and strong growth in takaful sales from new strategic distribution tie-ups and an expanded bumiputera agency force. In Indonesia, the bancassurance tie-up with PT Bank OCBC NISP and the introduction of a group insurance business line contributed to growth in new sales.
New business embedded value (NBEV) rose by 22% to $422.7 million in FY2013 and 41% from FY2012. For the final quarter of 2013, growth was the result of a shift in distribution channel and product mix towards higher margin sales, as well as a change in risk-adjusted discount rates to better reflect market conditions. Excluding the impact of the change in risk adjusted discount rates, NBEV for FY2013 would have improved 15% to $400.8 million.
Great Eastern has also been rewarding its shareholders with higher dividends. It announced final dividend of 40 cents per share for FY2013 (up from 27 cents in FY2012) and a special tax exempt dividend of 5 cents per share. Total dividends for FY2013 amounted to 55 cents per share. That translates into a yield of 3.3%. For FY2012, Great Eastern declared total dividends of 64 cents per share, a significant portion of which was related to the proceeds from the sale of its stakes in Fraser and Neave and Asia-Pacific Breweries.
Standard & Poor’s upgraded Overseas Assurance Company, a Great Eastern subsidiary from A+ to AA- which is in line with the AA- rating Great Eastern Assurance has, and is one of the highest among Asian life insurers. “That was a very nice validation that an independent assessor of our risk management and financial management is saying we’re doing the right thing,” notes Chris Wei, CEO of Great Eastern Holdings, in a recent briefing.
Ready for the future
Besides offering deep value and regular dividends, Great Eastern is well ahead of the curve as far as the new global regulations for insurance companies are concerned. The Monetary Authority of Singapore has been proactive in ensuring that insurance companies in Singapore meet the new risk-based capital (RBC2) framework following consultation with the industry. The new framework (equivalent to Basel III) was issued by the International Association of Insurance Supervisors (IAIS) in 2011.
“We are anticipating the new RBC regime to come in, in the near future. That is also going to have a significant impact on how we allocate assets,” Wei says. “What we want is dependability and quality,” he adds. In Singapore, the company currently allocates about 56% of its assets to fixed income securities, 25% to equities, 10% to real estate and 9% cash. For Malaysia, the allocation is 68% fixed income, 23% equities, 7% real estate and 2% cash.
Meeting customer needs
Now, Wei is positioning Great Eastern to serve the needs of all its customers. “The first fundamental premise we follow is there are different customer segments with different needs,” Wei says. Last year, single premium sales rose, but profit margins for these are thin. “These customers are older and what they needed was short term savings. Longer term health coverage and protection is the core population and these are emerging customers. Overall, we aim to provide a complete product shelf and meet all the needs of people in different stages of life.”
Looking ahead, Wei says customers are looking for savings products, health and critical illness coverage, accidents, disability and retirement. “We’re trying to find different opportunities for people to cover risk. A lot of this will be coordinated with government policy. The social security safety net is always the first layer of protection that consumers will have. Our solutions are layered on top.”
Great Eastern offers value and growth
By Goola Warden
Great Eastern Holdings, the insurance arm of Oversea-Chinese Banking Corp, doesn’t just offer investors deep value but solid long-term growth prospects.
The company said this week that its embedded value (EV) stood at $9.2 billion as at end 2013, a 7% improvement on the previous year. That translates to an EV per share of $19.47, which is more than 10% above its current share price. Embedded value is the present value the future profits from policies in force plus net asset value. It is essentially the value of the insurance business assuming it doesn’t write another policy.
Great Eastern is perhaps the only major insurer in Asia that trades at less than its embedded value. Yet, it is growing strongly too. For FY2013, operating profit rose 12% y-o-y to $559.6 million. Total weighted new sales increased 27% y-o-y $1,043.0 million.
Sales in Singapore rose 36% riding on the strength of its multi-channel distribution strategy. Other than receiving a boost from the successful recapture of the high volume of participating fund policies that matured during the year, the agency and financial advisory channels also registered higher sales of protection products and made further inroads into the affluent and high net worth customer segments. The bancassurance channel did well in regular premium savings policies, along with an increase in the sales of protection products.
Sales in Malaysia also increased by 13% y-o-y, on the back of sale in conventional regular premium investment-linked products and strong growth in takaful sales from new strategic distribution tie-ups and an expanded bumiputera agency force. In Indonesia, the bancassurance tie-up with PT Bank OCBC NISP and the introduction of a group insurance business line contributed to growth in new sales.
New business embedded value (NBEV) rose by 22% to $422.7 million in FY2013 and 41% from FY2012. For the final quarter of 2013, growth was the result of a shift in distribution channel and product mix towards higher margin sales, as well as a change in risk-adjusted discount rates to better reflect market conditions. Excluding the impact of the change in risk adjusted discount rates, NBEV for FY2013 would have improved 15% to $400.8 million.
Great Eastern has also been rewarding its shareholders with higher dividends. It announced final dividend of 40 cents per share for FY2013 (up from 27 cents in FY2012) and a special tax exempt dividend of 5 cents per share. Total dividends for FY2013 amounted to 55 cents per share. That translates into a yield of 3.3%. For FY2012, Great Eastern declared total dividends of 64 cents per share, a significant portion of which was related to the proceeds from the sale of its stakes in Fraser and Neave and Asia-Pacific Breweries.
Standard & Poor’s upgraded Overseas Assurance Company, a Great Eastern subsidiary from A+ to AA- which is in line with the AA- rating Great Eastern Assurance has, and is one of the highest among Asian life insurers. “That was a very nice validation that an independent assessor of our risk management and financial management is saying we’re doing the right thing,” notes Chris Wei, CEO of Great Eastern Holdings, in a recent briefing.
Ready for the future
Besides offering deep value and regular dividends, Great Eastern is well ahead of the curve as far as the new global regulations for insurance companies are concerned. The Monetary Authority of Singapore has been proactive in ensuring that insurance companies in Singapore meet the new risk-based capital (RBC2) framework following consultation with the industry. The new framework (equivalent to Basel III) was issued by the International Association of Insurance Supervisors (IAIS) in 2011.
“We are anticipating the new RBC regime to come in, in the near future. That is also going to have a significant impact on how we allocate assets,” Wei says. “What we want is dependability and quality,” he adds. In Singapore, the company currently allocates about 56% of its assets to fixed income securities, 25% to equities, 10% to real estate and 9% cash. For Malaysia, the allocation is 68% fixed income, 23% equities, 7% real estate and 2% cash.
Meeting customer needs
Now, Wei is positioning Great Eastern to serve the needs of all its customers. “The first fundamental premise we follow is there are different customer segments with different needs,” Wei says. Last year, single premium sales rose, but profit margins for these are thin. “These customers are older and what they needed was short term savings. Longer term health coverage and protection is the core population and these are emerging customers. Overall, we aim to provide a complete product shelf and meet all the needs of people in different stages of life.”
Looking ahead, Wei says customers are looking for savings products, health and critical illness coverage, accidents, disability and retirement. “We’re trying to find different opportunities for people to cover risk. A lot of this will be coordinated with government policy. The social security safety net is always the first layer of protection that consumers will have. Our solutions are layered on top.”
