GREAT Eastern Holdings posted a 65 per cent year-on-year jump in its first-quarter net profit to $262.5 million, helped largely by higher investment income and mark-to-market gains as global financial markets improved.
The insurance unit of OCBC Bank set a record for quarterly earnings, even as total weighted new sales edged up by just 1 per cent to $176.8 million.
Great Eastern chief executive Chris Wei sought to temper any exuberance from the latest results given the unsteady investment environment.
“A lot of that pick-up in terms of our net profit is because of market recovery,” he said at a briefing. “Although we had a good quarter on that, we do expect ongoing volatility in the investment markets.”
Great Eastern’s quarterly bottom line is sensitive to interest rate movements because its liabilities stretch for a long period of time. Changes in swap spreads and credit spreads also affect its assets’ market value.
With the eurozone debt crisis settling down somewhat in the first quarter, stock prices rose and credit and swap spreads narrowed, lifting asset values.
Higher interest rates did hurt the prices of fixed income holdings but they also lowered liability valuations, creating a net positive effect.
Great Eastern’s profit from insurance operations in Q1 increased 45 per cent from a year ago to $226.4 million. Profit from investments in shareholders’ fund more than doubled to $69.2 million from $25.6 million.
New business embedded value (NBEV) – a measure of the long-term profitability of new insurance sales that is not affected by fluctuations in market value – grew 14 per cent year on year to $83.8 million in Q1.
Margins improved as the group sold more regular premium and protection-based products.
Expenses climbed 10 per cent to $21.8 million, partly reflecting higher staff costs.
Mr Wei noted that the Financial Advisory Industry Review is progressing well, adding that Great Eastern would be glad to support any public-private partnerships if there are market segments which the government feels is underserved.
He suggested raising the maximum sum assured under the Central Provident Fund’s (CPF) Dependants’ Protection Scheme – currently at $46,000 – as a way to help consumers. Great Eastern is one of the insurers administering the scheme.
“To increase that sum assured cap significantly would be an easy and elegant way to allow affordable protection to be offered to Singaporeans,” he said. There are ongoing discussions on public-private partnerships and “I think CPF is reviewing a lot of their programmes”.
Great Eastern’s improved Q1 performance is likely to help the results of its parent OCBC, which will report earnings next Friday. “We expect OCBC to record strong profits in the upcoming Q1 12 results after imputing GEH’s numbers,” said DBS Vickers analyst Lim Sue Lin. “Insurance contribution may be volatile in the short term but new business embedded value seals long term trends.”
Great Eastern gained four cents on the stock market yesterday to close at $13.35.