Media Release | 31 Jul 2009

Great Eastern Announces Net Profit of $97.7 Million in Q2-09

Singapore, 31 July 2009: Great Eastern Holdings Limited announces Profit Attributable to Shareholders of $97.7 million for the second quarter of 2009, compared to $15.7 million in the corresponding quarter in 2008. For the first half of 2009, the Group registered a profit of $334.7 million, against $60.7 million for H1-08.

Insurance Operations
Gross premium income in Q2-09 fell 37% year-on-year to $1,249 million, due to the sharp drop in single premiums. In H1-09, the drop was 32% year-on-year to $2,425 million.

For life assurance operations, new sales measured on a weighted basis fell 30% from $201.4 million to $140.3 million in Q2-09.

The decline was mainly due to a 61% drop in the Singapore weighted new sales, a result that was in line with market trends. Sales of single premium investment products registered a sharp fall of 75%, reflecting the less-than-buoyant Singapore market environment for such products in 2009. Moreover, Q2-08 had benefited from a special limited offer of a single premium product. Annual premium sales dropped 29% to $32.4 million. In view of the present difficult environment, the strategy is to focus on developing and promoting protection and long-term savings products.

Malaysia has a lower proportion of single premium sales and therefore was less affected by the difficult investment market conditions. It enjoyed strong growth of 53% in Q2-09, with brisk sales of a new annual premium product.

In China, the business operations continued with strong growth in Q2-09, with new business weighted premium sales increasing almost four-fold year-on-year, albeit from a small base. The growth was driven largely by a significant increase in the number of agents from under 500 a year ago to 2,100 as at end June 2009.

Profit from Insurance Operations
The H1-09 profit of $408.9 million (H1-08: $48.3 million) included $213.1 million non-recurring profit contribution that was reported earlier in Q1-09 and a small loss of $2.7 million in Q2-09. Both these non-recurring contributions reflected the move to the new risk based regulatory capital framework in Malaysia and the exercise to achieve portfolio matching of assets and liabilities in Singapore. Excluding the non-recurring profit from the quarterly results, life and general insurance operations performed strongly with profit of $134.0 million in Q2-09 (compared with $33.9 million in Q2-08).

The strong performance in Q2-09 can be mainly attributed to the Non Participating Fund. In Singapore, the Non Participating Fund benefited from a rebound of major stock market indices and the tightening of credit spreads for its fixed income portfolio. These gains more than offset marked to market losses from rising interest rates on Singapore government securities and swaps. In Malaysia, assets were also affected by rising interest rates but there was a compensating decrease in actuarial reserves. Overall, the Non Participating Fund achieved a profit of $76.9 million in Q2-09.

Profit from Investments
Q2-09 profit from investments in the Shareholders' Fund rose to $43.7 million (Q2-08: $2.0 million) as a result of realised profits from the sale of equities and also marked to market gains on investments resulting from improving market conditions. H1-09 profit of $49.9 million was lower than last year as H1-08 had included a one-off gain of $42.2 million from the sale of shares in The Straits Trading Company Ltd.

Fees and Other Income
Fees and other income declined 27% year-on-year to $14.9 million in Q2-09 as a result of a decrease in assets under management ($25.9 billion on 30 June 2009 compared to $32.8 billion on 30 June 2008). In H1-09, fees and other income was 31% lower at $29.5 million compared to H1-08.

Management and Other Expenses
Management and other expenses increased in Q2-09 to $39.9 million (Q2-08: $23.6 million) reflecting ongoing expenditure to develop insurance operations in the new markets. For H1-09, expenses rose 18% to $57.2 million (H1-08: $48.3 million).

Total Assets
The Group's total assets as at 30 Jun 2009 amounted to $45.3 billion, a 3% increase over $44.2 billion as at 31 Dec 2008. Net asset value per share was $7.06, about 11% higher than 31 Dec 2008's value of $6.36.

Key Development
Great Eastern has announced today that it is making a one-time redemption offer to its GreatLink Choice policyholders.

GreatLink Choice ("GLC") is a series of investment-linked products with underlying investments in CDO (collateralised debt obligations) instruments. The products were designed with built-in loss protection levels and wide diversification across various industries and geographical regions. However, the global financial crisis has badly affected many financial instruments. The market values of the GLC products are at steep discounts to par due to several credit events that have effectively eroded the loss protection cushion.

Under the offer, Great Eastern will redeem 594 million GLC units at $1.00 each, less the total annual payouts received to-date. The offer will be open for acceptance from 3 August to 28 August 2009. Great Eastern will take delivery of the underlying CDO instruments and will account for the fair value of these instruments at the close of the offer period. The financial impact of the offer will be reflected in the Q3-09 financial results and is conservatively estimated to be in the region of $250 million.

Mr Ng Keng Hooi, Group CEO said: "We are comfortable with these products as they were designed with built-in loss protection levels and diversification amongst at least 115 reference entities, spread across various industries and geographical regions. However, the global financial crisis has created much uncertainty for many investors all over the world. Market sentiments have been severely impacted and many financial instruments have been badly affected by the crisis.

"To address GLC policyholders' concerns in these extraordinary times, we have taken a decision to make this one-time offer, as a gesture of goodwill, to redeem these products. Our offer is voluntary, and is made without any admission of liability. Further, this offer applies to GLC products only. It will not apply to any other Great Eastern products. Other than GLC products, Great Eastern did not sell any other similar structured products to its policyholders."

Outlook for the Year
Although credit and equity markets have strengthened in Q2-09, economic recovery is expected to be slow. Investment risks may continue to affect the Group's future earnings.

About Great Eastern
Great Eastern is the most established and largest life insurance group in Singapore and Malaysia. With $45 billion in assets and 3.8 million policyholders, it has two successful distribution channels - the tied agency force and bancassurance. The Company also operates in China, Indonesia, Vietnam and Brunei.

Great Eastern is a subsidiary of OCBC Bank, Singapore's longest established local bank with assets of $181 billion and a network of more than 480 branches and representative offices in 15 countries and territories. Great Eastern's subsidiary, Lion Global Investors, is one of the largest asset management companies in Southeast Asia

Financial Highlights