New business embedded value grows 19% year on year to S$148.8 million

 

[SINGAPORE] Great Eastern : G07 0% on Thursday (May 8) posted a 13 per cent year-on-year increase in profit to S$345.5 million for the first quarter ended March, versus S$306.7 million previously.

 

This was driven by higher profit from the insurance business as well as favourable investment performance in the group&rsquo s shareholders&rsquo fund, said the insurance arm of OCBC : O39 -0.68%.

 

Profit from the insurance business stood at S$246.8 million, up 4 per cent year on year from S$236.3 million. This was largely due to a higher release in risk adjustment and improved operating variance from the individual life business. 

 

The life insurance company noted, however, that this was partly offset by a higher loss component arising from new strain from yearly renewable medical insurance business in both Singapore and Malaysia.

 

Profit from shareholders&rsquo fund rose 40 per cent year on year to S$98.7 million in Q1 from S$70.4 million previously, which was mainly attributed to higher interest income and mark-to-market gains from bonds.

 

The group&rsquo s total weighted new sales for the quarter declined 34 per cent to S$345.1 million against the same period the prior year, which recorded S$524.2 million, mainly due to lower single premium sales following the shift towards regular premium sales. 

 

Meanwhile, new business embedded value for Q1 grew 19 per cent year on year to S$148.8 million from S$125.5 million, mainly due to a focus on propositions which enhanced the group&rsquo s product sales mix.

 

&ldquo In Singapore, we had increased purchases of protection, legacy propositions and Regular Premium Investment-Linked plans as we moved away from short-term single premium endowment plans. In Malaysia, our performance remained resilient with greater contributions from legacy and wealth accumulation solutions,&rdquo said Greg Hingston, group chief executive.

 

He stressed that the group&rsquo s focus remains on strengthening their business and distribution model, supported by data-driven targeted propositions to meet the needs of customers, amid a challenging business climate and increasing volatility in the global landscape.

The lender aims to drive collaboration across its three main business pillars of banking, wealth management and insurance, under its &lsquo one group&rsquo approach

 

THE full integration of Great Eastern into OCBC will help the lender realise more synergistic value, by providing more opportunities for the bank to work closer with the insurer, said OCBC chief executive Helen Wong.

 

Wong, speaking at the lender&rsquo s fourth-quarter results briefing on Wednesday (Feb 26), said the offer to take Great Eastern private last May was a &ldquo natural progression&rdquo in its strategy.

 

OCBC has aimed to drive collaboration across its three main business pillars of banking, wealth management and insurance, under its &ldquo one group&rdquo strategy.

 

&ldquo We know a balanced portfolio can help us to overcome, in particular, the uncertainty and the volatility in the market over the next decade,&rdquo Wong explained.

 

She noted that in Singapore, 70 per cent of Great Eastern&rsquo s customers hold OCBC products, while 30 per cent of OCBC&rsquo s customers hold Great Eastern policies, leaving room for more cross-selling of products.

 

In Malaysia, where the company is seen as a leading insurer, this also leaves more opportunities for its Malaysia banking business, she said.

 

This is especially so as banks typically do not have access to their insurers&rsquo customers in a regular bancassurance agreement, she added. &ldquo The strength of one OCBC group can be amplified if we tightly integrate, for instance, through a bigger ownership of, and if we manage to delist (Great Eastern).&rdquo

 

While Wong said that the lender is &ldquo not ready to tell what exactly we are working on&rdquo , she noted many more areas to accelerate synergies further, such as in capital resource management, expenses, sharing of expertise and investments.

 

&ldquo The synergy is more than just them using us as a channel &ndash it is whether we can also tap into their client base or their agency base,&rdquo she pointed out.

 

Wong said that the acquisition of Great Eastern will also help with risk diversification and balance of earnings &ndash it is accretive for OCBC&rsquo s return on equity Great Eastern&rsquo s profit contributions have also hit as high as 20 per cent in the past decades.

 

Great Eastern&rsquo s new CEO &ndash Greg Hingston, who was appointed in November 2024 &ndash also has an experience of &ldquo knowing exactly how to bring an insurance business forward in a banking environment&rdquo , she added. &ldquo We already have a lot of discussions on how we can realise that synergy, so I&rsquo m quite positive about that as well.&rdquo

 

Wong said that she could not elaborate further on plans, given that Great Eastern is a separately-listed entity, with its own independent board and directors.

 

Last May, OCBC made a S$1.4 billion bid for the remaining 11.56 per cent stake in Great Eastern that it did not already own, with the aim to delist the insurer.

 

The bank held nearly 94 per cent of the insurer when the takeover offer closed in July, but this was not enough for Great Eastern to delist, or for OCBC to compulsorily acquire the rest of its shares.

 

The insurer has until May 25 to explore options to comply with free float requirements under the Singapore Exchange&rsquo s listing rules.

The board is proposing a final dividend of S$0.45 per share, payable on May 6

 

GREAT Eastern : G07 0% on Tuesday (Feb 25) pointed to provisions made for its medical insurance business as the primary reason its net profit fell 14 per cent to S$134.8 million for the fourth quarter ended Dec 31, from S$157.2 million in the previous corresponding period.

 

&ldquo In terms of profitability, it was only (our) medical (insurance business) where we had to make provisions. Generally, the rest of the business performed very well,&rdquo Greg Hingston, the insurer&rsquo s new group CEO, said at a results briefing on Tuesday.

 

The provisions were linked to changes in Singapore&rsquo s mandatory MediShield Life scheme, which will see premiums rise by up to 35 per cent from April 2025, along with higher claim limits and expanded coverage. The changes were first announced last October.

 

Great Eastern also noted that Q4 &ldquo saw several developments in the medical insurance business from both Singapore and Malaysia&rdquo . These developments were taken into consideration, resulting in a lower profit recorded for the period.

 

Regarding the Malaysia business, Hingston explained that rules introduced by the country&rsquo s central bank impacted the insurer&rsquo s Q4 profit and prompted an adjustment to its contractual service margin (CSM), which reflects the expected unearned profit over the life of an insurance contract.

 

The new rules from Bank Negara cap premium increases at 20 per cent annually, with a 10 per cent cap for 80 per cent of policyholders. Meanwhile, premiums for those aged over 60 with basic plans will default to the lowest level.

 

Hingston also noted that market sentiment in Malaysia dampened during the quarter. &ldquo We did see business soften to some degree, particularly in December,&rdquo he said. 

 

Nevertheless, he noted that Great Eastern outperformed in the country &ndash it grew its market share and had strong productivity in its agency business.

 

Impacted profitability

However, the insurer did not fare as well in the area of new business embedded value (NBEV) as in the previous year, said group chief financial officer Ronnie Tan at the briefing.

 

NBEV fell 53 per cent to S$105.7 million from S$225.9 million in Q4, while it decreased 9 per cent in FY2024. Tan attributed the decline mainly to the group&rsquo s Singapore business, as its Malaysia segment had an increase. 

 

The group wrote down its NBEV by S$91.7 million in Q4 to reflect revised actuarial assumptions following its annual year-end review exercise.

 

Tan explained that typically, at the end of the year, an actuarial review is conducted to assess assumptions, with adjustments made accordingly. 

 

The significant adjustments last year were driven by changes in insurance experience, expense as well as mortality and morbidity assumptions, and the risk discount rate. Most of the reductions were attributed to Singapore.

 

Excluding this impact, NBEV in Q4 would have been S$197.4 million, down 13 per cent year on year. This was due mainly to the decline in total weighted new sales (TWNS).

 

TWNS in Q4 fell 16 per cent to S$432.7 million from S$514.1 million, amid lower single premium sales in the Singapore market.

 

For the full year, TWNS rose 8 per cent to S$1.8 billion, from S$1.7 billion, as the group&rsquo s operations in Singapore and Malaysia continued their growth momentum, driven by agency channels.

 

Excluding the impact of the revised actuarial assumptions, the group&rsquo s NBEV for the full year stood at S$713.2 million, a 4 per cent year-on-year increase on the back of higher TWNS.

 

Investment outperformance

For the full year, net profit rose 28 per cent to S$995.3 million from S$774.6 million. This was attributed to improvements in the insurance business and also significant investment outperformance for the year.

 

Tan noted that FY2024 was a &ldquo relatively good year from an investment perspective&rdquo , with investment markets being &ldquo relatively favourable&rdquo as the insurer saw significantly higher investment income and investment-related gains.

 

Great Eastern benefited from cost management initiatives, improved claims experience in the individual life business, and favourable investment performance from its shareholders&rsquo fund.

 

Profit from the shareholders&rsquo fund surged 112 per cent on the year to S$264.6 million from S$125 million. This was attributed to strong investment performance and mark-to-market gains amid positive investment market conditions.

 

Meanwhile, profit from the group&rsquo s insurance business rose 12 per cent year on year. Tan said the increase was due largely to the risk adjustment, which accounts for reserves set aside for claims and their variance, and the CSM.

 

The group&rsquo s embedded value also saw a 4.1 per cent increase, marking a positive turnaround after two years of decline. Tan explained that the rise was driven by both an increase in the value of imports and an improvement in the adjusted net worth.

 

Great Eastern&rsquo s board has proposed a final dividend of S$0.45 per share, which will be payable on May 6, following the record date of Apr 21.

 

Including the interim dividend of S$0.45 per share paid in August 2024, the total dividend for FY2024 will amount to S$0.90 per share, an increase of 20 per cent from S$0.75 per share in FY2023.

 

Barring unforeseen circumstances, Great Eastern said it &ldquo aims to maintain each dividend amount to be no lower than the preceding one&rdquo .

 

OCBC&rsquo s takeover bid

Last May, OCBC made a S$1.4 billion bid for the remaining 11.56 per cent stake in Great Eastern that it did not already own, with the aim to delist the insurer.

 

The bank held nearly 94 per cent of the insurer when the takeover offer closed in July, but this was not enough for Great Eastern to delist, or for OCBC to compulsorily acquire the rest of its shares.

 

However, it did result in Great Eastern breaching the minimum free float requirement, and its shares were suspended from trading.

 

In January 2025, the insurer made an application to the Singapore Exchange (SGX) for a further extension of time to examine its options for complying with the free float requirements under the SGX&rsquo s listing rules.

 

SGX had no objection to granting the extension and Great Eastern has until May 25 to explore options.

 

During the Q4 results briefing, Hingston noted that the board was &ldquo considering the options&rdquo and looking to appoint a financial adviser who will help assess these different courses of action. 

 

&ldquo Once they determine which option or options make sense, shareholders will be updated in due course,&rdquo he said, adding that he could not comment further at this time.

&ldquo The delisting process of a publicly traded company often comes with challenges, particularly when minority shareholders refuse to tender their shares. In cases where a delisting attempt fails due to insufficient acceptances, an alternative strategy may emerge,&rdquo says investor Ong Chin Woo. He terms this move " continuous suspension of trading" . 

 

For those who have followed the Great Eastern Holdings privatisation, Ong is a minority investor of Great Eastern Holdings and a vocal advocate for minority shareholders and he isn&rsquo t the first investor to question the extension of the suspension of Great Eastern.

 

Investors, including investor relations personnel of listed companies, analysts and retail investors are asking how Great Eastern Holdings is able to get three extensions to its suspension. The stock has been suspended since July 15, 2024.

 

Its free float dropped below 10% on July 12, 2024 following a privatisation offer by Oversea-Chinese Banking Corporation.

 

All three extensions are compliant with regulations or have been approved by the Singapore Exchange .

 

On Jan 24, Great Eastern Holdings announced that the Singapore Exchange &ldquo has no objection in granting the Company a further extension until 25 May 2025 to comply with the requirements of the Listing Manual&rdquo .

 

According to Ong, the psychological toll of continuous suspension following a failed delisting attempt can be &ldquo marked by uncertainty, frustration, and helplessness, leading to fatigue, and ultimately compelling shareholders to sell their shares at an unfavourable price to the controlling party&rdquo . 

 

&ldquo Without a functioning market, valuation becomes ambiguous, and shareholders are left at the mercy of the offeror. The fear of indefinite illiquidity can pressure many investors to capitulate, playing directly into the hands of the offeror,&rdquo Ong continues.

 

Based on the Singapore Code on Takeovers and Mergers, shareholders who accept a delisting offer that was not deemed " fair and reasonable" are not retrospectively entitled to a higher price if the offeror raises the price after the stipulated 6-month period following the close of the failed offer. 

 

&ldquo While Singapore&rsquo s regulatory framework provides certain safeguards for minority shareholders, recourse remains limited in situations involving continuous suspension. Minority shareholders should remain vigilant and advocate for stronger safeguards,&rdquo Ong suggests.

The breathing room Great Eastern and OCBC now have to address the insurer&rsquo s free float stretches beyond the likely dates of their upcoming AGMs

 

When Great Eastern announced late last Friday (Jan 24) that it had been granted yet another extension of time by the Singapore Exchange (SGX) to comply with the minimum free float rule, one of my colleagues joked: &ldquo Maybe two years from now, we&rsquo ll still be doing this.&rdquo

 

Great Eastern said in its announcement that it has been assessing various options to comply with the relevant listing rules, and that it now intends to appoint a financial adviser to explore &ldquo possible additional options&rdquo .

 

The insurer went on to say that it applied to SGX for more time as its 2024 annual report is likely to be published towards the end of March, and the information it contains could be useful in assessing the available options to comply with the minimum free float rule, including approaching OCBC for assistance.

 

The latest extension of time granted by SGX is for a period of four months, longer than the previous extensions of approximately three months. It expires on May 25 &ndash about two weeks past the first anniversary of OCBC&rsquo s announcement of its offer for Great Eastern.

 

More importantly perhaps, the breathing room that Great Eastern and OCBC now have stretches beyond the likely dates of their upcoming annual general meetings (AGMs). Under Section 175 of the Companies Act, public-listed companies are required to hold their AGMs within four months of the end of their financial year.

 

This could result in shareholders who attend those AGMs not getting substantive answers to questions about OCBC&rsquo s ownership of Great Eastern, or how the insurer&rsquo s non-compliance with the minimum free float rule will be addressed.

 

Great Eastern previously made two announcements about SGX granting it extensions of time to restore its public float &ndash on Aug 2, 2024, and on Oct 21, 2024.

 

On both occasions, it cited uncertainty about OCBC&rsquo s final shareholding as a reason for needing the extensions.

 

OCBC was at the time allowing Great Eastern&rsquo s non-assenting shareholders the opportunity to exercise their right under Section 215(3) of the Companies Act, which required the banking group to acquire their shares within three months at the same offer price.

 

OCBC unveiled an offer on May 10, 2024, for the 11.56 per cent of Great Eastern it did not already own at S$25.60 per share. When the offer closed on Jul 12, 2024, OCBC&rsquo s stake in its insurance arm had risen from 88.44 per cent to 93.32 per cent.

 

The Section 215(3) effort did little to further expand OCBC&rsquo s interest in Great Eastern, though. On Nov 8 last year, the banking group said it held 93.72 per cent of Great Eastern&rsquo s shares.

 

Will SGX grant Great Eastern more extensions of time to restore its free float in the months ahead? Or will this matter be quickly resolved? What should investors do?

 

Another offer?

On the face of it, OCBC does not appear to have given up on the idea of fully acquiring Great Eastern in order to resolve the insurer&rsquo s free float problem.

 

Bloomberg reported last week that the banking group&rsquo s chief executive Helen Wong recently met some of the insurer&rsquo s key minority shareholders, including Wong Hong Sun and representatives of Lee Thor Seng and his family.

 

This has some market watchers speculating about whether another offer might be in the works, and what role these longstanding shareholders might play in such a deal.

 

A fresh offer would naturally draw comparisons with last year&rsquo s deal, though. It might also invite some awkward questions about the manner in which the transaction was handled.

 

Notably, there is the question of why OCBC decided to not revise its offer even after the independent financial adviser (IFA) appointed by Great Eastern determined that it was &ldquo not fair but reasonable&rdquo .

 

Given that Great Eastern already had a very narrow free float, this meant there was a high chance its shares would be suspended from trading and minority shareholders who did not accept the offer would be left in limbo &ndash as is now the case.

 

Under the circumstances, the only way the offer could have led to a clean delisting is if OCBC had obtained a high enough level of acceptances to be able to compulsorily acquire the insurer&rsquo s remaining shares.

 

Yet, OCBC&rsquo s offer price of S$25.60 per share valued Great Eastern at a 30 per cent discount to its embedded value. OCBC&rsquo s previous offer for Great Eastern back in 2006 valued the insurer at a more than 50 per cent premium to its embedded value.

 

Why did OCBC&rsquo s board think long-term investors such as Wong and Lee would be prepared to accept its offer last year after refusing a far superior offer in 2006? And, should Great Eastern&rsquo s board have recommended its shareholders accept an offer that was &ldquo not fair but reasonable&rdquo ?

 

The Financial Times reported earlier this month that UK activist investor Palliser Capital had complained to SGX and the Monetary Authority of Singapore that minority shareholders of Great Eastern had been treated unfairly by OCBC, and that Great Eastern&rsquo s board had been &ldquo highly complacent&rdquo in recommending the offer.

 

Great Eastern seemed to obliquely refer to the FT and Bloomberg reports in its announcement last week. It noted that it had complied with the rules and regulations applicable to the offer, and that its independent directors had recommended that shareholders accept the offer on the advice of the IFA.

 

The company also stated that its management regularly engages with analysts, fund managers and shareholders on material developments relating to its business and financial results. &ldquo However, the company will not comment on or discuss any price-sensitive matters outside the appropriate disclosure channels and/or manner of disclosure,&rdquo it added.

 

Take a new approach

The way I see it, OCBC did not offer to pay more for Great Eastern because it simply did not want to justify doing so to its own shareholders. The insurer&rsquo s shares were, after all, trading at very depressed levels before the offer.

 

This does not mean that Great Eastern&rsquo s shares did not have the potential to garner a better market valuation under the right conditions. In fact, OCBC&rsquo s offer for Great Eastern last year came after a group of minority shareholders attempted to put forward three resolutions at the insurer&rsquo s AGM to address its weak share price.

 

The leader of that group of investors, a former remisier named Ong Chin Woo, is now planning to table a resolution at OCBC&rsquo s upcoming AGM for the banking group to distribute all its shares in the insurer.

 

The move &ndash which would result in OCBC shareholders receiving approximately 98 Great Eastern shares for every 1,000 OCBC shares they own &ndash would naturally resolve the insurer&rsquo s free float problem and potentially improve the market valuation of OCBC&rsquo s shares too.

 

OCBC has already said it is not in favour of this proposal, and that having Great Eastern in its fold is integral to its overall strategy.

 

Yet, it is not clear to me that shareholders of OCBC would be any worse off if Great Eastern were offloaded. Even with almost full ownership of the insurance unit, OCBC&rsquo s return on equity for the first nine months of 2024 came in at 14.4 per cent &ndash not much better than UOB&rsquo s 13.9 per cent and well behind DBS&rsquo 18.8 per cent.

 

In any case, there is no reason OCBC could not maintain exclusive bancassurance ties with Great Eastern after distributing its stake in the insurer to its own shareholders.

 

As Great Eastern works with its financial adviser to comply with the minimum free float requirement, perhaps the time has come for OCBC to take a different approach with its insurance unit.

The company is currently preparing its financial statements for FY2024

 

GREAT Eastern now has until May 25 to explore options to comply with free float requirements under the Singapore Exchange&rsquo s (SGX) listing rules, the insurer said in bourse filing on Friday (Jan 24).

 

The insurer had made an application to SGX for a further extension of time to examine its options for complying with these requirements, as information from its annual report on the 2024 financial year &ndash which is expected to be made available towards the end of March 2025 &ndash will be important for this process.

 

The company is currently preparing its financial statements for the fiscal year ended Dec 31, 2024, it said, which will be published in the report together with accompanying notes and other relevant information.

 

SGX has no objection to granting the extension, the insurer said.

 

It added that it has been assessing the courses of action available for compliance since its suspension, and intends to appoint a financial adviser to explore its options.

 

One recourse would be to approach OCBC for assistance in complying with the relevant rules, Great Eastern noted.

Last May, OCBC made a S$1.4 billion bid for the remaining 11.56 per cent stake in Great Eastern that it did not already own, with the aim to delist the insurer.

 

The bank held nearly 94 per cent of the insurer when the takeover offer closed in July, but this was not enough for Great Eastern to delist, or for OCBC to compulsorily acquire the rest of its shares.

 

However, it did result in Great Eastern breaching the minimum free float requirement, and its shares were suspended from trading.

 

The offer price of S$25.60 per share represents a 36.9 per cent premium over the insurer&rsquo s last traded price of S$18.70 before the offer announcement. But it represents a 30 per cent discount to the insurer&rsquo s embedded value per share of S$36.59 as at Dec 31, 2023.

 

Great Eastern emphasised on Friday that, in compliance with the Singapore Code on Take-overs and Mergers, it had formed a committee of independent directors to oversee the engagement of an independent financial adviser (IFA).

 

These directors made their recommendations to shareholders after carefully considering the IFA&rsquo s advice to recommend that shareholders accept the offer, the insurer said.

 

The IFA had deemed the deal to be &ldquo not fair but reasonable&rdquo .

 

Great Eastern added that while it regularly engages with all relevant stakeholders, it &ldquo will not comment on or discuss any price-sensitive matters outside the appropriate disclosure channels and/or manner of disclosure&rdquo .

 

In an attempt to disrupt the takeover, UK activist investor Palliser Capital called the deal &ldquo gravely unfair&rdquo in its appeal to the Monetary Authority of Singapore and SGX.

 

OCBC chief executive Helen Wong has met with key Great Eastern shareholders holding out on the offer.

 

Shares of Great Eastern have been suspended from trading since Jul 15.

 

The securities are expected to be rated &lsquo A&rsquo by Standard & Poor&rsquo s

 

The Great Eastern Life Assurance Company has priced US$500 million fixed rate perpetual capital securities, first callable in 2032, to be issued on or about Jan 22.

 

The securities will be under the S$2 billion Euro Medium Term Note Programme established by both Great Eastern Life and Great Eastern Holdings, said Great Eastern Life on Tuesday (Jan 14).

 

At a fixed rate of 5.398 per cent per year, the security holders will receive distributions on each payment date from, and including, the issue date to, but excluding, the first reset date of Jan 22, 2032.

 

If the securities are not redeemed on the first reset date, the distribution rate will be reset on the day and every five years thereafter to a fixed rate per annum equal to the aggregate of the then prevailing five-year US Treasury rate and the initial spread of 0.696 per cent.

 

&ldquo This... issuance is part of Great Eastern&rsquo s capital management programme, which involves raising alternative capital to optimise the capital mix, and provides Great Eastern with more flexibility in deploying its funds for general corporate and working capital purposes, including for growth and strategic investments,&rdquo said Great Eastern Life.

 

OCBC, Citigroup Global Markets Singapore, Singapore branch of the Hongkong and Shanghai Banking Corporation, Standard Chartered Bank of Singapore and UBS Singapore Branch are the joint lead managers for the hybrid securities.

 

The securities are expected to be rated &ldquo A&rdquo by Standard & Poor&rsquo s, noted Great Eastern Life.