Great Eastern Holdings’ raised its final dividend in FY2023, to 40 cents, up from its 35 cents interim dividend translating into a payout ratio of 46% against profit attributable to shareholders of $774.6 million.
“Since our interim results in August (2023), we changed our dividend approach. In the past we had a small interim and a substantial final dividend. We are trying to have a more consistent dividend between interim and final," says Ronnie Tan, GEH's group CFO.
"But, whatever dividend we declare, we will try to maintain it for the next year. Since we declared 40 cents per share as our final dividend, for our interim dividend for 2024, we will declare 40 cents; 40 cents is our new base, barring unforeseen circumstances,” adds Tan, speaking at the results briefing on Feb 26.
Total weighted new sales (TWNS) fell by 12% y-o-y in FY2023 to $1,659.4 million due to lower single premium sales from the Singapore market. New business embedded value (NBEV) fell 11% y-o-y to $762.1 million mainly due to lower sales. NBEV is a measure of the long-term profitability of new sales.
GEH also announced that its embedded value in FY2023 of $17.3 billion (or $36.59 per share) represented a 3.2% decline compared to its FY2022 embedded value of $17.9 billion. The value of the in-force business fell by 4.6% y-o-y to $10.58 billion.
The decline was attributed to the larger medical claims and an increase in the discount rate. For both Singapore and Malaysia, the discount rate rose by 25 bps y-o-y to 6.25% and 8% respectively, in FY2023. In Indonesia, the discount rate was unchanged at 12.5%.
“We reduced the discount rate a few years ago and we held it constant, and only raised it in 2023,” Tan says. Embedded value actuaries increased the reserves on a prudent basis, he adds.
Embedded value comprises the value of in-force business, valued by a form of discounted cash flow, and adjusted shareholders funds.
One of the inputs for embedded value were the higher medical claims. “During Covid in 2020-2021, medical claims dropped because people were avoiding the hospitals. Post-Covid a lot of people went back to the hospitals and we saw, from 4Q2022 through 2023, like revenge travel, demand went up for delayed procedures so we got a spike of medical claims. The demand came in [all] at the same time so claims in 2023 were much higher than 2019 pre-Covid. The claims levels have stabilised for Singapore in 4Q2023. But in Malaysia the trend has not stabilised yet,” Tan explains.
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When asked if GEH had any plans to narrow the discount between its embedded value and its share price, group CEO Khor Hock Seng says he can’t control the share price. “As an insurance company, our profit fluctuates up and down, but over time as it grows, we will [endeavour] to give more dividends.”
CFO Tan points out that profits are likely to be less volatile now that insurance companies have adopted IFRS 17 contracts from Jan 1, 2023 compared to IFRS 4 previously.
“So far our profits are less volatile. We can’t remove the mark-to-market volatility, but a large chunk goes to FVOCI (fair value through other comprehensive income). it should be less volatile,” Tan says.
