4 Great Eastern funds Have CDO Exposure

Source : The Business Times, August 7, 2007

But GE says all GreatLink Choice funds performing with no losses

GREAT Eastern Holdings (GEH) - a subsidiary of OCBC Bank - said four of its funds have exposure to collaterised debt obligations (CDOs).

But it said 'policyholders should not be overly alarmed by the volatility in monthly prices'.

In an e-mail response to BT, GEH said that the four funds - GreatLink Choice Sept 2010, GreatLink Choice Oct 2010, GreatLink Choice Aug 2013 and GreatLink Choice Dec 2013 - are invested in CDO-related products.

It said GreatLink Choice will continue to pay the annual coupon as well as the 100 per cent principal at maturity as projected if the default losses stay within the subordination levels throughout the policy term.

The insurer added that there has not been any noticeable increase in redemptions. 'Our life planners have been able to assure policyholders that the quality and S&P ratings of the four tranches remain unchanged and there has been zero default with slightly higher subordination levels.'

The S&P ratings for GreatLink Choice Sept 2010 and GreatLink Choice Oct 2010 remain unchanged at AA-, and ratings for GreatLink Choice Aug 2013 as well as GreatLink Choice Dec 2013 have also remained unchanged at AA, said GE. 'All GreatLink Choice funds are performing; none are exposed to US sub-prime mortgages, and there are no losses, defaults or re-rating for the positions thus far,' said the insurer. Lion Capital Management - the collateral manager for these portfolios - actively rebalances all the CDO portfolios to maintain or improve subordination ratios and rating stability, it added.

OCBC said in a statement yesterday that the investment returns and risks of the funds are borne by policyholders.

Releasing its Q2 results yesterday, GEH said profits surged 54 per cent for the second quarter on the back of growth from its core insurance operations and investment profits.

Net profit for the second quarter ended June 30 grew to $143.4 million, from $93.3 million for the corresponding period last year. This was achieved on an 18 per cent rise in turnover to about $2.43 billion.

For the half year, the insurer recorded a 47 per cent rise in net profit to $277.9 million, while turnover rose 18 per cent to $4.52 billion.

Gross premiums rose 15 per cent to $1.49 billion for the quarter, from the strong showing in its life insurance operations.

'Excluding the second quarter of 2004 when we realised the one-off investment profit of $71 million from the disposal of our investment in OCBC shares, this quarter with $143.4 million profit is the best quarter to-date,' said director and group chief executive Tan Beng Lee.

Profit from life insurance operations rose 94 per cent year on year for Q2 to $123.1 million. Most of the increase came from the non-participating fund which saw a profit of $89.7 million, up from $22.7 million a year ago, as investments performed strongly.

Fees and other income grew 36 per cent to $23.5 million for Q2, due largely to an increase in assets under management. This was contributed by asset management subsidiaries Lion Capital Management and Lion Fairfield Capital Management, as well as Alpha Financial Advisers.

Mr Tan noted: 'Overall, the economic outlook remains positive. However, earnings from the group's insurance operations and investments will continue to be sensitive to changes in interest rates and volatility in the commodity and equity markets.'

He added that the group will continue to intensify efforts to expand its operations in Malaysia, China and Indonesia, and to prepare for an operating licence in Vietnam, with building up a talent pool being an important factor for the success of its operations.

'The acceleration of activities in the regional markets is expected to increase management expenses,' he said.