Against this background, embedded value fell by 3.2% y-o-y in FY2023 to $17.3 billion, or $36.59 per share. Shareholders funds dipped marginally to $6.74 billion. However, total equity rose by 10% y-o-y, translating in net asset value of $16.66 per share.
It is well known that Great Eastern Holdings (SGX:G07
) has an excess of risk-based capital (the equivalent of banks’ capital adequacy ratios). And it is clear from its share price that it is trading at a steep discount to its embedded value, which comprises a combination of shareholders funds and the value of the in-force business. The latter is calculated using a form of discounted cash flow (DCF).
According to Ronnie Tan, GEH’s CFO, discount rates in both Malaysia and SIngapore were raised by 25 bps each. This, coupled with assumptions of higher medical claims in 2023 versus previous years impacting cash flow assumptions, caused the value of the in-force business to dip by 4.2% y-o-y in FY2023.
