Two up, two down: Insurance coverage co shares diverge

The insurance coverage sector has change into one of many principal drivers of the rises on the Tel Aviv Inventory Alternate prior to now six months. The sector index has risen by 84% in that interval, greater than thrice the rise within the flagship Tel Aviv 35 Index. The robust financials launched by insurance coverage corporations, exhibiting large earnings for final 12 months, present an evidence for the current rises of their inventory costs.

4 of the biggest insurance coverage corporations in Israel printed their 2024 outcomes final week. Migdal and Clal Insurance coverage reported a complete revenue for the 12 months of NIS 1 billion every, double and treble their earnings for 2023 respectively. Menora Mivtachim reported a complete revenue of NIS 1.25 billion (up 75%), and The Phoenix reported a revenue of NIS 2.1 billion, nearly double the revenue within the earlier 12 months.

However whereas two of the businesses, The Phoenix and Menora Mivtachim, noticed their inventory costs rise by over 5% on the day they launched their financials, pulling all the sector upwards, Clal and Migdal every fell by greater than 6%.

Timing, and a bit luck

So why was the market enthused by The Phoenix and Menora Mivtachim’s performances, and dissatisfied by Migdal and Clal? A part of the reason lies within the normal momentum on the day every printed its reviews, or in different phrases, luck. The Phoenix and Menora Mivtachim benefitted from the truth that they printed final Thursday and on Monday, respectively, earlier than the resumption of hostilities within the Gaza Strip, when the native market nonetheless felt optimistic and shares rose.

Clal, alternatively, launched its financials on Tuesday, the morning after the IDF’s shock assault within the Gaza strip, which ended the ceasefire. The Tel Aviv 90 Index responded with a 2.4% fall, after rising by greater than 35% within the six months as much as then. Migdal reported on Wednesday, additionally throughout an IDF operation within the Gaza Strip. “It’s psychology,” a market supply mentioned, “While you launch financials in a falling market, you’re taking a worse hit.”

That rationalization is inadequate, nevertheless, for the reason that different insurance coverage corporations weren’t “contaminated” by the sharp falls in Clal and Migdal. On Wednesday afternoon, for instance, The Phoenix and Menora Mivtachim have been up by about 1%, whereas Migdal fell 7%, and Clal fell an extra 4% after its sharp fall on Tuesday.

Migdal’s dependence on the capital market

Market sources who spoke to “Globes” all pointed to the identical causes for the passion at Menora Mivtachim and The Phoenix’s financials, versus the frustration at these from Clal and Migdal. As one in all them mentioned, “The financials of Clal and Migdal, which have been good in themselves, solely highlighted the gaps in efficiency and sharpened some great benefits of The Phoenix and Menora, that are characterised by greater profitability, and that are in the suitable market segments: normal insurance coverage and pensions, whereas at The Phoenix, as well as, there may be the corporate’s dominance in credit score (by subsidiary Gama, N.A.), insurance coverage companies, and monetary asset administration (by funding home Excellence, N.A.).

“These two are additionally much less concerned in segments thought of problematic, resembling well being and life insurance coverage,” the supply added. On the finish of the 2020s, all of the insurance coverage corporations exited personal nursing care insurance coverage, which is part of medical insurance, and the phase is on a run-off monitor.

The nursing care insurance coverage supplied by the well being funds can be in difficulties. Solely lately the worry arose that these insured by the Clalit fund can be left with out cowl.

One other supply mentioned, “The market understands that at Migdal, for instance, a lot of the fourth quarter revenue derived from the rise on the inventory market. Migdal could be very depending on returns within the capital market, and so if the market takes a downturn, it will likely be damage, and that goes into the pricing.” Within the case of Clal, the supply says, “Regardless of the nice financials, if I’ve to decide on between a lower-priced firm and an organization that for my part is superior high quality, I’m ready to pay a premium for the standard firm. I’ll subsequently desire The Phoenix and Menora.”

Return on fairness

Once we requested the sources about gaps between the completely different corporations’ numbers, they referred us to the return on fairness that every of them generates, an accepted metric within the monetary providers sector. Whereas Clal and Migdal had returns on fairness of 11-12% final 12 months, The Phoenix and Menora Mivtachim reported a lot greater returns, of 19% every, on the premise of the outdated accounting commonplace (IFRS 4), and that’s a really important hole.

The Phoenix’s steering was additionally seen as higher. “The Phoenix set a return on fairness goal of 16-17% beneath the outdated commonplace, which interprets to 20-22% beneath the brand new insurance coverage trade commonplace (IFRS 17, N.A.), however at Clal it will likely be solely 12-15% beneath the brand new commonplace,” a market supply mentioned. “The market was dissatisfied by Clal, and anticipated extra, as a result of it’s clear that beneath the brand new commonplace, which brings recognition of earnings ahead, their return ought to leap.”

Moty Citrin, head of monetary establishments and structured finance at score company Midroog, provides, “Traders look at the start at return on fairness. In that respect, Clal and Midgal lag behind the opposite massive corporations, as a result of their portfolios comprise a considerable part of government insurance coverage. That product is in run-off and doesn’t generate earnings, and is anticipated to weigh on the insurance coverage portfolios of each corporations till it expires. In contrast, it’s noticeable that within the monetary statements of Menora and The Phoenix, most of their portfolios relaxation on non-life insurance coverage, the place premiums grew by a median of 30% final 12 months. It’s a cycle. In my opinion, we’re at the moment positioned near the height, which translated into excessive profitability within the sector, and comes extra strongly to the fore within the financials of Menora and The Phoenix.”

Migdal Group CEO Ronen Agassi says nevertheless that he’s happy with the outcomes. “Our core exercise was a lot better than within the earlier 12 months, a revenue of practically NIS 900 million with no particular trigger, with revenue on common exercise principally double that of the earlier 12 months. In our planning, we deliberate to enhance underwriting revenue to NIS 950 million in 2027, and fortunately it occurred even sooner. We closed the administration charges gap that we had of a few billion shekels, and even collected variable administration charges of NIS 130 million.”

Nonetheless, Agassi admits that the revenue was very a lot impacted by “funding revenue that was constructive because of the rise in rates of interest – our belongings are uncovered to rate of interest modifications – and the fourth quarter was significantly robust.” Trying forward, he tries to encourage buyers, and declares that the corporate has superior one other stage in direction of approval of a dividend distribution. “We predict it’s going to occur in 2027, in accordance with the plan. In fact we’d be delighted to be stunned if it comes sooner.”

Printed by Globes, Israel enterprise information – en.globes.co.il – on March 20, 2025.