Third Quarter Leaves Most Israeli Insurers in the Red

Migdal leads with a stunning $86 million loss for the three months as investment portfolios sagged.

Moti Kimche

The third quarter was a sea of red for Israel’s insurance companies.

Phoenix eked out a profit of 1.5 million shekels ($390,000) for the three months, but Menorah turned in a 24-million-shekel loss, Clal Insurance a 108-million loss and Harel a 130-million loss. Migdal outdid them all: 334 million shekels in the red.

Israel’s insurers were hit hard by the poor performance of their investment portfolios, which forced them to pay money to clients who have with-profit insurance policies that entitle payments in case of negative returns.

The Tel Aviv Stock Exchange’s TA-100 index dropped 8.6% in the quarter and the MSCI index of global stocks tumbled nearly 10%. Israeli government bonds were mostly lower, too.

Migdal, which reported on Wednesday, ran up 2.1 billion shekels in losses on its investments, compared with a 1.8-billion-shekel profit the same time a year ago. Most of that loss was in life insurance and long-term savings, but in general insurance, Migal ran up a 34-million-shekel loss.

Clal Insurance, which reported on Thursday, suffered a loss of nearly 600 million shekels on investments in the quarter. It returned 113 million shekels in management fees to policyholders.

Shares of Migdal, which are down 28.5% so far this year, fell 0.8% Thursday to end at 3.18 shekels. Clal shares declined 1.8% to close at 55 shekels.

Meir Slater, an insurance analyst at Bank of Jerusalem, said he was concerned about how Migdal would beef up its equity capital to meet the new European Solvency II standards for insurance companies, which are also being applied in Israel.

The new standards, designed to ensure that insurers have enough capital to avoid insolvency, go into effect next year. Clal insurance already meets the standards, but Migdal has a yawning shortfall of 6 billion shekels based on its balance sheet at the end of 2014

Slater said he expected Migdal to close the gap by raising debt; it has already raised 1.2 billion shekels and will probably bring the total to 2 billion. More capital will come from profits over the next three years, which he said should reach as much as 1.5 billion shekels if there are no market upheavals.

The rest could come from issuing equity, but Slater said he thought the company would more likely sell insurance risks and make more use of reinsurance. “We believe that’s the main way it will close the gap in required capital over the next three years,” he said.