The interest rate and changes in the method for calculating reserves are having a substantial effect on the results of Israel's major insurance groups. Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), controlled by the Hamburger family, and Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL), controlled by Shlomo Eliahu, have reported strong fourth quarter results, with net profits of NIS 217 million and NIS 362 million, respectively. After a poor first half, Harel Insurance's comprehensive profit rose 11% to NIS 422 million in 2016, and Migdal Insurance's comprehensive profit was up 7% to NIS 160 million.
Comprehensive profit, the leading measure of profit in an insurance group, is a company's net profit, plus investment profits counted as equity. Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) reported that its 2016 overall profit totaled NIS 122 million, 57% less than in 2015, following a NIS 478 million overall profit in the fourth quarter of 2016. The reports now being published by the insurance groups illustrate the importance of the changes in the assumptions used to calculate insurance reserves for the groups' results. These changes include a change in the capitalization interest rate and the returns on the groups' huge capital market investment portfolios and those of their policyholders. Following a very poor first quarter in 2016 and net losses in the first half of the year, the major insurance groups showed in their third and fourth quarter reports how much they benefited from the change in direction in the interest rates used to calculate their liabilities, combined with investment profits, culminating in rather good results for 2016 as a whole.
Harel distributing dividend
At any event, Harel Insurance, managed by CEO Michel Siboni, continued to report better results than the sector as a whole in 2016. The group also announced the distribution of a dividend of over NIS 107 million, in addition to the NIS 171 million dividend it distributed in 2016. Harel Insurance, which has the highest market cap in the sector, stated, "premiums and payments by policyholders totaled NIS 20 billion in 2016, 7% more than the NIS 19 billion total in 2015."
Most of the insurance company shares were up 2-2.5% in trading following the publication of their reports. Harel Insurance's market cap reached NIS 4.4 billion, while Migdal Insurance's market cap was just over NIS 4 billion. The Harel Insurance share price has climbed 50% over the past 12 months, while Migdal Insurance's share price has risen 45%.
Published by Globes [online], Israel Business News - www.globes-online.com - on March 23, 2017
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