Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) reports a huge NIS 494 million loss for the first quarter of 2016. This compares with a loss of NIS 85 million in the corresponding quarter of 2015. The company's return on capital was a negative 8.8%, which compares with a negative return on capital of 5.5% in the corresponding quarter.
Migdal is the last of the Israel's insurance companies to report its first quarter results. Government and regulatory measures, the weakness on the capital markets that affects income from investments and from management fees (particularly variable management fees on participating policies), and the continuing near zero interest rate environment, which affects capital reserves, brought in train heavy losses for Migdal and the other insurance companies that reported their first quarter results this week.
Migdal itself explains the sharp rise in its loss by external factors, such as the volatility on the capital market, but mainly the low interest rate. "The low interest rates have material consequences both for the returns obtained for the group's customers and for the group's profits," Migdal states, "After the substantial volatility in the risk-free interest rate curve that characterized 2015, in which, overall, there was a slight fall in the risk-free interest rate curve in comparison with 2014, in the first quarter of 2016 a further decline took place in the risk-free interest rate curve, leading to a substantial rise in life insurance reserves."
In addition, because of the low interest rate and the recommendations of the Winograd commission that the interest rate for the purposes of capitalizing an annual stipend should be 2% instead of 3%, the company was forced to make provisions of NIS 837 million (before tax) in life and non-life insurance.
The sharp volatility in the capital market led to a loss of NIS 826 million on the company's investment activity in the first quarter of this year, which compares with a profit of NIS 3.88 billion in the corresponding quarter of 2015.
Gross premiums, receipts for investment contracts, etc. rose 1% in the first quarter of 2016 to NIS 4.62 billion. Health insurance premiums rose 13% to NIS 277.8 million and general non-life premiums rose 8% to NIS 542 million.
Migdal's share price is currently down 1.47% on the Tel Aviv Stock exchange.
Published by Globes [online], Israel business news - www.globes-online.com - on June 1, 2016
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