Actuarial reform pushes Migdal to NIS 54m loss

The reform cut Migdal's net profit 87% to NIS 37 million in the first half.

Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL), the first insurance company to publish its financial report for the second quarter, today gave investors an initial understanding of the immediate effect of the Ministry of Finance's actuarial reform on insurance companies' business. Even as the change in ownership of Migdal is apparently moving forward on schedule, the company said that the actuarial reform will cost it NIS 170 million in its quarterly profit and loss statements for years to come.

The figure is in two parts: Migdal recognized a NIS 116 million loss for the second quarter, and an additional NIS 54 loss will be recognized over years. This adjustment of reserves resulted in a NIS 54 million loss for the second quarter, compared with a profit of NIS 175 million for the corresponding quarter of 2012. When the losses attributable to the capital fund are added in, Migdal's compressive loss was NIS 98 million for the second quarter, compared with a comprehensive profit of NIS 16 million for the corresponding quarter.

Migdal, under CEO Yonel Cohen, is at the center of two key developments in the insurance industry: one is Shlomo Eliahu's acquisition of the 69.1% controlling interest in the company from Italy's Assicurazioni Generali SpA (BIT: GASI); the second is the actuarial reform, which affects Migdal as Israel's largest insurance company.

As a result of the reform, Migdal's net profit of NIS 37 million in the first half was 87% less than in the first half of 2011, and its comprehensive net profit of NIS 80 million was 12% less. Most of the deterioration in the results is due to the regulatory change in actuarial tables, which the insurance companies and new pension funds use to calculate their reserves and profitability on the pension savings that they manage. With policyholders' extended life expectancy, the Ministry of Finance revised actuarial tables earlier this year, resulting in Migdal reporting a higher provision for supplementary reserves for pensioners, which cut the company's post-tax comprehensive profit by NIS 116 million. This loss was offset by higher yields by the company's investments in the capital market compared with the corresponding quarter.

Migdal also reported an increase in activity and higher profits on most of them. Although the company's life insurance business dragged the company to a net loss, its other operations were profitable in the second quarter. Migdal reported stable profits from its pension, provident fund and advance training fund business, and health insurance, compared with the corresponding quarter, while its elementary insurance business swung to a profit for the second quarter from a loss for the corresponding quarter.

However, the net profit of Migdal Capital Markets, which handles the company's financial services business, fell to NIS 6 million in the first half from NIS 20 million in the corresponding half. Most of the decline was due to lower management fees on mutual funds.

Migdal's financial report provides a glimpse at the general economic situation at midyear. Migdal's 4.3% increase in premiums to NIS 7.7 billion in the first half, and the stable level of cancellations of life insurance policies indicate no deterioration in the economic situation or of businesses.

Migdal also reported that it has obtained several permits needed for Eliahu's acquisition of the company, from the Israel Antitrust Authority, Israel Securities Authority, and from the Tel Aviv Stock Exchange (TASE). Eliahu still needs to obtain permits from the Ministry of Finance's Capital Markets, Insurance and Savings Department and from the Bank of Israel, because of Shlomo Eliahu Holdings Ltd's large stakes in Bank Leumi (TASE: LUMI) and Union Bank of Israel (TASE: UNON).

Migdal's share price rose 1.2% by mid-afternoon to NIS 3.83, giving a market cap of NIS 4 billion.

Published by Globes [online], Israel business news - www.globes-online.com - on August 2, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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