The insurance companies will publish poorer third quarter financial reports than those for the two preceding quarters, predicts Ilanot Batucha analyst Alon Glazer.
Glazer states that the life insurance sector is sensitive to recession, as far as sales of new policies and redemptions are concerned. He says, "The recession has caused an increase in early withdrawals." Nevertheless, he adds that the pension reform, which hurt the pension funds, will help the insurance companies. "We will probably see the beginning of a switch from pension plans to managers insurance plans."
Glazer believes the deteriorating underwriting results in the non-life insurance sector will continue to deteriorate. Although negative trends such as increasing vehicle thefts and a rise in average insurance claims grew worse in the third quarter, there were no major incidents in the third quarter, such as the winter damage in the first quarter, to further aggravate the situation.
Glazer said the paramount factor affecting the insurance companies results in the third quarter will, as usual, be the performance of the capital market. The Tel Aviv Stock Exchange (TASE) declined in the third quarter, although the rise in September offset most of the earlier drop.
The Tel Aviv 25 index fell 3.1% in third quarter. The bonds index, which is more important for the insurance companies, rose 4% and long-term shekel Shahar 2681 bonds rose 3.8%.
Glazer predicts that the capital market results will contribute less to the insurance companies' revenues from investments than in the preceding quarters. He says the insurance companies earned an aggregate NIS 370 million in management fees in the first half of 2003, but "we won't see dramatic revenue from management fees in the third quarter."
Glazer concludes, "In general, we'll see a drop in results in the third quarter, compared with the first and second quarters of 2003." Nevertheless, he believes the third quarter results will be somewhat better than those in the third quarter of 2002, because that was a particularly poor quarter. For example, Migdal Insurance (TASE:MGDL) wrote off NIS 51 million from the drop in value of Bank Leumi (TASE:LUMI) and Clal Insurance (TASE:CLIS) reported a profit of only NIS 12 million in the third quarter of 2002.
Published by Globes [online] - www.globes.co.il - on October 22, 2003