The steep falls on the Tel Aviv Stock Exchange (TASE) continue to highlight the underperformance of insurance stocks, especially those of what were once Israel's two largest insurance groups: Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL), controlled by Shlomo Eliahu, and Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), which has no controlling core. The steep decline in the two companies' share prices is the result of an ongoing deterioration in their business standing in comparison with competing companies in the insurance sector.
Clal Insurance's share price is down 6% today and 40% since the beginning of March. Since the coronavirus crisis began in the second half of January this year, the share has lost over half of its value, pushing the company's market cap down to less than NIS 1.5 billion. The company's situation would have been far worse had it not completed a NIS 630 million offering of new shares last December. This measure aroused anger among investors at the time, but in retrospect appears to have been a critical step taken by the company's board of directors in order to reinforce Clal Insurance's capital base.
The state of affairs at Migdal is also bad, following managerial upsets in the company in recent years. Migdal's share price is down 5% today, 33% since the beginning of the month, and 45% since the second half of January this year, pushing the company's market cap down to NIS 1.8 billion. This demonstrates investors' considerable skepticism about the state of Clal Insurance and Migdal and their managements. The two stocks have fallen more steeply than the relevant index during all of the above periods. At present, the combined market cap of the two companies is about the same as that of each of the two Israeli insurance sector leaders: Harel Insurance Investments and Financial Services Ltd. (TASE: HARL) (NIS 3.5 billion) and The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) (NIS 3.3 billion).
The falls on the capital markets, the resumption of the downward trend in interest rates, and growing concern about a recession are having a negative impact on insurance stocks on the TASE. This difficult and challenging situation is especially applicable to Migdal and Clal Insurance because of their many previous managerial mistakes and their long-term orientation towards the old life insurance branches. Over the years, these branches have proved to be a burden at a time of low interest rates and negative yields, and the coronavirus is now aggravating this pattern. This situation is also affecting the two companies' solvency under the Solvency II Directive capital regulatory regime, which requires them to supplement their capital on a large scale.
Published by Globes, Israel business news - en.globes.co.il - on March 11, 2020
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