Harel in the Media

Which is the fastest growing insurance company in the industry?


An investigation by Calcalist: Harel had the fastest growth rate in embedded value – 17.4%. Migdal has the lowest rate, because of high agents’ commissions

The future is in health insurance
Harel - the fastest growing insurance company in the industry.
Embedded value figures published by the insurance companies indicate that Migdal had fairly low growth because of high agents’ commissions. Life insurance is losing prestige.

The five big insurance groups in comparison in millions of shekels






 Menorah Mivtachim

 Embedded value in 2010






 Change in embedded value over 2009






 Market cap






Value of new business in 2010 






Change in value of new business over 2009 






Embedded growth rate of new business 






* Including Dikla Insurance Company
Embedded value: projected cash flow capitalization from insurance, health and pension business of the insurance company.
Value of new business: the vale of new sales of insurance, health and pension business in that year.

The financial reports for the first quarter of the five big insurance companies included the embedded value of their insurance, health, and pension business in 2010. This is a fascinating figure that reveals the real value of the insurance companies’ main activity, and their growth rates compared with the previous year. The embedded value effectively constitutes a kind of valuation that includes the expected future cash flow of current activity. The companies also published the value of new business (VNB), which discloses the value of businesses added during the year.

DS Apex analyst Meir Slater explains, “When looking at the figures of the five big insurance companies, you find out that the embedded value grew strongly in 2010 compared with 2009, but if you distinguish between the growth rates of managers insurance activity and the growth rates of pensions activity, you see that the former grew much more slowly than the latter. This reflects the fact that in the contemporary market, pension is growing much faster than managers insurance.”

Menorah’s strength: Mivtachim
Looking at Menorah Mivtachim Holdings Ltd. shows impressive 15.2% embedded value growth in 2010, but a drop in new business growth. Menorah’s strong point is its holding in the industry’s largest pension fund, Mivtachim, which compensates for Menorah’s weakness in life and health insurance. Menorah is the only company that also showed a drop in its VNB compared with 2009. Slater attributes this to Menorah’s weakness on the distribution side, in other words, insurance agents. In contrast to Migdal Insurance and Financial Holdings Ltd., Clal Insurance Enterprises Holdings Ltd., and The Phoenix Holdings Ltd., which have well oiled agent networks, Menorah has few insurance agents who market its products and create new business.

The big winner in 2010 was without question Harel Insurance Investments and Financial Services Ltd., which had the highest embedded value growth – 17.4%. Harel’s embedded value reached NIS 6.9 billion in 2010, and when examining its VNB, Harel also had the best performance.

In fact, if you take Harel’s VNB and divide it by its embedded value for the previous year, it can be seen that Harel’s growth rate of its embedded value for new business was the highest among the five big companies - 8.3%.

The industry’s largest company Migdal actually had the lowest VNB growth – 3.9%. This is because Migdal’s profit margins are lower, mainly due to purchase commissions (payments to agents), which are higher than the commissions paid by its competitors.

According to Slater, Harel’s success is “first of all due to its health insurance business, which is the largest in the industry. In essence, health insurance is more profitable than life insurance, which is dominated by Migdal. In addition, Harel’s purchase commissions are lower than Migdal’s, and its underwriting profit margin (premiums net of claims paid) is higher.”

Migdal’s Achilles Heel is its great weakness in health insurance, compared with its rivals Harel, Clal, and Phoenix. That is why it is no surprise that Migdal’s management has been striving in the past few years to increase its business in this field, which has been marked as the industry’s “next big thing”.

Improvement at Phoenix
Phoenix, run by Eyal Lapidot in recent years, unquestionably showed substantial improvement in performance compared with 2009. The insurance arm of Delek Group Ltd. showed the fastest growth in VNB over 2009, thanks to improved work patterns. However, if the growth of embedded value of new business is examined, it can be seen that it is not high (4.2%), so management has a lot more work to do to close the gaps with its competitors.

Many global insurance companies use embedded value as a quality indicator of the company’s business – more than its market cap. Ostensibly, a higher the embedded value multiple (the embedded value divided by the market cap) means that the market places greater weight to the embedded value. However, Slater says that the figure is inaccurate, because insurance companies have other operations that are not priced in the embedded value, such as non-life and financial insurance. For example, Clal Insurance has extensive non-life insurance activity, resulting in a lower embedded value multiple than Migdal, for instance. More than 70% of Migdal’s business is in insurance and pensions.


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