Israeli Insurers Show High Profits But Lower Capital Reserves Than European Peers

Israeli insurance companies are experiencing high profitability, but a report by S&P Global Ratings reveals their capital reserves are less robust compared to European counterparts. As of the end of 2025, the average solvency ratio for Israeli insurers stood at approximately 159%, significantly lower than the 230% average among a comparison group of 36 European insurers. This ratio indicates the amount of available capital relative to the capital required to cover operational risks.

S&P clarified that the comparison is not exact, as capital requirements differ between Israel and Europe. The European sample includes mutual insurance companies, which tend to maintain higher capital cushions. In Israel, insurers face substantial liabilities from long-standing life insurance policies and invest a larger portion of their assets in stocks, increasing capital demands. Furthermore, not all capital from holding companies is recognized in Israel's solvency calculations, meaning the reported ratio gap may not fully reflect a difference in financial strength.

Despite these differences, S&P projects a stable credit profile for Israeli insurers through 2027, largely due to their strong profitability. However, the agency warns that the ongoing war and geopolitical risks could increase stock market volatility, potentially impacting insurers' investment portfolios. This concern is amplified by Israeli insurers' higher exposure to stocks, which constitute 22% of their investment portfolios compared to 10% in Europe. While this exposure benefits them during market upturns, it also makes them more vulnerable to downturns.

The industry's concentration, with the five largest groups (Phoenix, Harel, Migdal, Menora Mivtachim, and Clal) controlling 78% of premiums, contributes to pricing discipline and reduces the risk of prolonged price wars, which benefits insurer profitability but may not be advantageous for consumers. However, the auto insurance sector shows increased competition, with moderating rates, especially for comprehensive coverage, due to price transparency and digital sales channels.

Since the 2005 Bachar reform, which mandated banks divest their provident and mutual fund management operations, large insurance groups have become major players in public fund management. Monthly contributions to pension savings increase their assets under management and generate steady income from management fees, diversifying their revenue streams. These groups have also expanded into credit activities, a trend S&P expects to continue. While insurers are anticipated to maintain sufficient profitability in the coming years, a severe market downturn or economic slowdown due to the prolonged war could erode profits and strain their financial standing.