Phoenix Holdings Reports Results for the Third Quarter of 2022 and the Nine Months Ended September 30, 2022; Continues to Improve Performance in Line with Strategic Plan Targets

Phoenix Holdings Ltd., a leading Israel-based financial, insurance and investment group (TASE: PHOE) (“The Phoenix,” the “Group,” or the “Company”), today reported its results for the third quarter of 2022 and the nine months ended September 30, 2022.

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Composition of the Group's profits by segment (nine months, in NIS millions) (Graphic: Business Wire)

Highlights

• The Group reports comprehensive income of NIS 62 million for the third quarter of 2022 and NIS 599 million for the nine months ended September 30, 2022, reflecting a return on equity of 2.6% and 8.4%, respectively
• Results for the third quarter and the nine months ended September 30, 2022 were impacted by capital market declines. The total impact before tax of the capital market declines which was partially offset by the positive impact from rising interest rates was NIS 269 million in the third quarter and NIS 721 million for the nine months
• The Phoenix continues to build its record of growth in line with strategic targets; total premiums and contributions grew by 22% year on year in the nine months ended September 30, 2022, reaching NIS 25.1 billion
• Phoenix Insurance reports a significant improvement in its Solvency ratio and growth in its financial liquidity; the Solvency ratio was 202% including transitional measures as of June 30, 2022 compared to 190% as of December 31, 2021 (137% compared to 117% without transitional measures); the Group views its financial strength and liquidity as a source of distinctive competitive advantage as it seeks to achieve strategic goals in a period of market uncertainty
• In core non-insurance activities, including the asset management, agencies and credit segments, the Group recorded income of NIS 281 million in the nine months ended September 30, 2022 (not including special items), an increase of almost 14% compared to the same period last year and in line with the Group’s strategy
• As of September 30, 2022, equity totaled NIS 9.6 billion, following the NIS 160 million dividend distribution (in respect of H1/2022 profits) and a share buyback of NIS 56 million
• Total assets under management increased during the quarter reaching NIS 364 billion as of September 30, 2022, due to net inflows and despite the declines in the capital markets. The Phoenix sees its investment management capabilities across savings and retirement solutions as a source of significant competitive advantage; after the end of the third quarter, the Group signed an agreement to acquire Epsilon Investment House, which manages NIS 11 billion in assets across active mutual funds and portfolios
• The Group is developing workplans for 2023, emphasizing continued investment in organizational infrastructure and digital capabilities for the benefit of clients and agents

Eyal Ben Simon, CEO of The Phoenix group:

"The Phoenix continues to systematically implement its strategy for growth and higher profitability, in line with our medium-term targets across insurance, investment and asset management, distribution, and credit activities. The Group's profits reflect the growth in high-ROE activities as well as improvement in operating results, in spite of the impact of the volatile capital markets.

As Israel’s leading financial group, the Phoenix has a strong balance sheet and liquidity position. Higher Solvency strengthens the Group’s ability to continue investing in attractive financial and strategic opportunities with significant business potential. This position, together with the Group’s flexible management capabilities and diverse activities, attractively position the Phoenix for continued value creation.

In this context, we signed an agreement to acquire Epsilon Investment House which manages NIS 11 billion in active mutual funds and portfolios, following the acquisition of Halman Aldubi last year. We will continue to strengthen our leadership in investments and asset management as we increase our total assets under management.

The Group's focus on innovation and efficiency is contributing to the continuous improvement of our operating results, data-driven and precise processes, strong customer satisfaction, and the high levels of customer service to which we are committed. We intend to continue to accelerate our investment in the Group's organizational infrastructure and digital capabilities to maintain our leadership position in insurance.

The Phoenix is well-positioned to take advantage of opportunities presented by unusual market volatility. Working together, the Group’s management and employees will be able to leverage our strengths and capabilities for the benefit of our clients and partners and to maximize value."

Key figures from the financial statements:

Comprehensive income attributable to shareholders

Comprehensive income attributable to shareholders in the third quarter of 2022 and the nine months ended September 30, 2022 amounted to NIS 62 million and NIS 599 million, respectively, reflecting a return on equity of 2.6% and 8.4% for the shareholders, respectively. This compares to NIS 404 million and NIS 1,557 million in the corresponding periods in 2021. The declines compared to 2021 are due primarily to the impact of capital markets, partially offset by the effect of increasing interest rates on insurance liabilities, and special items.

Income from operations (before tax) was NIS 412 million and NIS 1,338 million in the third quarter of 2022 and the nine months ended September 30, 2022, respectively, compared to NIS 327 million and NIS 969 million in the relevant periods of 2021.

Equity and Solvency ratio

The equity attributable to Company’s shareholders amounted to NIS 9.6 billion as of September 30, 2022.

The Phoenix Insurance reports that its Solvency ratio has strengthened and publishes a Solvency ratio of 202% with transitional measures as of June 30, 2022 (137% without transitional measures). The ratio reflects an increase compared to 190% as of December 31, 2021 (117% without transitional measures). This financial strength provides confidence regarding dividend distributions under the Group’s dividend policy. The Phoenix Insurance's mid-term target for the solvency ratio is in the range of 150-170%. The minimum threshold for distributions is 111%, without transitional measures.

The effect of the decline in capital markets and rising interest rates

The Group reports a negative impact of NIS 721 million before tax in the nine months ended September 30, 2022 from capital market declines net of positive effects from rising interest rates. The negative return on corporate account (nostro) investments was (0.02%), representing a real return of (4.24%). The impact of capital markets on corporate account investments and variable management fees, compared to 3% real returns, was NIS 2,110 million, which was partially offset by the effect of increasing interest rates in the amount NIS 1,389 million.

Premiums and benefit contributions

Premiums and benefit contributions towards benefits amounted to NIS 25.1 billion in the nine months ended September 30, 2022, compared to approximately NIS 20.5 billion in the same period in 2021.

Investment in innovation

The Phoenix consistently invests in innovation and digitization as part of its focus on its customers’ needs and on maintaining a high level of service. The Group has made a total investment of approximately NIS 1 billion in technology and advanced data capabilities that provide analysis and measurement tools to ensure operational efficiency and support continuous improvement of performance.

Financial strength

The credit rating of Phoenix Holdings is AA- and for The Phoenix Insurance is AA+. The Group has financial flexibility and a strong liquidity profile.

Below are the main financial results of the Group's operating segments (for more details regarding the changes in the financial results, see the Report of the Board of Directors on the State of the Corporation's Affairs and the Quarterly Presentation):

P&C insurance (includes the liability and property subsegments)

The comprehensive income before tax in the third quarter of 2022 and the nine months ended September 30, 2022 was NIS 50 million and negative NIS (184) million, respectively. This compares to a comprehensive income before tax of NIS 49 million and NIS 459 million in the corresponding periods of 2021. The decrease in profitability is mainly due to the decrease in investment income, an increase in costs and in the frequency of claims in the motor property subsegment. The Phoenix has been consistently working to improve underwriting results and has made necessary adjustments, including the full implementation of an advanced data model, as reflected in the underwriting profit. In the third quarter of 2022, The Phoenix recorded an underwriting profit of NIS 42 million in the property and casualty insurance segment, including NIS 96 million fair value recognition classified to P&C segment (previously in the Health segment).

Life insurance

The comprehensive income before tax in the third quarter of 2022 and the nine months ended September 30, 2022 was NIS 18 million and a profit of NIS 496 million, respectively. This compares to a comprehensive income before tax of NIS 204 million and NIS 866 million in the corresponding periods last year. The year over year decrease reflects the decrease in investment income and non-collection of variable management fees, which were partially offset by the increase in the risk-free interest rate curve that triggered a decrease in insurance reserves, as well as special items. Special items in the nine months ended September 30, 2022 included research effects on retirement ages and take up rates, which resulted in a pre-tax profit of approximately NIS 462 million, and the application of a circular regarding update of mortality assumptions, which resulted in a NIS 364 million loss before tax. The deficit in variable management fees was NIS 672 million as of September 30, 2022.

Health insurance (includes long-term care, medical expenses, dental, travel and foreign workers insurance)

The comprehensive income before tax in the third quarter of 2022 and the nine months ended September 30, 2022 was NIS 105 million and NIS 948 million, respectively. This compares to a comprehensive income before tax of NIS 161 million and NIS 180 million in the corresponding periods last year. The increase in profitability in the nine months ended September 30, 2022 was mainly due to the increase in the risk-free interest rate curve which resulted in a decrease in liabilities, as well as special items (mainly the transfer of interests in Phoeniclass Ltd. to Phoenix Insurance during the first quarter of 2022), partially offset by a decrease in investment income. Interest rate effects during the quarter were impacted by NIS 96 million fair value recognition reclassified to P&C segment.

Pension and provident funds

The comprehensive income before tax in third quarter of 2022 and the nine months ended September 30, 2022 was NIS 14 million and NIS 73 million, respectively. This compares to comprehensive income before tax of NIS 15 million and NIS 43 million in the corresponding periods last year.

Financial services (includes Excellence and Phoenix Advanced Investments)

The comprehensive income before tax in the third quarter of 2022 and the nine months ended September 30, 2022 was NIS 35 million and NIS 182 million, respectively. This compares to comprehensive income before tax of NIS 30 million and NIS 94 million in the corresponding periods last year. The increase in the nine months ended September 30, 2022 was mainly due to an increase in operating profit and a non-recurring effect in the amount of NIS 86 million related to a profit for assuming control of The Phoenix Capital.

Agencies (includes the activity of the pension arrangement agencies and other consolidated insurance agencies)

The comprehensive income before tax in the third quarter of 2022 and the nine months ended September 30, 2022 was NIS 64 million and NIS 231 million, respectively. This compared to comprehensive income before tax of NIS 62 million and NIS 173 million in the corresponding periods last year. The increase in income in the nine months ended September 30, 2022 resulted from an increase in operating profit and the recording of a non-recurring profit of NIS 220 million as a result assuming control of an insurance agency held by a subsidiary agency of the Company.

Credit (includes Gama)

The comprehensive income before tax in the third quarter of 2022 and the nine months ended September 30, 2022 was NIS 24 million and NIS 48 million, respectively. This compares to comprehensive income before tax of NIS 11 million NIS 247 million in the corresponding periods last year. In nine months ended September 30, 2021, income of approximately NIS 220 million was recorded due to a non-recurring capital gain as a result of assuming control over Gama.

Other Equity Returns

The comprehensive loss before tax in third quarter of 2022 and the nine months ended September 30, 2022 was NIS (202) million and NIS (958) million, respectively. This compares to a comprehensive loss of NIS (12) million and comprehensive income before tax of NIS 107 million in the corresponding periods last year. The decrease in profit is mainly due to a decrease in investment income as a result of declines in financial markets.

Conference Call Information

Phoenix Holdings will hold a conference call on Wednesday, November 30, 2022 at 1pm local time in Hebrew and at 5pm local time / 3pm UK / 10am ET in English, and has published dial-in details and the presentation through the Tel Aviv Stock Exchange website.

The conference calls will be accompanied by a presentation which will be published on the Phoenix website at https://investor-relations.fnx.co.il, the Israel Securities Authority reporting website, and the Tel Aviv Stock Exchange website. Archived recordings of the conference calls will be available on the Phoenix website the following business day.

About Phoenix Holdings

Phoenix Holdings is a leading Israel-based financial, insurance, and investment group traded on the Tel Aviv Stock Exchange (TASE: PHOE). Group activities include multi-line insurance, investment and asset management, credit, and financial product distribution, and have demonstrated strong growth and performance across the cycle. The Phoenix serves a significant portion of Israeli households with a broad set of activities and solutions across businesses and client segments. Managing over $100 billion in assets, the Phoenix accesses Israel’s vibrant and innovative economic activity through a robust investment portfolio, creating value for both clients and shareholders.

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