Harel 2025: Profit No Longer Rests Only on the Market, but the Quality Test Isn’t Over

Company Overview

Harel is no longer just a large insurer. It is a broad financial group with three engines that increasingly matter on their own: insurance, asset management, and credit. In 2025 it reported NIS 45.7 billion of premiums, deposits, and investment-contract receipts, ended the year with NIS 582 billion of assets under management, and posted NIS 2.954 billion of comprehensive income attributable to shareholders with 27% ROE. That is already system-scale, not just a company with a good year.

The surface-level read is easy: a large insurer had a strong capital-markets year and produced headline numbers that look exceptional. That read is incomplete. In 2025 Harel improved on several fronts at once. Core profit before tax rose to NIS 3.592 billion from NIS 2.848 billion. Core insurance profit rose to NIS 2.778 billion from NIS 2.191 billion. Asset-management profit rose to NIS 363 million from NIS 295 million. Credit profit rose to NIS 245 million from NIS 152 million. In other words, this was not only a market-tailwind story. It was also a better underwriting year, a stronger fee year, and another growth year for credit.

Still, the cleaner bullish reading also needs discipline. Reported profit before tax reached NIS 4.436 billion, well above core profit, helped by NIS 903 million of excess investment spread. Even inside insurance, a large part of underwriting profit is recognized through CSM and RA release. That does not automatically mean low quality, because under IFRS 17 this is how profitable long-duration insurance contracts are translated into earnings. But it does force a more precise question: is Harel merely releasing profits embedded in old books, or is it replenishing the future earnings reservoir fast enough to justify the current run rate.

That is the key question in 2025, and the answer looks constructive. Net CSM rose to NIS 17.2 billion at year-end, up from NIS 16.4 billion at the end of 2024 and NIS 15.9 billion at the start of 2024. Just as important, new-business CSM exceeded CSM release, and in growth products the ratio reached 137%. Put differently, Harel is not just consuming future profit booked in earlier years. It is rebuilding the stock.

The active bottleneck today is no longer whether Harel can generate profit. The results have already answered that. The bottleneck has shifted to quality and accessibility: how much of this profit can stay durable if capital-markets support fades, and how much of the value created at operating subsidiaries can continue to reach holding-company shareholders while the group is also pushing credit growth, raising payout ambitions, and keeping room for external growth moves.

Harel’s economic map in 2025 looks like this:

Events and Triggers

Capital allocation moved into a higher gear

The first trigger: Harel is no longer satisfied with producing strong earnings. It is explicitly signaling that it wants to translate them into a more aggressive shareholder-return profile. During 2025 it paid roughly NIS 400 million of dividend. After year-end it approved another NIS 530 million dividend. At the same time, it kept running multiple repurchase programs: the November 2024 program was fully used at NIS 100 million, the March 2025 program was fully used at NIS 100 million, and the October 2025 program had already consumed about NIS 60.1 million by year-end and about NIS 77.2 million by the reporting date. In March 2026 the board also approved another repurchase plan of up to NIS 100 million.

This is not just a capital-return footnote. It is a message shift. In March 2026 Harel Investments raised its payout policy to at least 40% of comprehensive income, while Harel Insurance raised its own policy to at least 45%, subject to solvency thresholds. For the market, that means management believes profitability and capital strength are now strong enough not only to support growth, but also to support a more regular return of capital to shareholders.

But every positive move has a counterweight. A faster pace of dividends and buybacks is not happening in a vacuum. It is happening while the group is expanding credit, lifting its 2028 targets, and leaving room for acquisitions. Capital allocation has therefore moved from a supporting detail to the center of the story.

Diversification is advancing, but so is the group’s appetite

The second trigger: In 2025 Harel kept building the layer outside traditional insurance. Hamatzpen, Gamla, Harel 60+, the financial-services arm, and the broader credit platform are no longer just adjacent activities. Asset management generated NIS 363 million of profit before tax, and credit generated NIS 245 million. Management’s 2028 plan calls for NIS 550 million to NIS 600 million of pre-tax profit from asset management and NIS 350 million to NIS 400 million from credit.

At the same time, Harel also tried to open additional lanes. In March 2025 it signed a non-binding memorandum with Pama at a NIS 400 million pre-money valuation, but the process did not mature because management focused on the CAL opportunity. In September 2025 Harel signed, together with Union, a binding agreement to acquire Discount Bank’s holdings in CAL, with Harel meant to hold 10% of voting rights and about 19.99% of economic rights. One slide in the investor presentation matters here: Harel’s 2028 credit targets do not include any additional impact from a potential CAL acquisition.

That is encouraging on one level, because the formal plan does not depend on closing CAL in order to hit the target. But it also means CAL, if completed, would add another layer of execution and capital-allocation complexity to a group that is already pushing hard on growth.

Ratings and capital support the story, but they also define its limits

The third trigger: In 2025 and early 2026 the market also received several external validating signals. S&P Maalot upgraded Harel Insurance to ilAAA with a stable outlook. S&P Global Ratings assigned Harel Insurance an international A- rating with a stable outlook. In February 2026 Midroog upgraded Harel Insurance’s financial-strength rating to Aaa.il. At the same time, Midroog affirmed Harel Investments and its Series A bond at Aa2.il with a stable outlook.

The implication is two-sided. On the one hand, regulators and rating agencies still see ample capital and comfortable liquidity. On the other hand, this once again highlights the chain structure: holding-company shareholders only benefit as long as the insurance subsidiary can keep distributing upstream without eroding the capital cushions that support those ratings.

Efficiency, Profitability, and Competition

What really drove the earnings improvement

The central point in 2025 is that earnings improved almost everywhere at once. Core insurance profit rose by NIS 587 million. Within that, life rose to NIS 1.054 billion from NIS 825 million, health rose to NIS 1.138 billion from NIS 1.035 billion, and non-life jumped to NIS 586 million from NIS 331 million.

The more important point is the nature of the improvement. In life, Harel points to better underwriting in death-risk coverage. In health, the annual improvement came mainly from health and private long-term care lines. In non-life, the standout drivers were motor property and compulsory motor. This was not a one-line fix. It was broader underwriting improvement across several businesses.

Still, anyone looking only at comprehensive income will miss how much the market backdrop continued to help. Excess investment spread jumped to NIS 903 million in 2025 from negative NIS 307 million in 2024. Harel Insurance’s nostro portfolio generated a 7.6% nominal return in 2025 versus 5.9% in 2024. So it is fair to say profit no longer rests only on the capital markets, but it would be wrong to say the capital markets no longer matter.

CSM is not a footnote. It is the quality test

If the goal is to assess quality, the analysis has to go through CSM, the contractual service margin, which is effectively the stock of future profit not yet recognized. Harel ended 2025 with NIS 17.2 billion of net CSM. Of that, NIS 12 billion already comes from growth products and only NIS 5.2 billion from run-off products. That matters because it means future earnings are increasingly tied to a newer, shorter-duration, and supposedly better-quality book rather than to the long tail of legacy business.

The second key point is that in 2025 new-business CSM exceeded the CSM released to profit and loss. The ratio was 105% for the total book and 137% for growth products. This is exactly what the market needs to see from a company arguing that future profit quality is improving. It is not simply releasing an old reservoir. It is rebuilding it.

This still needs perspective. A large part of Harel’s underwriting profit remains linked to CSM and RA release. According to the presentation, NIS 1.965 billion out of NIS 2.314 billion of 2025 underwriting profit came from CSM and RA release. So anyone looking for a banking-style “clean operating profit” will not find it here. In insurance under IFRS 17, the right question is not whether CSM release exists. The right question is whether sales, pricing, and underwriting discipline are generating new CSM without buying growth at too high a cost. In 2025, the answer looks positive.

Not every segment is telling the same story

There are also internal frictions worth marking. In the fourth quarter, life and non-life were strong, but health actually fell to NIS 214 million from NIS 243 million in the comparable quarter. The company attributes that mainly to weaker results in the group long-term care business that is in run-off with Clalit, after that arrangement ended at the end of 2023. That matters because it shows that legacy books can still cloud the picture even when the broader thesis is improving.

Health also requires a cleaner internal distinction. On the one hand, health, critical illness, travel, and private LTC supported the annual improvement. On the other hand, by the end of 2025 Harel also completed the sale of the remaining 49% of Dikla to Clalit for NIS 6.1 million. In other words, part of the older health-service layer linked to Clalit has already left the group or is running off, while Harel’s preferred growth areas are becoming more concentrated in the products it wants to own.

Asset management and credit are now large enough to change the read

Asset management is no longer just the steady segment. It has become a profit engine that needs to be read almost as a standalone business. In 2025 pre-tax asset-management profit rose to NIS 363 million from NIS 295 million. At the same time, assets under management in that arm rose to NIS 450 billion from NIS 387.6 billion. Improvement came from pension and provident activity, while financial services also benefited from better mutual-fund profitability as AUM expanded.

Credit is even more interesting. Pre-tax profit excluding fair-value changes rose to NIS 239 million from NIS 152 million. The total loan book rose to NIS 7.1 billion from NIS 6.1 billion, with mortgages up to NIS 2.2 billion, development property finance up to NIS 3.8 billion, and credit to medium-sized businesses up to NIS 1.1 billion. More importantly, management notes that 2025 included a negative NIS 8 million fair-value effect, versus a positive NIS 97 million effect in 2024. So once accounting noise is stripped out, the underlying operating trend looks better than the headline comparison alone suggests.

Cash Flow, Debt, and Capital Structure

At group level cash is strong, but that is not the full story

At the consolidated level, the cash picture looks strong. Operating cash flow reached NIS 5.427 billion in 2025. Investing activity used NIS 468 million, financing activity used NIS 1.45 billion, and cash balances still rose by about NIS 3.118 billion. On the surface, that is a very comfortable picture.

But this is where framing discipline matters. For this thesis, the more relevant cash frame is all-in cash flexibility at the holding-company layer, not consolidated group cash flow. The reason is straightforward: dividends, buybacks, holding-company debt, investments in subsidiaries, and strategic transactions all ultimately sit at the public holding-company layer. That is the layer that defines what is actually accessible to common shareholders.

The holding company is not stressed, but it is not unconstrained either

From that angle, the picture is still favorable. Midroog describes roughly NIS 1.7 billion of liquidity at the holding-company level as of September 30, 2025, against about NIS 1.1 billion of solo debt. Scheduled annual principal and interest payments are estimated at about NIS 140 million per year in the forecast period. Interest coverage and debt-service coverage stand out positively, and the company benefits from the absence of effective covenants and from negative net financial debt.

That is the positive side. The less comfortable side is that Midroog’s 2026 to 2027 base case also assumes annual sources of around NIS 1.0 billion to NIS 1.15 billion against annual uses of roughly NIS 1.27 billion to NIS 1.77 billion, including investments in holdings, shareholder distributions, and the completion of the CAL transaction if it goes ahead. This does not point to a liquidity problem. It points to something else: Harel’s room to maneuver is large, but it is now being asked to support more priorities at once.

That is the difference between value created and value accessible to common shareholders. In accounting and operating terms, 2025 created a great deal of value. At the public-shareholder layer, the question is how much of that value can keep moving upstream without pressuring flexibility, ratings, or future growth funding.

Solvency is the gate, not the decoration

Harel Insurance ended the first half of 2025 with a 183% solvency ratio with transitional measures and 159% without them. Capital surplus stood at NIS 8.445 billion with transitional measures and NIS 6.235 billion without them. The estimated September 30, 2025 ratio was 186% with transitional measures, and after the dividend approved in March 2026 it stood at 178.5%.

This is one of the most important distinctions in the whole story. Dividends and buybacks at the public-company level may look generous, but in practice they still run through a measured solvency valve. In March 2026 Harel Insurance also raised its minimum distribution threshold without transitional measures to 118% from 115%, while keeping the 135% threshold with transitional measures. In other words, the group is increasing payouts, but it is not relaxing discipline.

This section matters because it sharpens the right read. Harel is not capital-constrained. Quite the opposite. But it also cannot behave as though every excess capital number is free cash. In an insurance holding-company structure, the solvency buffer is the translation mechanism between accounting profit and shareholder-accessible value.

Outlook

Before getting into the formal targets, there are four things the market will have to measure:

• Harel already achieved its earlier 2026 targets in 2025, so the next question is no longer whether it can hit the target, but whether it can hit the next one with the same quality.
• The new 2028 targets assume material expansion in asset-management and credit profit, not just another strong insurance year.
• CAL is not embedded in the 2028 credit target, so it is an option rather than the pillar holding up the model.
• Lower rates are not automatically a headwind. According to Harel’s sensitivity analysis, a 1% decline in the interest-rate curve would have added about NIS 653 million to after-tax comprehensive income, versus NIS 357 million at the end of 2024.

The 2028 targets are ambitious, but not detached

Management’s 2028 targets call for NIS 3.1 billion to NIS 3.3 billion of after-tax core profit, 22% to 23% adjusted ROE, NIS 56 billion to NIS 58 billion of premiums and deposits, and NIS 750 billion to NIS 780 billion of assets under management. By engine, the targets call for NIS 3.35 billion to NIS 3.4 billion of pre-tax insurance profit, NIS 550 million to NIS 600 million from asset management, NIS 350 million to NIS 400 million from credit, and NIS 19.5 billion to NIS 20 billion of net CSM.

What matters here is not just the size of the targets, but their composition. Harel’s next phase is not simply “another year of strong markets.” It requires three things at once: better underwriting, a broader fee engine, and a larger credit book. That makes 2026 to 2028 less a peak-profit story and more a proof period. The company now needs to show that 2025 was not just a strong year, but the beginning of a broader earnings base.

What has to happen for the story to improve further

The first point is that new sales in growth products must keep generating CSM faster than Harel is releasing it. If that continues, the market can increasingly treat CSM as a replenishing future-profit engine rather than as a stock that is simply being unwound.

The second point is that Harel must keep proving that the non-insurance layer is more than a welcome diversification add-on. Asset management is already there. Credit is getting there, but it still has one more test to pass: showing that growth remains profitable even without fair-value help and without a sharp increase in risk intensity.

The third point is that capital returns must not end up fighting growth. If Harel can keep paying, repurchasing, preserving comfortable solvency cushions, and still push strategic expansion, that will be a stronger signal than any presentation target.

Rates have become a two-way variable, not a simple headwind

Another point the market may miss is interest-rate sensitivity. The instinctive view says insurers like higher rates. For Harel, the picture is more complex. Management shows that a 1% decline in the risk-free curve would have increased after-tax comprehensive income by NIS 653 million, while a 1% increase would have reduced it by NIS 628 million. The reason, according to the company, is that under IFRS 17 Harel has both insurance portfolios in asset position and a material base of financial assets measured at fair value, so lower rates raise asset values and help some insurance portfolios even as they pressure others.

That means Harel is not a simple “higher for longer good, lower for longer bad” story. Anyone reading it that way could easily misread the next few reports.

Risks

The first risk is that the market gives too much weight to 2025 as though all of it were recurring. That would be a mistake. NIS 903 million of excess investment spread was material. A 7.6% nostro return is not guaranteed every year. If 2026 brings a softer market backdrop, comprehensive income can look very different even if insurance profit remains decent.

The second risk is that capital allocation makes the story less clean. The higher payout policy, the sequence of repurchase programs, and the option to complete CAL each look manageable in isolation. The issue is accumulation. When several of these moves sit on top of each other, they each ask for a piece of the same capital and flexibility pool.

The third risk sits inside the segments. In health, Harel still carries run-off books, and the fourth quarter already showed that these can pressure results. In credit, growth is continuing, but as the book gets larger, underwriting quality, pricing discipline, and the ability to grow without leaning on fair-value gains become more important. In asset management, the fee engine still depends on continued AUM growth and on a capital-markets backdrop that allows fees to hold up.

The fourth risk is regulatory and capital-based. Actual distributions depend not only on profit, but also on solvency, board-set thresholds, and regulatory posture. That is not a theoretical caveat. It is simply how the structure works.

The fifth risk is concentration. Midroog notes that the four main holdings still account for most of the holding company’s investment and loan value. So even if Harel looks diversified from the outside, the public-company value layer is still not as broadly dispersed as a full financial conglomerate might suggest.

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Conclusion

Harel reaches the end of 2025 from a stronger place than the headline 27% ROE alone suggests. Profit came from several engines, CSM kept growing, solvency remained wide, and asset management plus credit are now contributing enough to alter the overall map. The central bottleneck is no longer profitability itself, but quality: how much of this improvement remains durable when capital-markets support is less generous, and how much of it can keep reaching common shareholders.

Current thesis: Harel is now showing broader and better-quality earnings than before, but the next phase will be judged on whether that strength can become a durable earnings base and a sustainable capital-return story.

What changed: In 2025 the improvement no longer came only from investments. Underwriting, fee income, and credit all improved, while CSM continued to build rather than shrink.

Counter-thesis: Too much of 2025 still depends on CSM release, RA release, and strong market conditions, so the earnings base may look less clean in a weaker external year.

What could change the market’s interpretation in the short to medium term: quarterly solvency estimates, the actual pace of dividends, the pace of new CSM generation, and whether CAL advances without pressuring the holding-company layer.

Why this matters: As Harel evolves from a strong insurer into a wider financial group with multiple profit engines, the key question is no longer just how much it earns, but how repeatable and shareholder-accessible those earnings really are.

What must happen over the next 2-4 quarters: underwriting needs to stay strong, new CSM generation must remain ahead of release, solvency needs to hold after distributions, and asset management plus credit need to keep expanding without relying on accounting noise. What would weaken the thesis is a swing back toward excessive dependence on market gains, pressure on capital buffers, or growth that burdens the holding-company layer more than it adds to it.