Harel 2025: Why Lower Rates Are No Longer Automatically Negative
By the end of 2025, Harel shows a rate sensitivity that now runs against the sector cliché: a 1% decline in the yield curve would add NIS 653 million to after-tax comprehensive income. That does not make lower rates a clean positive, but it does mean the balance-sheet mix and IFRS 17 have changed the sign of the immediate accounting effect.
The Paradox in One Number
The main article argued that Harel is no longer just a strong-markets story. This continuation isolates the easiest point to miss inside that shift: for Harel at the end of 2025, lower rates no longer translate automatically into weaker reported earnings.
The unusual number sits directly in the sensitivity analysis. A parallel 1% move in the risk-free curve would reduce after-tax comprehensive income by NIS 628 million if rates rose, but would add NIS 653 million if rates fell. A year earlier, that same 1% decline would have added only NIS 357 million, while a 1% increase would have reduced comprehensive income by NIS 400 million. This is not a minor adjustment. It is a genuine change in both direction and magnitude versus the standard way the market tends to read insurers.
That does not mean lower rates have suddenly become broadly “good” for Harel. It means something narrower and more important: under Harel’s current IFRS 17 balance-sheet mix, the immediate accounting response to lower rates is no longer one-directionally negative. Anyone still applying the old shortcut, “insurers like higher rates,” will read Harel’s 2025 balance sheet too mechanically.
Where the Positive Effect Comes From
Harel explains that its insurance contract groups under IFRS 17 no longer sit on one side of the balance sheet. Some portfolios are in asset position, with positive Best Estimate, including life-risk, medical-expense, and critical-illness portfolios. Others remain in liability position, with negative Best Estimate, including long-term care, profit-participating, and yield-guaranteed life portfolios. Lower rates increase the liability-position portfolios, but they also increase the asset-position portfolios.
There is also a second layer, and it matters just as much: most of the relevant financial assets are measured at fair value. A decline in rates therefore lifts the value of debt assets and feeds through positively into comprehensive income. Harel says explicitly that the change versus the end of 2024 was driven by two moves happening together: longer asset duration and continued growth in insurance portfolios in asset position as a result of sales. This is not just a macro effect. It is a balance-sheet-structure effect.
The nostro portfolio helps explain why the effect is now large enough to move the total outcome. At the end of 2025 Harel Insurance’s nostro portfolio stood at NIS 39.8 billion, and roughly 67% of it sat in government bonds and in credit plus corporate bonds. That is a debt base heavy enough to make yield moves matter materially for fair value.
One more detail matters here. This estimate does not include the effect of interest-rate changes on equities and other equity-like assets. It reflects only the impact on debt assets. So the right reading is not “every rate cut helps Harel.” The right reading is “inside the combined layer of insurance portfolios and debt assets, the immediate direction of comprehensive income has changed.” That is a much more disciplined claim.
Why This Isn’t a Clean Positive
The easiest mistake is to stop there. Harel itself does not support that simplification. In the directors’ report it explains that, under IFRS 17, rate-curve changes hit profit and loss directly in portfolios measured under the GMM approach, while the same rate moves are recorded into CSM in portfolios measured under the VFA approach. In other words, the same rate decline does not move every earnings layer in the same way.
That becomes even clearer in the detailed risk-management sensitivity table. In a 0.5 percentage point rate-cut scenario, after-tax profit and equity rise by NIS 292 million, but CSM rises by only NIS 58 million. In the opposite scenario, a 0.5 percentage point rate increase, after-tax profit and equity fall by NIS 271 million while CSM falls by NIS 56 million. The message is straightforward: most of the move sits in current reported earnings and equity, not in an equally large step-up in the stock of future profit.
That is the difference between “earnings that may look better next quarter” and “an underlying business that has become structurally better.” Harel’s risk note also says that lower rates may increase insurance liabilities and weigh on future profitability. There is no contradiction here. Both statements can be true at the same time: lower rates may improve near-term reported comprehensive income, while also making the future economics of parts of the book and future profitability more demanding.
The clean way to read it is across three layers:
| Layer | What lower rates do today | Why that is not enough on its own |
|---|---|---|
| Reported comprehensive income | A 1% decline in the curve adds NIS 653 million after tax | The estimate is non-linear and excludes equities and equity-like assets |
| Future-profit stock | A 0.5-point rate cut adds only NIS 58 million to CSM | The CSM effect is positive, but far smaller than the effect on profit and equity |
| Capital and distributable capacity | The effect then has to pass through solvency, payout thresholds, and regulation | Better accounting profit is not automatically the same as freer capital |
That is why lower rates are no longer automatically negative, but also not remotely “free.” They first improve the reported outcome. Only after that can the market ask what happened to future profitability and to the capital cushion.
The Gate Everything Still Has to Pass
For Harel, that final layer matters especially because this is an insurance holding-company structure. Harel Insurance’s solvency ratio stood at 183% with transitional measures and 159% without them as of June 30, 2025. The estimated September 30, 2025 solvency ratio was 186% with transitional measures, and after the March 2026 dividend approval it stood at 178.5%.
At the same time, the payout thresholds were tightened. The minimum dividend threshold stands at 135% with transitional measures and 118% without transitional measures. Harel Insurance also updated its payout policy to at least 45% of annual comprehensive income, on a semiannual basis, subject to compliance with those thresholds.
The implication is simple: even if lower rates improve comprehensive income, they do not bypass the solvency gate. For the market to translate this positive sensitivity into real shareholder value, the effect has to hold not only in profit and loss, but also in the capital layer from which distributions are actually allowed. That is a much tougher test than a single chart in the presentation.
Conclusion
Harel at the end of 2025 no longer fits the old instinct that falling rates are necessarily a headwind for an insurer. Under the current balance-sheet structure, the combination of insurance portfolios in asset position, longer asset duration, and a large fair-valued debt portfolio turns lower rates into a factor that can improve reported comprehensive income.
But that does not make lower rates a clean positive. The largest benefit sits in reported earnings and equity, not in CSM to the same degree, and the company also warns that lower rates may increase insurance liabilities and weigh on future profitability. Above all, the distribution layer still runs through solvency and Harel Insurance’s payout thresholds.
The bottom line: for Harel, the right question is no longer whether lower rates are “good” or “bad.” The right question is which layer reacts first, and how much of that effect actually survives into future profit and distributable capital.
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