Migdal Insurance In 2025: Profit Came Back Across The Board, But Capital Still Is Not Freely Available

Getting To Know The Company

Migdal is not just a large insurer. It is a five-engine financial platform: life and long-term savings, health, general insurance, agencies and financial services, and equity. That matters because anyone reading the company only through an underwriting lens is missing a large part of the economics. In 2025 some of the improvement came from insurance operations, some from asset gathering, and some from how the company managed its proprietary portfolio and financial margin.

What is clearly working now is easy to see. Comprehensive income rose 26% to ILS 1.791 billion, core profit rose 38% to ILS 2.372 billion, return on equity reached 22%, assets under management grew to ILS 583 billion, and CSM increased to ILS 14.411 billion. The external optics also improved: Midroog moved the rating outlook to positive, and the stock returned to the TA-35 Index. At roughly ILS 17 billion of market cap and more than ILS 31 million of turnover on the latest trading day, this is no longer a peripheral name.

But the full picture is less clean. The active bottleneck today is not accounting profitability. It is the conversion of profit into capital that can actually move. Based on the company’s voluntary estimate, the solvency ratio at December 31, 2025 stands at 135% to 138% with transitional measures, but only 110% to 113% without them. That is crucial because the dividend distribution threshold set by Migdal Insurance’s board in January 2025 is 115% without transitional relief. In plain language, the year looks strong on paper, but it is not yet clean enough at the level of capital truly available to shareholders.

That is also where a first-pass reading can go wrong. 2025 was not just a strong underwriting year. Earnings were also helped by ILS 602 million of excess financial profit, around ILS 1.4 billion of variable management fees, and CSM growth that was partly driven by financial effects. All of that is legitimate. But it is also more sensitive to the capital markets, inflation, real returns, and assumption changes than purely recurring underwriting profit. That is why 2026 looks less like a victory lap and more like a capital proof year.

Migdal’s economic map in 2025 looks like this:

The second chart matters as much as the first one. It shows Migdal gradually moving from a classic insurance company toward a scale platform of savings, asset management, and financial capital. That makes the group less dependent on a single product, but more sensitive to market conditions and to its ability to keep managed assets growing.

Events And Triggers

Index Inclusion And Rating Support

The first trigger: the market received a few signals in 2025 that lowered the skepticism premium. The stock returned to the TA-35 Index, and Midroog upgraded the outlook on Migdal Insurance to positive. These are not just symbols. They improve visibility, trading depth, and the company’s ability to execute capital actions in a less hostile market.

But even here, precision matters. The March 25, 2026 rating action assigned Aa2.il to the insurer’s financial strength and rated the planned Additional Tier 1 instrument at A2.il(hyb), with a positive outlook, for a raise of up to ILS 500 million par value. At the same time, the report also says the military campaign that began in late February 2026 increased uncertainty around the economic trajectory, meaning the base-case scenario could still change. The external signal is positive, but it is not a blank check.

The Additional Tier 1 Raise

The second trigger: the company did not publish the year-end solvency estimate by accident. In the board report it explicitly says the estimate was published voluntarily as part of the preparation for a first public issuance of subordinated notes that would qualify as Additional Tier 1 capital for Migdal Insurance. That means the 2026 story will not be judged only through the next profit and loss statement, but also through the company’s ability to complete the issuance and move above the line that separates good earnings from genuine capital flexibility.

The attached draft trust deed makes the nature of this move even clearer. This is not ordinary debt. Coupons can be canceled, principal can be deferred, and under certain trigger conditions principal can even be written down. Final maturity is June 30, 2076. So the transaction improves regulatory capital, but it also says something important in plain terms: the company is still building capital layers, not distributing free surplus.

This is the core chart of the article. With transitional measures, Migdal already looks stable and even impressive. Without them, it is still below the board’s own distribution threshold. Anyone looking only at the higher ratio is getting too flattering a picture.

Governance Has Not Fully Settled

The third trigger: strong results do not replace governance stability. Between January and March 2026 the company published a chain of reports around the composition of Migdal Insurance’s board: Prof. Roni Gamzu’s notice that he asked not to be appointed as a director at the insurance subsidiary, a January letter from the regulator demanding immediate attention to the board’s composition, the February decision on how the parent would vote on proposed directors, and then another regulator letter in March.

This is not a side note. An insurer that is coming out of a strong year, building a new capital instrument, and trying to convince the market that accounting capital can become distributable flexibility also needs a quieter governance layer. That is still not the case.

Efficiency, Profitability, And Competition

The central insight is that Migdal’s improvement in 2025 was broad and real, but the quality of that improvement varies by engine. Anyone stopping at the headline total is missing where the company genuinely strengthened, and where the sensitivity still sits.

Where The Improvement Was Real

Core profit grew double digit across all business lines. That is not trivial, especially for an insurer where part of the headline profit can easily come from the investment book rather than from the business itself. Life and long-term savings rose to ILS 654 million, health to ILS 650 million, general insurance to ILS 400 million, agencies and financial services to ILS 246 million, and equity to ILS 422 million.

What is truly interesting is that this mix no longer looks like a classic life insurer. Health is now almost equal to life and long-term savings in core profit. That makes Migdal more balanced, but it also means the market should update how it evaluates the company. Health benefited from better claims management. That is positive, but it is also a profit source that still needs to prove repeatability rather than just one strong year.

Growth Came From A Different Place Than Many Will Assume

The surprising data point in 2025 is not only that premiums and contributions rose 14% to ILS 34.4 billion. The real surprise is where that growth came from. Life insurance fell from ILS 7.6 billion to ILS 6.9 billion, while pension rose from ILS 11.2 billion to ILS 13.5 billion, investment contracts from ILS 3.2 billion to ILS 4.8 billion, and provident from ILS 3.6 billion to ILS 4.4 billion. In other words, the company grew despite a decline in life insurance, not because life insurance accelerated.

That point is critical to understanding the company. The engine pushing Migdal forward is increasingly an AUM and fee engine, not a traditional life premium engine. That is good for business quality if managed assets and fee income keep compounding. It is less comforting if capital markets stop supporting returns, or if real returns weaken and do not allow similar variable fee generation.

Who Paid For The Strong Year

The strong 2025 result was also funded by the market environment. The proprietary portfolio generated around ILS 4.5 billion of income, and excess financial profit reached ILS 602 million. The free portfolio stood at roughly ILS 33 billion, with 40% in credit, 39% in government bonds and cash, 12% in equities, and 9% in real estate and infrastructure.

That does not make the profit “less real.” It makes the quality of the profit different. Migdal itself explains in the annual report that financial effects include returns above the risk-free rate, inflation, curve changes, and VFA-related impacts. In the risk chapter, it also says explicitly that a sharp rise in inflation or a decline in real returns could reduce variable management fees and compress the financial margin of the proprietary book. It also says there is no full match between the indexation basis of assets and part of the liabilities. That is an important yellow flag: 2025 benefited materially from friendly market conditions, so 2026 will have to prove that profitability is not just riding the same tailwind.

The Fourth Quarter Already Shows The Crack To Watch

The fourth quarter was strong, with core profit of ILS 628 million versus ILS 372 million in the comparable quarter. But inside that strong quarter, we already got the most important checkpoint for the year ahead. In general insurance, profit fell to ILS 129 million from ILS 148 million, due to adverse claims development from prior underwriting years in compulsory motor. In other words, even within a very good year, the company already reminded investors that current general insurance earnings can still be hit by the past.

That is exactly why the message on 2025 needs to stay double-edged. Yes, there was real operating improvement. No, that does not remove the need to re-test reserve quality and claims development in the next reports.

Cash Flow, Debt, And Capital Structure

For an insurer, a standard cash flow read of net income versus CFO is not enough. The right frame here is all-in cash flexibility at the shareholder layer, meaning how much capital can actually get through the regulatory wall after solvency requirements, not how much consolidated cash sits on the balance sheet.

This Is Not A Profit Problem, It Is A Conversion Problem

On the surface, Migdal looks very strong. Group equity reached almost ILS 10 billion, and retained earnings stood at around ILS 9.175 billion. But the company explicitly says that this retained earnings balance should not be read as an indication of distribution ability or intent. The reason is simple: the binding line is regulatory, not accounting.

Migdal Insurance’s capital policy is clear. It aims to operate at a solvency ratio of 150% to 170% with transitional measures, with a minimum target during the phase-in period of 115% with transition, rising gradually to 135% by the end of 2032. But the dividend distribution threshold is 115% without transitional relief. That is where the real distinction lies between a strong business and free capital.

In that sense, 2025 is a paradox. With transition, the company already looks close to a level that seems stable and even ambitious. Without transition, it is still below the line from which one can start talking about clean capital distribution. So the right reading of the year is not “profit is back, end of story,” but “profit is back, and now we need to see whether it can truly become excess capital.”

The Additional Tier 1 Raise Is A Bridge, Not A Bonus

The planned Additional Tier 1 issuance of up to ILS 500 million par value is meant to provide that bridge. According to the rating action, the proceeds will be fully deposited in Migdal Insurance and recognized as Additional Tier 1 capital. That is exactly the type of move needed to improve solvency without waiting only for retained earnings to do the job.

But what improves one capital layer can also burden another layer. The trust deed shows this is a deeply hybrid instrument: coupons may be canceled, principal may be deferred, and in certain circumstances principal may be written down. So the right way to look at this issuance is not as fuel for growth, but as a structural repair that buys capital headroom.

CSM Grew, But Not Every Shekel Of It Is Equally Clean

CSM rose 10% to ILS 14.411 billion, and the expected release over the next five years increased from 28% to 29%, meaning ILS 4.202 billion versus ILS 3.730 billion a year earlier. That is good news because it means there is a larger stock of future profit expected to be released over a relatively visible period.

But the quality of that increase is more complex than the top-line number suggests. In the annual report, the company explains that in life insurance the growth in CSM came mainly from improvements in the stochastic model and from variable management fees collected above the risk-free rate. At the same time, higher lapse rates in the new participating book reset most of the remaining margin in that portfolio and created a loss on the portion beyond what could be offset. In addition, special effects in the 2004 participating portfolio led to a meaningful reduction in CSM and recognition of a loss of around ILS 160 million.

So the stock of future profit is larger, but it did not grow only because of clean new business creation. Part of the improvement is financial, part of it comes from models and assumptions, and part of it was offset by lapses and experience updates. That is precisely why anyone treating CSM as an automatic substitute for excess capital is missing the mechanics.

Forecast And Forward View

Before getting into the detail, here are the five findings that matter most for 2026:

• Finding one: 2026 is a capital proof year. If the capital raise is completed and the solvency ratio without transitional relief moves above 115%, the story looks materially cleaner right away.
• Finding two: Migdal’s growth engine has shifted from traditional life insurance toward pension, provident, investment contracts, and managed assets. That is good for business quality, but it also raises market sensitivity.
• Finding three: The future profit stock in CSM is larger, but part of the 2025 improvement depended on financial effects and variable fees above the risk-free rate, not only on clean new business.
• Finding four: The fourth quarter showed that general insurance is still an open quality-control point around reserve quality and claims development.
• Finding five: Governance noise is still real and can delay a cleaner market re-rating.

What Kind Of Year 2026 Is

If 2026 needs a label, it is a transition year with a proof test. It is not a reset year because the business is already working. It is not a clean breakout year because capital headroom is still not freely available. Management says it moved ahead of schedule and raised strategic targets, and the annual report also says management fee income could increase from around ILS 2.2 billion in 2025 to ILS 2.8 billion to ILS 3.0 billion in 2028. It also says variable fees from the legacy participating life book are expected to continue growing and to add roughly ILS 400 million per year to CSM on average.

That is an ambitious frame, but the market will not wait for 2028. It will test in the next few reports whether this path still holds after stripping out some of the favorable 2025 tailwind.

What Must Happen Over The Next Two To Four Quarters

The first thing that needs to happen is completion of the Additional Tier 1 raise, or a credible alternative path that gets the solvency ratio without transition above 115%. Without that, even after a strong year, capital flexibility will remain only partial.

The second thing is that general insurance profitability will have to show that the fourth-quarter weakness was isolated rather than the start of broader pressure. Another round of adverse claims development in motor would weigh heavily on the quality of the message.

The third thing is that CSM will need to keep building and releasing without another material setback from lapses, actuarial changes, or special effects. Migdal has already shown that both positive and negative surprises can sit in the same place.

The fourth thing is that governance has to quiet down. A string of letters, objections, vote updates, and shifting board candidacies is not just headline noise. At an insurer, it directly affects the market’s comfort with regulatory dialogue and execution.

Risks

The Capital Market Is Still Funding Part Of The Story

Migdal itself says a decline in real returns can hurt variable management fees, reduce income from VFA-type contracts, and compress the financial margin on the proprietary portfolio. So if 2025 was a year helped by supportive markets, 2026 will test how much profitability still stands in a less friendly environment.

Accounting Capital Is Not Accessible Capital

This is the core risk to the thesis. The company can show profit, equity, retained earnings, and CSM, but as long as the solvency ratio without transition is not above the distribution threshold, shareholders are not actually enjoying all of that improvement to the same extent implied by the headline year.

General Insurance Can Still Surprise On The Downside

The fourth-quarter weakness in compulsory motor is a reminder that general insurance is not judged only by current policy sales but also by how prior underwriting years develop. One more weak quarter is enough to change the tone around earnings quality.

Regulatory And Governance Friction Has Not Disappeared

One regulatory letter can be absorbed. A sequence of reports around the composition of Migdal Insurance’s board starts to look structural. That does not mean the company cannot resolve it, but it does mean the market is justified in asking for proof of stability instead of assuming it.

The Security Environment Has Not Gone Away

The company says recent military operations have not so far had a material effect on business continuity, liquidity, funding, solvency, or underwriting results. At the same time, both the company and Midroog stress that economic uncertainty remains high. This is not a risk that kills the thesis, but it is one more reason why the thesis cannot yet be called clean.

Short-Seller Positioning

The short position in Migdal does not signal distress, but it is also not as low as in parts of the sector. As of March 27, 2026, short float stood at 1.55% and SIR at 3.34 days. That is above the sector average of 0.86% short float, but still far from an extreme pressure level. What matters more is the direction: at the end of January, short float was 2.21% and SIR 4.16, and during February SIR even reached 5.14 days. Since then both have come down gradually.

The reasonable read is that the market still keeps some skepticism around earnings quality and capital conversion, but is already less worried about outright deterioration. If the next reports confirm the capital story and the stability of general insurance, that skepticism can keep fading.

Conclusions

Migdal finishes 2025 with a genuinely strong year. Almost every earnings engine worked, CSM expanded, managed assets jumped, comprehensive income rose, and the rating outlook improved. The main constraint no longer sits in the profit and loss statement. It sits in how quickly that profit gets through the solvency wall and becomes capital that is truly accessible to shareholders.

Current thesis: Migdal became more profitable and stronger in 2025, but it has not yet become a company with fully clean capital flexibility.

What changed versus the prior read: the focus moved from asking whether profit had returned to asking whether that profit can actually become excess capital, and in what quality.

The strongest counter-thesis: 2025 was unusually supportive for the capital markets, so too much of the profit, the CSM growth, and the improved tone may depend on conditions that do not repeat.

What may change the market reading in the short to medium term: completing the Additional Tier 1 issuance, moving above 115% without transition, and delivering another quarter or two without a fresh reserve or claims surprise in general insurance.

Why this matters: for an insurer, the gap between accounting profit and accessible capital is the difference between a good-looking year on paper and a thesis that can survive in a less forgiving market.

What must happen: capital needs to clear the threshold, general insurance profitability needs to stay stable, and governance friction needs to ease. What would weaken the thesis is a delayed capital raise, renewed reserve pressure, or further evidence that earnings depend too heavily on market conditions.