Migdal Insurance Capital 2025: The market window reopened, but clean capital is not there yet

Getting To Know The Company

At first glance, Migdal Insurance Capital looks like a technical shell. There is no underwriting business here, no customer product, and no standalone earnings engine to analyze like a normal insurer. That is only half true. In practice, the company is one of the cleanest ways to read Migdal Insurance's capital-market access. It raises debt, places the proceeds with Migdal Insurance on matching terms, and the result tells you whether the market is willing to fund the insurer, in which capital layer, and at what price.

That matters because 2025 shows two things at once. On one side, the window reopened. The company exchanged part of Series 6, issued two new series in September, two more in December, received a positive rating outlook, and after the balance-sheet date also received in-principle approval for a new Series 19 that would qualify as Additional Tier 1 capital. On the other side, Migdal Insurance's clean capital position still does not look fully closed. According to the estimate published in March 2026, the solvency ratio as of December 31, 2025 is expected to be 135% to 138% with transitional measures, but only 110% to 113% without them. The story has improved, but it has not fully moved from relief-driven capital to cleaner capital.

A superficial reading can stop in the wrong place. The company itself ended 2025 with a NIS 1.3 million loss and an equity deficit of NIS 16.6 million. That sounds weak, but it is close to irrelevant on its own. Finance income from the deposit with Migdal Insurance matched finance expense on the bonds exactly, NIS 274.7 million against NIS 274.7 million, and the NIS 1.8 million of administrative expenses was fully offset by an expense reimbursement from the parent. Almost the entire loss came from the change in the expected credit loss allowance on the deposit with Migdal Insurance. In other words, the shell's income statement is not telling you whether there is a strong or weak operating business. It is telling you how accounting, rating, and capital perception are moving around Migdal Insurance.

What is working now? The capital market is willing to fund Migdal Insurance in Tier 2, and in December the company managed to do it on better terms than in September despite longer duration. What is still missing? A cleaner capital layer that depends less on transitional relief running through 2032, and more governance stability with the regulator, after a sequence of letters around the composition of Migdal Insurance's and Migdal Holdings' boards. That is why 2026 looks less like a normal carry year and more like a capital bridge year. The market has given the group time. Now it has to show that the time is buying better capital quality.

This quick map helps frame the economics:

This chart already shows what the market can miss on first read. In December 2025 Migdal Insurance Capital issued Series 17 and 18 at effective rates of 5.00% and 4.99%, after issuing Series 15 and 16 in September at 5.24% and 5.23%. That is better pricing despite longer-dated paper. It does not prove the problem is gone. It proves the window reopened.

Events And Triggers

2025 was a year of rebuilding the capital stack

The first move: In June 2025 the company exchanged NIS 373.5 million par value of Series 6 into NIS 176.3 million of Series 13 and NIS 176.3 million of Series 14. Accounting recognized a gain of roughly NIS 1.4 million before tax, but almost all of it was offset by roughly NIS 1.3 million of issuance costs. This was not a dramatic value-creation move. It was mainly a reshaping of the capital stack.

The second move: In September 2025 the company raised NIS 559.6 million through two new series, 15 and 16, which were recognized as Tier 2 capital at Migdal Insurance. The bonds carried a 5.02% annual coupon, and the first call date was set for September 30, 2030. That already tells you something important. The relevant economic date is not only 2039 or 2040. It is the first call window.

The third move: In November, Midroog updated the rating outlook from stable to positive. The rationale was improved underwriting profitability at Migdal Insurance together with better solvency and better financial flexibility. This is the most important external signal in the evidence set. It is not management arguing that things are better. It is a rating agency explicitly saying the direction improved.

The fourth move: In December 2025 the company raised another NIS 534.4 million in two new series, 17 and 18, at a 4.78% annual coupon and with a positive outlook. In the same month it also completed the full early redemption of Series 6 for roughly NIS 503 million including accrued interest. So year-end 2025 was not just another issue. It was an active shift from an older series into cheaper and longer-dated capital.

The new trigger: On March 24, 2026, the boards approved in principle a new Series 19 that would qualify as Additional Tier 1 capital. The immediate report itself does not guarantee the deal will happen, and the size and terms are meant to be set only in a future offering document if published. But the rating report attached the following day gives the idea real economic shape: up to NIS 500 million par value, an A2.il(hyb) positive rating, and expected recognition as AT1 capital.

The meaning of this sequence is that the question is no longer whether Migdal Insurance can issue Tier 2 through the market. It proved that in 2025. The question has moved one layer higher: can the market and the regulator support a step into AT1 without turning the move into a distress signal or an overly expensive capital fix.

Efficiency, Profitability And Competition

This is not a profitability story, it is a transmission vehicle

The core point is that there is no classic margin story here. The company is structured so that finance income from the deposit with Migdal Insurance matches finance expense on the bonds, while expense reimbursement from the parent almost exactly matches administrative costs. In 2025, finance income was NIS 274.7 million, finance expense was NIS 274.7 million, and expense reimbursement was NIS 1.8 million against NIS 1.8 million of administrative expenses.

That means the NIS 1.3 million loss in 2025 does not indicate operating weakness. Almost all of it came from an additional NIS 1.993 million expected credit loss charge on the subordinated deposit with Migdal Insurance. In 2024, that line was almost flat at NIS 496 thousand. In 2023, it actually supported earnings through a NIS 4.38 million release. That is the key insight to keep in mind. The annual report of this shell is almost entirely a credit test, not an operating one.

This chart matters because it separates the two stories. The first story is almost mechanical. As the debt stack grows, finance income and finance expense rise together. The second story is the only line that can really swing the year into profit or loss, the expected credit loss line on the deposit with Migdal Insurance. Anyone reading the report through the bottom line alone is looking at the wrong signal.

2025 also showed when the accounting pressure arrives

The quarterly summary makes the point even sharper. Almost the entire annual loss was created in one quarter. In the third quarter, the company recorded an additional ECL charge of NIS 2.448 million, which pushed that quarter into a net loss of NIS 1.597 million. In the first, second, and fourth quarters, the company was mildly profitable at NIS 189 thousand, NIS 54 thousand, and NIS 53 thousand, respectively.

This is not a technical footnote. It means the shell's reporting can respond quite quickly to changing credit perception around Migdal Insurance, and that makes it the wrong place to look for smooth recurring profitability.

Competition is measured here through price, rating, and capital layer

There is no competition here for customers, pricing power, or product mix. The real competition is for access to capital. On that front, 2025 looks better than the shell's reported earnings suggest. In September, Tier 2 was issued at a 5.02% coupon and a stable outlook. In December, another Tier 2 layer was issued at 4.78% with a positive outlook. That change matters more than the shell's net loss, because it says the market required less compensation to fund Migdal Insurance.

Even here, the read should not turn one-directional. Lower funding cost is clearly positive. But it is not the same thing as fully resolving the capital question. It only says the market is currently willing to provide time, trust, and liquidity.

The fair-value gap adds another layer. The bonds trade at a total fair value of NIS 6.654 billion against an amortized cost of NIS 6.437 billion. The deposit with Migdal Insurance is derived to the same fair value, but remains booked at NIS 6.411 billion after a NIS 25.453 million impairment allowance. That creates a useful tension. The market prices the stack more positively than the books do, but the accounting still keeps a conservative credit cushion in place. Neither read is complete on its own.

Cash Flow, Debt And Capital Structure

The all-in cash picture here is almost mechanical

In a normal company, the right question would be how much cash is left after expenses, investment, and debt service. Here the better bridge is the all-in structure: how much debt was raised, how much was placed with Migdal Insurance, and what gap remains between the asset and the liability after credit allowances. At year-end 2025, the subordinated deposits and accrued interest receivable totaled NIS 6,451.3 million, while bonds and accrued interest payable totaled NIS 6,476.7 million. That gap does not reflect an operating business burning cash. It mainly reflects the credit allowance and the accumulated equity deficit.

That is why classic free-cash-flow analysis is close to meaningless at the issuer level. The company does not build its own cash cushion. It relies almost entirely on Migdal Insurance standing behind the deposit, covering the issuer's expenses under the intercompany agreement, and retaining access to the capital market. This is a financing mechanism, not an operating cash generator.

The debt stack is long-dated, but investors should not confuse final maturity with the real economic test

All outstanding series qualify as Tier 2 capital, are unsecured, and are subordinated to Migdal Insurance's ordinary creditors. Beyond that, the terms allow principal or interest to be deferred if trigger circumstances occur, in some cases for up to three years. So this is not regular corporate debt. It is capital designed to absorb part of the pressure around an insurer.

The most important debt table in the report is therefore not the legal final maturity schedule. It is the schedule under the early-call assumption. That table shows that the heavy years are 2026, 2028, and 2030, not only 2039 through 2043. That is the difference between a legal date and an economic date.

That read still requires discipline. Investors should not assume every series will actually be called at the first available date, because any early redemption requires regulatory approval and also has to meet conditions, including replacement with equal or better capital or remaining above the SCR after the redemption. But it is still correct to say that the market will price these series through the first call date, because that is where the real refinancing decision sits.

The difference between Tier 2 and AT1 is about to become central

Series 7 through 18 all sit in the same Tier 2 layer. That is already subordinated capital, but it is not yet the harsher loss-absorption layer. The draft deed for proposed Series 19 looks materially different. It is an AT1 instrument with final maturity only on June 30, 2076, a first coupon reset on June 30, 2037, the possibility of coupon cancellation, the possibility of full or partial principal write-down, and early redemption only after ten years and with the supervisor's approval.

That point matters because it says the move from Tier 2 to AT1 can improve the quality of Migdal Insurance's capital, but it does so through a much more aggressive instrument from the investor's perspective. What helps the insurer's capital layer is not automatically equally good for holders of the instrument.

Outlook

Four things the market can miss

• The shell's loss is not the real issue. The relevant question is not whether Migdal Insurance Capital lost NIS 1.3 million, but whether Migdal Insurance can reduce its dependence on transitional relief and keep refinancing capital on reasonable terms.
• The real gap sits outside transitional relief. According to the estimate published in March 2026, the year-end 2025 solvency ratio without transitional measures is still only 110% to 113%, below the 115% distribution threshold.
• The regulatory relief is still very large. The full deduction in the transition period stood at roughly NIS 6.2 billion as of June 30, 2025, while the reduced balance still recognized under the phase-out was roughly NIS 3.8 billion.
• Series 19 is not just another Tier 2 issue. It is an AT1 instrument, rated A2.il(hyb), with coupon-cancellation and principal write-down mechanics.

Solvency improved, but the cleaner read is still stricter

As of June 30, 2025, Migdal Insurance's solvency ratio stood at 124% on the reported basis and 127% after taking into account a NIS 555 million capital action completed after the calculation date. Without transitional measures and without the equity-stress adjustment, the same ratio was 98%, or 101% after that capital action. The same point in time can therefore support two very different stories. One says there is excess capital. The other says the company is still below the board's 115% threshold.

This chart is the core of the thesis. Migdal Insurance is not in a position where the capital market is closed to it. Quite the opposite. But it is also not in a position where capital can already be read as fully clean, fully flexible, and no longer dependent on transitional relief. That is why 2026 should be read as a capital bridge year. If Series 19 is completed and the full March 31, 2026 solvency report confirms a stronger clean ratio, the read improves. If not, 2025 will look more like an open window than a fully closed capital gap.

Capital policy itself became a bit softer, but not soft enough to solve the problem

In January 2025, Migdal Insurance updated its capital policy. The company now aims to operate at a solvency ratio of 150% to 170%, down from 155% to 175%. The minimum target during the transition period was set at 115%, rising gradually to 135% by the end of 2032. The distribution gate remained 115% without transitional measures.

That change matters, but it does not remove the issue. It says the board recognizes that the framework needs somewhat more flexibility. It does not say that Migdal Insurance can already distribute capital comfortably or lean only on the existing capital stack. The report explicitly states that according to the June 30, 2025 solvency report, Migdal Insurance did not meet the board's threshold for dividend distribution.

The next steps are already visible

The path forward is not ambiguous. It includes three clear tests. The first is an AT1 issuance, if it actually happens, and on what terms. The second is the full solvency report to March 31, 2026, which is supposed to confirm or revise the voluntary estimate of 110% to 113% without transitional measures. The third is whether the improved rating outlook and lower December 2025 funding cost prove durable rather than temporary.

So if the coming year needs a label, it is neither a full breakout year nor a normal stabilization year. It is a capital bridge year. Migdal Insurance has already shown that the market is willing to give it time. Now it has to show that the time is buying cleaner capital.

Risks

The real risk is Migdal Insurance, not the shell

The company's economics depend almost entirely on Migdal Insurance. If Migdal Insurance's solvency, liquidity, or market access weakens, the issuer has no separate engine that can cushion the hit. The expected credit loss allowance on the deposit is the clearest reminder. The risk is not diversified. It is fully concentrated in one counterparty.

Transitional relief is time, not capital permanence

The reduced balance of the transition deduction was roughly NIS 3.8 billion in mid-2025, and it will keep amortizing through 2032. That is not an immediate threat, but it does mean any capital position that looks comfortable with relief still needs to be tested again without it. As long as the clean ratio remains below 115%, the gap is not closed.

Not every capital improvement is equally good for investors

The current Tier 2 series already contain deferral mechanics under trigger circumstances. Proposed Series 19, if issued, adds coupon cancellation and principal write-down. So a move that improves Migdal Insurance's capital quality can simultaneously worsen the risk profile for the investor funding it. That is not an argument against the issuance. It is an argument against reading it too simply.

Governance remains a practical source of friction

Through 2025 and after the balance-sheet date, the evidence set includes several letters from the regulator around the composition of Migdal Insurance's and Migdal Holdings' boards, including a demand to address board occupancy and the chairmanship question, and criticism around the attempted non-renewal of one director's term. Even if this did not block 2025 issuance in practice, it does leave a point of friction between management, controlling shareholder, and regulator. For a capital issuer tied to an insurer, that is not background noise.

Market volatility can still change the read quickly

The issuer itself says it has no meaningful direct market or liquidity exposure because the deposit and the bonds are structured as matching positions. But Migdal Insurance is still exposed to market volatility, the interest-rate curve, and actuarial assumptions. That means the issuance window depends on the external environment as well, not only on internal reporting. What reopened in late 2025 can also narrow again if market conditions reverse.

Conclusions

Migdal Insurance Capital is not a company to read through the question of whether it earned a little or lost a little. It should be read through one question: can Migdal Insurance turn the capital market into regulatory capital at a reasonable price. In 2025 the answer clearly improved. The rating outlook turned positive, December funding came cheaper than September funding, and after the balance-sheet date the group also moved toward an AT1 layer. That is the positive side.

The main blocker is different. Solvency without transitional measures still does not look comfortable enough, and the estimate for December 31, 2025 still keeps Migdal Insurance below the 115% distribution gate. So short- to medium-term market interpretation will not be driven by the shell's small accounting loss. It will be driven by whether Series 19 is completed, at what price, and whether the next solvency report confirms that the improvement is turning into cleaner capital rather than only a more open market window.

Current thesis in one line: 2025 proved that Migdal Insurance can again access market capital through the issuer, but it has not yet proved that clean capital is fully in place without regulatory crutches.

What changed versus the earlier understanding: The problem is no longer basic access to the debt market. It has moved to a more qualitative question, whether the shift from Tier 2 toward AT1 will also close the gap outside transitional relief.

Strong counter-thesis: The positive outlook, the lower funding cost in December, and the estimated 135% to 138% solvency ratio with transitional relief suggest the gap is already close to closed, and Series 19 may be more optimization than necessity.

What could change the market's read: The full solvency report to March 31, 2026, the completion or non-completion of Series 19, and the pricing of that instrument if it is launched.

Why this matters: In a capital-raising vehicle for an insurer, the shell's net income is close to noise. What matters is whether the parent insurer can refinance debt, improve its capital layer, and reduce dependence on transitional relief without paying too much in funding cost or regulatory friction.

What has to happen over the next 2 to 4 quarters: the clean solvency ratio needs to move above 115%, the AT1 move needs to be completed if it advances, market access needs to remain closer to December 2025 terms than distress terms, and the governance friction with the regulator needs to ease.