Mor Gemel Pensia: What The DAC Asset Is Really Hiding

What This Follow-Up Is Isolating

The main article made a simple point: in 2025, Mor Gemel Pensia's reported profit moved much faster than its cash generation. This follow-up isolates the DAC line, deferred acquisition costs, because that is where the core explanation sits.

First point: the DAC balance rose from NIS 297.4 million to NIS 409.4 million in one year, an increase of NIS 112.0 million.

Second point: that net DAC increase was larger than the year's net income of NIS 70.5 million, and it was also the main reason operating cash flow ended at only NIS 27.9 million.

Third point: pension receives slower accounting recognition than gemel. Gemel DAC is amortized over 6 years, pension DAC over 10 years. That is not cosmetic. It changes the speed at which acquisition cost reaches the income statement.

Fourth point: the auditor did not treat this as a technical footnote. DAC impairment testing was flagged as a key audit matter. In other words, this is already one of the places where the bottom line depends on material estimates.

This does not mean the company's profit is somehow fake. It means something narrower and more important: a large share of customer-acquisition cost does not hit profit in the year it is incurred. It is deferred and recognized over future years. Anyone reading Mor Gemel Pensia through the income statement alone is reading only half the story.

What Actually Sits Inside DAC

The company defines DAC as incremental acquisition costs, mainly customer-acquisition commissions, that can be separately identified and are expected to be recovered through management fees. Once those conditions are met, the cost is not fully expensed immediately. It becomes an asset.

That is the heart of the issue. DAC is not an asset that generates cash by itself. It is a balance-sheet record of acquisition cost already incurred, based on the assumption that the company will collect enough future management fees to recover it.

The company also states clearly how that cost is spread over time:

• Gemel is amortized on a straight-line basis over 6 years.
• Pension is amortized on a straight-line basis over 10 years.
• Once a year, the company reassesses cancellation assumptions, the amortization pace, and recoverability.

The sensitivity is obvious. Once useful lives are extended, or once management assumes savers will stay long enough and keep producing fee income, more cost stays on the balance sheet and less cost flows immediately through profit and loss.

That table says two very different things about the company's two engines. In gemel, DAC is still large, but it sits against an annual management-fee base of more than NIS 600 million. In pension, the balance already stands at more than 2 times annual fee income. That does not prove a problem, but it does prove pension relies more heavily on future revenues that still need to mature.

How This Line Changed the 2025 Read

To understand 2025 earnings quality, three numbers matter together, not one alone. Net income was NIS 70.5 million. Operating cash flow was NIS 27.9 million. Between them sat a NIS 112.0 million net increase in DAC.

That number is striking not only relative to cash flow, but also relative to the balance sheet itself. The DAC asset ended 2025 at NIS 409.4 million, against equity of NIS 247.0 million. One asset on its own is therefore about 66% larger than total equity, and almost 5.8 times annual net income.

That is the key data point, because it explains why 2025 looks cleaner in the income statement than in the cash-flow statement. The company does not hide this. In the board report, it explicitly says operating cash flow was built from ongoing profit, net of the increase in deferred acquisition costs. But once the number is isolated, its scale becomes hard to ignore.

The pace also matters. In 2024, DAC additions were NIS 100.6 million and amortization was NIS 65.8 million, for net growth of NIS 34.8 million. In 2025, additions jumped to NIS 198.3 million, amortization rose to NIS 86.2 million, and net growth surged to NIS 112.0 million. Cost did not just grow. It accelerated much faster than the pace at which it was released into the income statement.

Two reading mistakes are worth avoiding here.

The first mistake is to conclude that profit is somehow illegitimate. That is not the argument. IFRS allows costs of obtaining a contract to be deferred when they can be separately identified and are expected to be recovered. The company is operating within that framework.

The second mistake is to treat DAC as a technical line that can be ignored. That is also wrong. Once the asset grows faster than earnings and becomes the main bridge between profit and cash, it is no longer peripheral. It is part of the core economics of the company.

Gemel And Pension, Same Accounting Line, Different Economics

The gap between 6 years in gemel and 10 years in pension is not just accounting policy. It reflects two different business economics.

In gemel, the fee base is already very large. In 2025, the company collected NIS 604.9 million of gemel management fees against a DAC balance of NIS 319.2 million. That is still material, but it rests on an income engine already operating at scale.

In pension, the picture is much younger. Pension management fees totaled NIS 41.7 million, while pension DAC stood at NIS 90.3 million. So the segment with the longer amortization period is also the segment where the annual revenue base is still smaller.

This is exactly where growth and maturity need to be separated. Pension is growing fast. Assets under management in pension funds rose to NIS 16.4 billion at the end of 2025, up from NIS 9.6 billion a year earlier, and pension fee income rose to NIS 41.7 million from NIS 23.1 million in 2024. Those are good numbers. But they still do not erase the fact that acquisition cost is being carried forward over a longer horizon in a business where fee rates are lower and more regulated.

Put differently, in gemel, DAC looks like a growth cost sitting against an established fee machine. In pension, it looks more like a calculated bet on future revenues that still need to be earned.

Why The Auditor Focused On This Line

The external auditor did not make a vague point about judgment. It identified DAC impairment testing as a key audit matter and explained why: the balance is highly material, recoverability depends on assumptions about cancellations, expected returns on member savings, and future management fees, and the test is performed against nominal, undiscounted future fee cash flows.

The use of nominal, undiscounted cash flows matters. The asset is not tested against a present-value hurdle that penalizes time. It is tested against the aggregate amount of future management fees expected to accumulate over time. That shifts the real focus to persistence, member retention, fundraising pace, and fee erosion.

The auditor also says the audit work included testing methodology, assessing the reasonableness of key assumptions, using specialists, and reviewing whether the movement in the line, including additions and current amortization, was reasonable. That matters not because a failure was identified, but because it shows how much earnings quality depends on the assumptions underneath this line.

The conclusion is straightforward: the risk here is not as dramatic as a goodwill write-down, but it is also not as minor as a routine operating note. It is a mechanism that can work well as long as growth continues and members stay, but it is also a mechanism that would need adjustment if retention, contributions, or fee levels weaken.

What Needs To Happen Next For DAC To Stop Distorting The Read

The right test for the next 2 to 4 quarters is not whether DAC is "high" or "low." That is too shallow. The real question is whether net growth in the line starts to converge downward relative to management-fee growth and operating cash flow.

There are three clear checkpoints:

• First: operating cash flow needs to start moving closer to net income, without relying on favorable working-capital moves.
• Second: pension fee income needs to keep growing fast enough for the segment's DAC balance to look lighter relative to its annual revenue base.
• Third: the pace of new DAC additions needs to stop running at the 2025 level, or the company needs to show that its acquisition machine is now converting more of that spend into current income rather than into continued capitalization.

If those things happen, DAC can increasingly be read as a growth investment moving toward maturity. If they do not, 2025 will look more and more like a year in which accounting moved ahead of cash.

Bottom Line

Mor Gemel Pensia's DAC balance is not a side number. It is the line that explains why NIS 70.5 million of net income turned into only NIS 27.9 million of operating cash flow, and why 2025 looks stronger in profit than in cash.

This is not an argument against using DAC. It is an argument against reading it superficially. As long as the company keeps growing, retaining members, and collecting fees over time, the asset may remain recoverable. But until that rolls into cash, a meaningful part of acquisition economics still lives as a forward accounting promise, not as money in hand today.