Hachshara in 2025: The Engines Are Working, but the Capital Buffer Is Still Tight

Getting To Know The Company

At first glance, Hachshara looks like another mid-sized insurer that simply posted a better year. That is only part of the story. In 2025, it is increasingly running on two different engines: a classic insurance engine across general insurance, life, and health, and a fee and asset-management engine built more heavily around its savings and investment products, especially Best Invest. What is working right now is the combination of stronger fee income, a recovery in life results, and a general-insurance base that still produces profit. What keeps the story from becoming cleaner is that capital remains tight when viewed without transition relief, while the newer growth options still look more like future pipes than current earnings.

There is also an actionability constraint that matters early. This is not a standard listed-equity story but a bond-listed insurer. Public market exposure here is mainly through hybrid debt, not through a freely traded common equity instrument. That means the right filter for this report is not "did earnings rise," but "does this earnings improvement actually build capital and flexibility for creditors and the regulator." By that standard, Hachshara improved, but it has not yet created a wide safety margin.

The headline numbers look good: net profit rose to NIS 108.2 million from NIS 66.2 million, comprehensive income rose to NIS 109.5 million from NIS 67.1 million, equity rose to NIS 538.5 million from NIS 429.1 million, and assets under management reached NIS 37.6 billion. But the more interesting point is that insurance service revenue barely moved, at NIS 1.722 billion versus NIS 1.710 billion, so the jump in profit was not built on broad-based acceleration in the core insurance line. It came from a mix of management fees, investments, selected underwriting improvements, and the new presentation logic under IFRS 17 and IFRS 9.

Four points are easy to miss on first read:

• Profit rose by 63.3%, but insurance service revenue rose by only 0.7%.
• In life insurance, profit improved in 2025, but the future earnings stock in CSM fell from NIS 335.2 million to NIS 284.8 million.
• The capital test that really matters is still tight: the solvency ratio without transition relief stood at only 102.0% as of June 30, 2025, with a NIS 68.3 million capital gap to the board’s 108% target.
• Some of the options that look large on paper are still not accessible profit: NIS 508.6 million of assets held for sale are split half to shareholder funds and half to linked contracts, while the new credit and agency ventures barely moved the bottom line in 2025.

The company’s economic map looks like this:

The three clearest strengths today are a fee engine that grew faster than the operating cost base, a broad insurance base that still earns money even in a mixed year, and proven access to hybrid capital markets, which also helped support the rating outlook. The three main yellow flags are a narrow capital cushion without transition relief, life earnings that are more market and fee dependent while CSM is shrinking, and expensive distribution with meaningful dependence on one life agent.

Events And Triggers

The first trigger: 2025 was a year of active capital management. The company fully redeemed series 3, partially redeemed series 4, and at the same time raised bank subordinated instruments recognized as tier 2 capital. That improves maturity management and regulatory capital alignment, but it also means the company is still working through the capital structure, not just through retained profit.

The second trigger: In November 2025, Midroog kept the financial strength rating at A3 and the subordinated-instruments rating at Baa2.il(hyb), but changed the outlook to positive. That is an important external signal. The market got confirmation that directionally things improved. It is not the same thing as saying the capital constraint is solved.

The third trigger: Hachshara is trying to widen its earnings pipe beyond traditional insurance. In October 2025 it completed the purchase of 49% of Afikei Hon Insurance Agency. In July 2025 its credit subsidiary signed an investment agreement in Magshimim Credit, also at a 49% holding. Then, on March 29, 2026, after the balance-sheet date, the same subsidiary signed a joint credit venture with Rami Levy through two limited partnerships, one for business credit and one for consumer mortgages. Hachshara will be a 49% limited partner in both and will also participate in the general partner’s profits. This is a real option for fee and credit expansion. For now, though, it is still an option: the Rami Levy transaction is subject to approvals, and the existing ventures barely contributed to 2025 earnings.

The fourth trigger: The control structure was updated after the balance sheet. On January 7, 2026, Eli and Yifat Elazra received an updated control permit, under which Elazra Holdings Insurance directly holds 96.47% of the company’s control rights. At the same time, two new independent directors, Galit Brodo and Elior Gabai, received the regulator’s non-objection in February and March 2026, while Isaac Amar ceased serving on February 17, 2026. This is mainly governance housekeeping. It does not change earnings, but it does remind readers that capital allocation and strategic direction remain highly concentrated around the controlling shareholder.

The fifth trigger: The company classified its rights in the Soho Ashdod complex as assets held for sale from June 30, 2025. By year-end, the classified amount stood at NIS 508.6 million. That looks like a meaningful pool of value, but it has to be handled carefully: half is attributed to the company’s own portfolio and half to linked contracts. In other words, not all of that value is clean capital that can quickly become flexibility.

Efficiency, Profitability, And Competition

The central earnings story of 2025 is that Hachshara improved profit much faster than it improved core insurance revenue. That matters because not all profit is equal. Anyone looking only at the bottom line could come away thinking underwriting broadly accelerated. In reality, the strongest engine was management fees and investments, while the core insurance line improved in a far more mixed way.

What Really Drove The Bottom Line

Insurance service revenue rose only slightly to NIS 1.722 billion. In contrast, net investment and financing profit jumped to NIS 38.3 million from only NIS 0.3 million. At the same time, management-fee income rose to NIS 202.3 million from NIS 155.4 million, up about 30.2%, while other operating expenses rose to NIS 173.9 million from NIS 150.2 million, up about 15.8%. In plain terms, the fee and asset-management leg grew much faster than the cost base. That is why profit jumped, not just because underwriting became dramatically better.

There is another nuance here. In insurers, it is easy to confuse profit that rose because pricing genuinely improved with profit that rose because savings balances grew and markets were helpful. In this report, a meaningful part of the improvement came from the ability to collect more fees on a bigger asset base and from better investment conditions, not only from cleaner underwriting.

General Insurance: “Other” Carried The Segment, Motor Own-Damage Stayed Under Pressure

In general insurance, the company reported NIS 122.1 million of pre-tax comprehensive profit in 2025, up 7.3% from NIS 113.8 million. But again, the breakdown matters more than the total.

In compulsory motor, premiums rose 4.2% to NIS 251.0 million. On a gross basis, insurance service profit nearly disappeared, falling to NIS 2.2 million from NIS 27.6 million, a 92.0% drop. On a retained basis, the picture flipped entirely: profit came in at NIS 16.6 million versus a loss of NIS 3.1 million. That means the improvement was mainly a net result story, not a gross pricing story. It is a strong hint that the better line came more from retention structure, claims development, and reinsurance than from a broad easing in underlying market conditions. After the balance sheet, in February 2026, the company signed an agreement with the National Insurance Institute to close its subrogation exposure for events from 2016 to 2022, but the actuary noted that the arrangement does not have a material effect on the company’s retained result. It reduces uncertainty. It does not automatically create a new profit step-up.

In motor own-damage, competition looks much less comfortable. Premiums fell 6.1% to NIS 744.1 million, gross insurance service profit fell 26.6% to NIS 52.2 million, and retained profit fell 23.4% to NIS 27.2 million. Pre-tax profit stayed roughly flat at NIS 31.1 million versus NIS 31.0 million, but that is not a reassuring number. The gross combined ratio worsened to 93.2% from 90.8%, and the retained combined ratio worsened to 95.8% from 94.2%. The business is still profitable, but the margin is moving closer to the edge at exactly the point where pricing pressure is showing up.

The segment was carried by other general insurance. Premiums rose 2.3% to NIS 505.5 million, gross insurance service profit jumped 36.9% to NIS 216.5 million, and pre-tax profit reached NIS 64.1 million. That was slightly down from NIS 67.6 million in 2024, but it remained the largest profit bucket within general insurance. In other words, anyone reading only the segment total could think general insurance improved broadly. In reality, the strength is being carried mainly by the “other” bucket, while motor own-damage is already signaling price pressure.

Life And Savings: The Year Improved, But The Future Profit Stock Got Smaller

This is probably the most interesting part of the report. The life and long-term savings segment moved from a pre-tax comprehensive loss of NIS 9.9 million in 2024 to a profit of NIS 45.2 million in 2025. Retained insurance service profit rose to NIS 18.9 million from NIS 8.5 million, and profit from investment contracts rose to NIS 36.2 million from NIS 19.3 million. The company attributes the improvement, among other things, to favorable actual claims development, better reinsurance experience adjustments in long-term care and medical-expense business, and stronger risk-product sales.

But this is where the key nuance appears. CSM, the contractual service margin that represents future profit not yet recognized, fell to NIS 284.8 million at the end of 2025 from NIS 335.2 million at the end of 2024. The amount released from CSM into profit also fell, to NIS 32.3 million from NIS 44.3 million. So the company showed better current profit while the stock of deferred future profit became smaller. That does not mean the improvement is artificial. It means 2025 leaned more heavily on current-period profitability, markets, and fees, and less on an expanding future earnings stock.

That becomes even clearer once Best Invest is brought into the frame. The company showed steady growth in gross inflows to its flagship product, with NIS 6.19 billion of gross inflows, up 8.5%, while redemptions remained broadly stable. The result was a strong step-up in management fees. That is a good engine, but it is also an engine with greater capital-markets sensitivity, especially in participating products where part of the volatility flows into CSM and only later into profit.

Growth Through Agents Is More Expensive Than It Looks

Another point that is easy to miss sits in the distribution section. The average commission rate on new annualized premium, excluding Best Invest, reached 99.8% in 2025, versus 97.2% in 2024. The gross commission ratio in life insurance stood at 9.3% versus 7.8% in 2024. That is a clear sign that growth through the distribution channel is not free. The company also states that it depends on one agent through whom more than 10% of life and long-term savings premiums are generated. So when life improves, the question is not only whether volumes grow, but how expensive it is to generate that growth and how concentrated the channel remains.

Headcount also reflects this build-out. The workforce rose to 512 from 478, an increase of 34 employees, mainly in general insurance and claims, life and finance, and the GO division. That is the right investment if it builds durable volume and service. It is less comfortable if growth slows while the cost base stays behind.

Cash Flow, Debt, And Capital Structure

For an insurer, cash flow by itself does not tell the full story. The more important metric is all-in capital flexibility: how much room is left after capital requirements, after the liability structure, and after separating shareholder resources from balances that sit against linked contracts. So it makes sense to start with cash, but the analysis has to move quickly to solvency.

Cash Rose, But That Is Not The Core Thesis

Cash and cash equivalents rose by NIS 421.2 million in 2025 to NIS 2.109 billion, versus NIS 1.688 billion at the end of 2024. Net cash generated from operating activities came to NIS 480.9 million, investing cash flow was negative NIS 75.8 million and was mainly used for software purchases, and financing cash flow was positive NIS 16.0 million, mainly reflecting the replacement of subordinated instruments. That is a better picture than in the prior year, but it does not mean the company has NIS 2.1 billion of fully free cash to allocate. A large part of the balance sheet sits against linked contracts and insurance liabilities.

The Capital Test Is Still Tight

This is the heart of the story. The latest solvency ratio disclosed in the annual report refers to June 30, 2025, not year-end. With transition relief, the ratio stood at 114.6% and capital surplus stood at NIS 162.9 million. After the effect of capital actions carried out before the solvency report was published, the ratio fell to 112.1% and the surplus to NIS 135.9 million. On the surface, that looks reasonable.

Without transition relief, however, the picture changes materially. The ratio stood at only 102.0%, with just NIS 22.1 million of surplus above the required capital level, while at the same time there was a NIS 68.3 million shortfall versus the board’s 108% target. In February 2026, the board even updated the dividend policy threshold so that no distribution would be allowed if the ratio after the distribution falls below 110%. So even after a better year, Hachshara is still not in a place where capital is truly free. It is simply in a better place than before.

That gap matters because it explains why the company had to be so active in redeeming and raising subordinated capital. At the end of 2025, subordinated instruments from banks plus listed subordinated debt totaled NIS 527.1 million. That is an important buffer, but it is also a reminder that the cushion is being built not only through earnings but also through capital-structure work.

Not Every Asset Is Accessible Capital

The balance-sheet item that is easiest to misread is assets held for sale. At the end of 2025, Hachshara classified NIS 508.6 million as assets held for sale in connection with the Soho Ashdod property rights. That sounds like a large value pool that could solve a lot of problems. In practice, half of that amount is attributed to the company’s own portfolio and half to linked contracts. So not all of that value is accessible capital for creditors or for the parent.

The same caution applies to real-estate revaluations. In items not allocated to operating segments, the company benefited in 2025 from NIS 12.1 million of profit from investment-property revaluation, versus NIS 4.0 million in 2024. That helps the reported bottom line, but it is not a substitute for operating capital surplus. On top of that, the company’s sensitivity analysis shows that a 0.5% increase in capitalization rates would reduce pre-tax profit by about NIS 21.0 million and fair value by NIS 18.9 million. There is optionality here, but also volatility.

A Positive Rating Outlook Is A Signal, Not A Solution

A positive rating outlook is good news, especially for a bond-listed insurer. It means institutional credit markets are seeing a better directional story. But the rating does not cancel the fact that the ratio without transition relief remained only 102.0% in the latest disclosed figure. Put differently, debt investors got a reason to be less negative. They have not yet been shown that capital has become wide.

Outlook And Forward View

This does not look like a breakout year ahead. It looks like a proof year. Hachshara already showed in 2025 that it can produce better profit. Now it has to prove that the profit is turning into capital, not just into a prettier earnings line.

The four points that will shape the 2026 reading:

• The most important number in the next report will not be net profit but the gap between solvency with transition relief and solvency without it.
• Best Invest must keep showing strong inflows and controlled redemptions, because it is the fee engine carrying a large part of the improvement.
• Motor own-damage must stop margin erosion, or “other general insurance” will be forced to carry too much of the entire general segment.
• The newer options, Afikei Hon, Magshimim Credit, and the Rami Levy venture, need to start showing clear economic contribution, because in 2025 they still did not move the picture in a meaningful way.

What Has To Happen For The Thesis To Strengthen

The first requirement is genuine capital progress. If the next disclosures show that the solvency ratio without transition relief is moving clearly above 102% and that the capital gap to the board target is shrinking, it will become possible to say that the 2025 improvement is starting to flow into the cushion, not just into reported earnings. If, at the same time, the company keeps extending and improving its capital mix while holding on to the positive rating outlook, the read improves further.

The second requirement is stability in the fee engine. The 30.1% increase in management-fee income and the NIS 6.19 billion of Best Invest inflows are what hold the story together right now. If that engine keeps working even in a less supportive market backdrop, that would be proof that the company is no longer leaning only on underwriting.

The third requirement is proof of depth in the newer ventures. In 2025, Afikei Hon still contributed an accounting loss through the equity method, and Magshimim Credit did not yet contribute profit. That means the new pipeline has not yet proved conversion into earnings. The Rami Levy venture could change that, but only if it is completed and proves that Hachshara has a way to capture value not only through a passive 49% holding, but through participation in the general partner’s profits and through the build-out of a real credit engine.

What Could Surprise Positively

Positive surprise can come from three directions. First is capital: if the next solvency report shows faster-than-expected progress toward the capital target. Second is investment-product momentum: if inflows stay strong without a meaningful rise in redemptions, profitability from investment contracts and management fees can stay high. Third is non-core assets: if a Soho transaction closes on good terms, the company could begin to show that paper value is turning into liquid value, at least in the part attributed to shareholder funds.

What Could Break The Story

The main risk is that 2025 turns out to have been a comfortable combination of capital-markets support, strong management fees, and better life underwriting, without enough backing from deeper capital formation. That can happen if markets cool, if management fees normalize, if pricing pressure in motor own-damage worsens, or if the high distribution cost keeps climbing. The fact that CSM shrank while profit rose already tells readers that the coming years will need to produce more earnings in real time, not from a growing stock of deferred future profit.

What Kind Of Year Comes Next

The right label for 2026 is a proof year. Not a reset year, because the company is no longer in broad operating weakness. And not a breakout year, because it still does not have a wide capital cushion or a sufficiently proven future earnings stock. This is a year in which the company has to prove that the two things that worked in 2025, management fees and better life profitability, can actually turn into capital and not just into another attractive income statement.

Risks

The first risk is capital and market sensitivity. The company itself highlights exposure to interest rates, inflation, FX, credit spreads, equities, and real estate. That is not just a standard investment risk disclosure. Under IFRS 17 and IFRS 9, market volatility can affect profit, CSM, and the sense of balance-sheet stability in different ways. When the strongest leg in 2025 is management fees and investment-contract profit, capital-markets sensitivity becomes more important, not less.

The second risk is life-profit quality. CSM fell, the release from CSM fell, and part of the 2025 improvement came from actual claims running below modeled expectations and from better reinsurance experience adjustments. Those are real positives, but not necessarily a self-growing earnings base. If markets cool or actuarial experience normalizes at a less favorable level, the segment will look less impressive.

The third risk is the distribution channel. The company is effectively paying almost the full first-year annualized premium as average commission on new life business, and it depends on one agent for more than 10% of life premiums. That is a reminder that growth is not only expensive but also concentrated. If distribution regulation changes or the key agent weakens, the hit can be both to volume and to profitability.

The fourth risk is that the newer options consume management attention and capital before they produce earnings. Afikei Hon, Magshimim, and the Rami Levy venture can all make strategic sense. But right now they are not yet proven earnings engines. In an insurer with a still-narrow capital cushion, even good moves can weigh on the story if they take too long to convert into visible returns.

The fifth risk is legal and regulatory friction. The company details several class actions, including a long-running case around “policy factor” charges with a claimed amount of about NIS 37 million, and another case filed on November 28, 2024 around alleged excess management fees with an estimated amount above NIS 2.5 million. The company says adequate provisions were recorded where required, but where cases are at an early stage or cannot yet be reliably assessed, no provision was recorded. That is not necessarily an immediate blow-up risk, but it is a persistent layer of friction.

Conclusions

Hachshara reaches the end of 2025 in better shape than it entered it. The profit engines are working, management fees are strong, life moved back into profit, and Midroog already shifted the outlook to positive. But this is still not a clean story. The core bottleneck remains capital without transition relief, and the latest disclosed number there is still too tight to say the company has moved out of the sensitive zone.

Current thesis: Hachshara is building a more diversified profit engine, but 2025 still proves profitability faster than it proves excess capital.

What really changed this year is the composition of profit. The company is no longer leaning only on general insurance, but much more on management fees and savings and investment products. The strongest counter-thesis is that 2025 was mainly a good market year with strong fees, while future earnings stock shrank and capital without transition relief remained too tight. What is most likely to change the market reading in the near to medium term is the next solvency report. If it shows real progress without crutches, the story will look different. If not, another nice earnings line will probably not be enough.

Why does this matter? Because in a bond-listed insurer, capital quality matters more than the headline profit number. Credit holders need to see that the improvement is flowing into the cushion, not only into accounting optics.

Over the next 2 to 4 quarters, the company needs to deliver three proofs: sustained solvency improvement without overreliance on transition relief, stability in the management-fee engine even if markets are less supportive, and evidence that the newer credit and distribution moves are more than optionality. What would strengthen the thesis is a wider capital surplus and steady fee generation. What would weaken it is better earnings without better capital, or nice growth that turns out to be too expensive.