Zur Shamir 2025: Insurance Carries the Story, Credit Costs More, and the Parent Still Cannot Freely Access the Value

Getting To Know The Company

Zur Shamir is not really an insurance company, a credit company, or a real-estate company in the pure sense. It is a listed holding layer sitting above several operating engines: Bituach Yashir, Direct Finance, Adgar, and Nima. That means the decisive question here is not only how much profit the group generated, but how much of that profit actually remained with Zur's shareholders, how much cash can move upward, and how much of the value stays trapped in the layers below.

There is a real operating base underneath 2025. The insurance segment generated NIS 598.0 million of pre-tax comprehensive profit, consumer credit still lifted revenue to NIS 1.507 billion, and Adgar moved from a pre-tax comprehensive loss of NIS 81.9 million to a pre-tax comprehensive profit of NIS 124.2 million. Early 2026 also does not look like the beginning of an acute funding squeeze: the mortgage subsidiary improved funding terms with Menora and kept expanding its securitization channel.

But the picture is not clean. Consolidated net profit rose to NIS 479.6 million and total comprehensive income reached NIS 462.7 million, yet only NIS 128.8 million of net profit and NIS 116.9 million of comprehensive income were attributable to the company's shareholders. That is the gap that matters. Anyone reading only the consolidated headline gets the impression of a group that exited 2025 strongly. Anyone reading the company through the shareholder layer sees that a large share of the improvement remained with minorities and with the public subsidiaries underneath.

The active bottleneck is twofold. The first is the quality of growth at Direct Finance: revenue is rising, but credit losses, funding cost, and commissions are rising fast enough to erode comfort. The second is the parent itself: net financial debt of NIS 954.3 million against equity of NIS 769.6 million, while even the value table the company presents still relies on appraisals dated December 31, 2024 rather than a live 2025 mark. In plain terms, value exists here, but access to it is still far from automatic.

That is also why the story matters now. Market cap stands around NIS 736 million, close to the parent's book equity and still well below the appraisal-based value table. That is not necessarily a market mistake. It is the market's way of saying that in a holding company the key question is whether value created below can in fact move upward on a steady basis. Even the trading picture supports that caution. On the latest trading day the share traded only about NIS 91 thousand, and short interest as a percent of float was effectively zero. The market is not fighting the story through a large short position. It is simply unwilling to pay a rich premium until access to value becomes clearer.

Zur Shamir's quick economic map looks like this:

That chart explains the starting point for the whole read. Insurance carried 2025. Credit weighed on quality. The headline improved because Adgar rebounded and valuation effects normalized. So the right reading of Zur Shamir is not "a diversified group that enjoyed all of its engines," but "a group where one engine is carrying the load, one engine is still growing at a higher cost, and a third engine recovered in a way that is only partly recurring."

Events And Triggers

The key triggers around the report do not sit in one single transformative deal. They sit in three threads that connect to one another: mortgage funding, the dividend capacity of the insurance layer, and a possible move that changes the ownership structure above it.

Mortgage funding got easier, but also revealed the bottleneck

What matters at the start of 2026 is not just that the company is expanding in mortgages. It is the way it is funding that expansion. During 2025 Direct Finance already broadened its use of assignments and loan sales, and after the balance-sheet date that thread deepened through another mortgage securitization transaction.

On January 1, 2026, the mortgage subsidiary extended its credit facility with Menora through December 31, 2026. In that amendment the margins were reduced to 1.75% to 2.25% in CPI-linked tracks from 2.5% to 3.5%, and to 0.25% to 0.75% in prime-based tracks from 0.5% to 0.9%. The immediate report also said that roughly NIS 180 million remained undrawn under the facility at the amendment date.

That cuts both ways. On the one hand, this is a real improvement in funding cost and flexibility. On the other hand, the very need for repeated amendments and for ongoing securitization shows that management is still solving the funding problem of growth, not simply harvesting the returns from it.

That line continued into February and March. After the balance-sheet date the group completed another securitization of a roughly NIS 399 million mortgage portfolio, with senior notes of about NIS 368 million par. One series carries 5.9% CPI-linked interest and the other carries Bank of Israel rate plus 3.4%. The February filings said total proceeds reached about NIS 401.1 million and that Direct Finance expected net profit of roughly NIS 13.5 million to NIS 17.5 million, with the group's share estimated at roughly NIS 5.2 million to NIS 6.8 million.

First trigger: mortgage funding is improving, but it is improving through structured funding, not through a simplification of the balance sheet. That matters because it means the company is buying itself room to keep growing, but not necessarily a cleaner path for the parent's shareholders.

The insurance dividend remains the main valve upward

The second trigger is the insurance layer. IDI Insurance's economic solvency ratio stood at 133% as of June 30, 2025. After the balance-sheet date, on March 26, 2026, its board approved another dividend of about NIS 75 million. Together with NIS 60 million distributed in November 2025, NIS 60 million in August 2025, and NIS 55 million in May 2025, that reflects distributions equal to about 66% of 2025 profit.

That matters because in a holding company like Zur Shamir, a subsidiary dividend is not a bonus. It is the parent's funding pipe. When the insurance layer keeps distributing, the parent can breathe. When insurance has to preserve more capital, the parent-layer discount widens. So the March 2026 dividend is not just another payout event. It is a signal that the group's strongest engine is still capable of sending cash upward.

The MSI memorandum could lift the direct stake, but it could also dilute Zur

The third trigger is different in character. On January 27, 2026, the company and Bituach Yashir entered into a non-binding memorandum of understanding with MSI. Under the memorandum, MSI would transfer to Zur shares in Bituach Yashir equal to about 2% of Bituach Yashir's equity, in exchange for an allotment of Zur shares to MSI based on valuation-derived exchange terms.

This could, in theory, strengthen Zur's direct holding in Bituach Yashir. But it does so through dilution at the parent layer, and it is still not binding. So it cannot be read as value already created. For now it is an interesting strategic signal, not a solved problem.

Efficiency, Profitability, And Competition

Zur Shamir's operating picture in 2025 looks like a tug-of-war between two forces. Insurance provides the cushion, credit keeps growing but with less comfort, and real estate provides relief mostly through valuation and compensation, not through a step change in rental momentum. In that structure, the question is not just who grew. It is who paid for the growth.

Insurance is the real profit engine

The insurance segment generated NIS 598.0 million of pre-tax comprehensive profit in 2025, up from NIS 468.4 million in 2024. General insurance rose to NIS 283.2 million, life and long-term savings jumped to NIS 135.2 million from NIS 53.2 million, and health insurance rose to NIS 104.4 million from NIS 75.3 million. Even below the headline, the internal mix is healthier than a year earlier.

What holds that picture together is a mix of real operating improvement and favorable claims development, especially in life and health. In general insurance, IDI Insurance still booked legal provisions of NIS 52 million versus about NIS 32 million in the prior year. In other words, the improvement did not happen in a perfectly clean environment. That strengthens the conclusion that insurance did not simply benefit from luck. It genuinely carried the group.

There is another point many readers may miss. Under IFRS 17, IDI Insurance has become more sensitive to changes in the yield curve, especially in life and health. The report records NIS 15.4 million of financing income from changes in the curve, but the fourth quarter already shows that this can move quickly. Anyone reading insurance as a fully stable cash machine misses the fact that profitability here is also somewhat more exposed to market variables, even if solvency remains comfortable.

Another support layer comes from the contractual service margin. At the end of 2025 CSM stood at about NIS 332 million in life insurance and about NIS 655 million in health. That is not cash, but it is a stored future-profit reservoir as long as business volume holds and assumptions do not deteriorate.

That chart shows that the improvement did not come from one line only. In a holding company that matters, because the question is not only whether there is a good engine underneath, but whether that engine is stable enough to support debt and dividends above it. In 2025 the answer looks positive.

In consumer credit, growth held up but quality became more expensive

Here the picture is much less comfortable. Consumer-credit revenue rose 7% to NIS 1.507 billion, but pre-tax comprehensive profit fell to NIS 211.8 million from NIS 234.5 million. That is not a random decline. It is what happens when growth is preserved but the economics underneath become heavier.

The rise in revenue did not come only from more loans and a stronger margin. Part of it came from about NIS 65 million of higher fair-value and assignment-related income, including roughly NIS 38 million from the first-time fair-valuing of mortgage portfolios. Commission income also rose by about NIS 37 million, mainly because of pricing changes with car agencies and a higher average commission. Growth exists here, but it is no longer plain-vanilla growth. It runs through more balance-sheet turnover, more loan sales, and more commercial adjustments.

On the other side, the economic cost of that growth went up. Credit-loss expense rose to NIS 259.6 million from NIS 224.3 million. The credit-loss rate in car loans rose to 4.08% from 3.32%, mainly because recoveries on defaulted loans deteriorated. In mortgages, the loss rate rose to 0.19% from 0.12%, alongside about 30% growth in the average retained mortgage book. Supplementary loans improved, but not enough to change the broader direction.

Funding expense rose to NIS 455.9 million, and selling, marketing, G&A, and other operating costs jumped by a combined roughly NIS 84 million. The report explains that a meaningful share of the increase came from higher commissions in the auto business, expansion in mortgages, higher headcount there, and extra advertising and rebranding cost. The same report also says that in July 2025 Direct Finance approved an efficiency plan in the auto-loan business, including a roughly 13% workforce reduction and expected annual pre-tax savings of about NIS 40 million starting in 2026. Management is effectively admitting that the cost base became too heavy.

One more point matters. As part of its model, Direct Finance assigns roughly half of the car loans it originates by true sale, and the report says the assigned loans show materially lower credit-loss rates. That is a real clue. Part of the seemingly better picture comes not only from underwriting, but also from which risk stays on balance sheet and which risk is sold out.

That chart is probably the sharpest point in the whole article. Direct Finance did not lose growth. It lost margin of safety. That is a material difference. If 2026 brings lower rates and the efficiency program starts to flow through, improvement is possible. If loss rates in auto and mortgages keep rising, higher revenue will not be enough.

Real estate returned to profit, but not because rent accelerated

The real-estate segment moved from a pre-tax loss of NIS 7.7 million in 2024 to a pre-tax profit of NIS 156.5 million in 2025, and to pre-tax comprehensive profit of NIS 124.2 million. On the surface that is a dramatic swing. But it needs to be decomposed correctly.

Rental income barely moved, NIS 338.3 million versus NIS 338.0 million. The change came mainly from valuation going from a negative NIS 72.1 million to a positive NIS 4.6 million, NIS 66.8 million of other income tied to expropriation compensation in Canada, and lower net financing expense. In other words, 2025 was a better year for Adgar, but not a year in which rental momentum itself accelerated. A meaningful part of the improvement came from items that do not repeat in the same way.

Even the positive parts need caution. About 62% of Adgar's revenue comes from outside Israel and less than 1% comes from Israeli retail tenants. That lowers the direct sensitivity to the local retail environment, but it raises dependence on FX and capitalization rates. The company explicitly says that a 0.25% increase in cap rates across countries would cut Adgar's equity by roughly NIS 138 million. In addition, a 1.3% decline in the euro and an 8.2% decline in the Canadian dollar reduced the investment-property line by roughly NIS 147 million in 2025.

That makes Adgar less of an immediate problem than it was in 2024, but still not the kind of engine that carries the group. The difference between "improvement" and "recurring engine" is critical here.

At Nima the picture runs in the opposite direction. Revenue rose 35% to NIS 123.6 million, mainly because digital-account activity increased and the customer base expanded, but pre-tax comprehensive loss nearly doubled to NIS 18.7 million. The report links that to higher operating, selling, and marketing costs, a roughly 18% increase in headcount, and stock-based compensation expense. So there is an interesting growth engine here, but it still consumes capital rather than distributes it.

Cash Flow, Debt, And Capital Structure

At Zur Shamir the relevant cash framework is the all-in cash picture at the parent-company layer, meaning how much cash is really left after debt service, dividends, refinancing, and obligations across the structure. The point is not only how much profit is created below. The point is how much of it turns into actual financing flexibility above. If those two things are blended together, the picture becomes too optimistic.

There is value at the parent, but it is not the same thing as cash

In the value table that opens the board report, the company presents NIS 1.722 billion of book value for its direct investments in subsidiaries, versus NIS 2.551 billion on an appraisal basis. After subtracting net financial debt of NIS 954 million, equity stands at NIS 770 million on a book basis and at NIS 1.599 billion on the appraisal basis.

Those numbers matter, but they need to be read correctly. The appraisals shown in that table are dated December 31, 2024, not December 31, 2025. So this is not a live NAV picture for year-end 2025. It is an older anchor the company still carries into the 2025 report. It can help frame the size of the discount. It cannot be used as if it were fresh value the market is mistakenly ignoring.

In 2025 the parent received NIS 63.3 million of dividends, paid NIS 44 million to its own shareholders, and in July 2025 issued bond series Yod-Gimel for net proceeds of about NIS 276.9 million. So even after a relatively good group year, the parent was not funded only from cash moving up from below. It also relied on the debt market. That is the key reminder: value created in the group is not the same thing as financing flexibility at the parent.

That chart explains both why the share looks cheap and why the market still hesitates. The gap between NIS 769.6 million of book equity and NIS 1.599 billion on the appraisal basis is large. But it rests on older values, and it still has to pass through minorities, dividends, financing, and the friction of the holding-company layer.

Liquidity does not sit in the same layer where risk sits

The internal resource-flow appendix sharpens the problem well. At year-end 2025 the parent had a net liquid-resources deficit of NIS 954.3 million. Adgar had a net liquid-resources deficit of NIS 3.102 billion, which is natural enough for a leveraged real-estate company. On the other side, the Bituach Yashir layer had net liquid resources of NIS 2.678 billion, and Direct Finance had NIS 1.576 billion.

That chart does not mean Bituach Yashir or Direct Finance can simply upstream all of that cash. Quite the opposite. Insurance companies hold assets against insurance liabilities. Direct Finance operates with ring-fenced funding, collateral, capital ratios, and securitization structures. But the chart does show where liquidity sits and where the shareholders' debt sits. That is exactly why a holding-company discount can persist even when the assets underneath look good.

Covenants are not tight to the wall, but they are not noise either

At the parent-company level, bond series Yod through Yod-Gimel are unsecured and not rated, but the company undertook a negative pledge over the control block in Bituach Yashir and minimum-equity thresholds of NIS 90 million, NIS 180 million, or NIS 300 million depending on the series. In addition, unsecured net financial debt is not supposed to exceed 55% of total asset value. Based on the report's opening value table, there is still room here: NIS 954 million of net debt against NIS 2.551 billion of asset value on the appraisal basis. This is not an immediate pressure zone.

At Direct Finance and the mortgage subsidiary the picture is more layered. Direct Finance is subject to a tangible-equity-to-tangible-balance-sheet ratio of at least 12%, minimum tangible-equity thresholds that rise by series up to NIS 695 million, and various dividend restrictions. The mortgage subsidiary is subject to LTV, equity, and funding tests. The report says all entities were in compliance as of December 31, 2025.

The conclusion is not that a covenant is about to break. It is something else. Each layer in the group is levered differently, and each layer keeps part of its own liquidity. So even when the debt stack looks manageable, the path of cash from the bottom to the top remains conditional.

Outlook

Before reading into 2026, five non-obvious conclusions from 2025 need to be fixed in place:

1. Consolidated profit rose sharply, but only a small share of that improvement reached Zur's own shareholders.
2. Growth at Direct Finance did not rely only on demand and scale. It also relied on assignments, fair-value income, and commissions, meaning capital-turnover mechanics and deal structure.
3. Adgar returned to profit, but the bulk of the swing came from positive valuation, expropriation compensation, and financing improvement, not from faster rent growth.
4. The parent's value table shows a large discount, but it does so using appraisals from the end of 2024 rather than a live year-end 2025 mark.
5. Early 2026 already shows management focusing on the funding of mortgage growth and on insurance dividends, meaning on the group's bottlenecks rather than on cosmetic headline improvement.

One conclusion follows from that picture: 2026 is shaping up as a bridge year, not a breakout year. Insurance has to keep carrying the structure, credit has to prove it can grow without further eroding profitability, and the parent has to show that value created below is becoming more accessible above.

Test one: can insurance remain the cash and profit anchor

Insurance is the only engine in the group that combines healthy profitability, a 133% solvency ratio, and actual dividends. So it remains the anchor for the next two to four quarters. What needs to happen here is not dramatic growth. It is continued stability: profitability that does not erode, a solvency ratio that remains comfortable even after the March 2026 dividend, and sound handling of the new IFRS 17 sensitivity to the yield curve.

If that happens, the parent keeps receiving oxygen. If not, Zur's discount starts to look more justified.

Test two: can Direct Finance turn 2026 from expensive growth into controlled growth

This is the sharper test. In Direct Finance's balance-sheet structure, floating-rate liabilities exceed floating-rate assets by roughly NIS 2.755 billion, so a falling-rate environment should ease funding cost. At the same time, the efficiency plan approved in July 2025 is expected to generate about NIS 40 million of annual pre-tax savings from 2026 onward. Those are two real offsets to the pressure built in 2025.

But they are not enough on their own. For the thesis to improve, the company also needs to show a halt in the rise of loss rates in auto and mortgages. If auto credit-loss rates stay around 4% or move higher, and if competitive commissions to agencies remain expensive, lower rates alone will not be enough to put the credit engine back on a more comfortable track.

From a market-reading perspective, this is probably the single most important focus already in the next reports. More top-line growth is not the key proof. The real proof is that quality stops deteriorating.

Test three: does the mortgage channel become more profitable, not only better funded

Mortgages are probably where management is acting most aggressively right now. The Menora facility was improved, securitization continued, and mortgage portfolios were already fair-valued and sold off balance sheet. That clearly shows a desire to accelerate activity and reduce capital consumption. But it is still not proof that the business has become more attractive at the shareholder level.

The right 2026 question is not only whether the portfolio grows. It is whether funding cost, loss rates, and financing spread improve enough for the growth to become higher quality. If that happens, the group gains another real engine. If not, mortgages remain another area that demands funding and effort without yet unlocking the parent.

Test four: can the parent narrow the value-access gap

This is the most delicate test, but also the most important. The parent does not need a dramatic asset sale to improve the thesis. It only needs to prove three things: that insurance keeps paying, that Direct Finance does not require fresh support from above, and that Zur's own refinancing path stays open without pressure.

If those three things happen together, the holding-company discount can begin to narrow even without one dramatic event. If one of them breaks, the discount is likely to remain sticky.

So 2026 is not a breakout year. It is a double-proof year. The strong engine has to remain strong, and the problematic engine has to stop eating into the margin of safety.

Risks

Zur Shamir's risk is not a sudden collapse of one engine. It is a persistent gap between where value is created and where shareholders are measured. That is a subtler risk, but exactly the type that can keep a holding company trading at a discount for a long time.

Trapped value and parent-level capital structure

The first risk is that the market is at least partly right about the holding layer. Even if the underlying assets are good, the parent still carries net financial debt of NIS 954 million, and its access to value runs through dividends, debt markets, and a structure with minority interests. If one of those pipes weakens, the value table matters less than the actual balance sheet.

Credit quality and competition at Direct Finance

The second risk is that Direct Finance keeps growing under weaker economics. Auto credit-loss rates rose to 4.08%, mortgage loss rates to 0.19%, and the company itself points to higher commissions, advertising, and headcount. Add the fact that part of revenue growth came from fair-value accounting and assignments, and the result is an engine that still works, but is less clean.

Adgar's sensitivity to cap rates and FX

Adgar improved the headline in 2025, but it remains highly sensitive to cap rates and currency. The company explicitly says that a 0.25% increase in cap rates would reduce Adgar's equity by NIS 138 million. In addition, the euro and the Canadian dollar reduced the investment-property line by NIS 147 million in 2025. This is not a one-off issue. It is a reminder that part of the value there remains highly exposed to financial conditions.

Legal and regulatory friction

In February 2026 a motion to certify a class action was filed against Direct Finance regarding collection and transfer of information through a TikTok pixel, with a total claimed amount above NIS 2.5 million against all defendants. The company is reviewing the claims. At IDI Insurance, plaintiffs in the class action relating to automatic renewal in motor property insurance filed a cross-appeal at the end of March 2026 regarding arguments that had been dismissed. These are not the core risks of the thesis, but they are a reminder that insurance and credit do not operate in a frictionless environment.

Conclusion

Zur Shamir ends 2025 with assets that are better than what the parent-company bottom line alone suggests, but also with the exact reason the market refuses to award it a generous multiple. Insurance carries the profit, Direct Finance is still growing, and Adgar returned to black. The bottleneck is that profit is generated below while risk remains above: leverage, minorities, funding, and the need to move cash up the chain.

Current thesis in one line: Zur Shamir looks cheap through asset value, but still not cheap enough through the parent company's actual access to the cash and profit generated in those assets.

What changed versus the simpler read of the group is that by 2025 it is no longer enough to say "good insurance, good credit, improving real estate." The group now has to be read through the quality of the conversion from consolidated profit into value accessible to shareholders.

The strongest counter-thesis is that the market may simply be too conservative: insurance is still paying dividends, the mortgage business is getting better funding channels, and Direct Finance is entering 2026 with potential benefit from lower rates and meaningful savings from its efficiency program.

What could change the market's reading in the short to medium term is stabilization in credit losses, evidence that cheaper mortgage funding actually improves unit economics, and continued insurance dividends without damage to the capital cushion.

Why this matters is straightforward. In a holding company it is not enough for the assets to be good. What determines the price is whether the value created in those assets can actually reach the shareholders of the top layer in a timely and practical way.

What must happen over the next two to four quarters for the thesis to strengthen: insurance has to keep producing cash and profit; Direct Finance has to show that credit losses and funding costs stop rising faster than revenue; and the parent layer has to remain open to dividends and debt-market access. What would weaken the thesis is continued deterioration in credit quality, a halt in dividends from the insurance layer, or a sharp rise in parent-level funding cost.

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