Migdal Insurance Capital in Q1: the dividend threshold is crossed, but barely

Migdal Insurance Capital ended the first quarter with a tiny income-statement move, but with a more important change in the question left open at the end of 2025: whether Migdal Insurance can move its solvency ratio excluding transitional measures above its own distribution threshold. The formal answer is yes, but only after the April 2026 Series 19 issue, and only by a narrow margin. Before the issue, the ratio excluding transitional measures was 112%, below the 115% threshold. After the NIS 531 million Additional Tier 1 issuance, it rises to 116%, with only NIS 93 million of surplus over the target. That closes an important checkpoint from prior Deep TASE coverage, but it does not turn the company into a comfortable distribution story. What works now is debt-market access and the ability to add a deeper capital layer. What still blocks a cleaner read is the reliance on transitional measures, capital-market volatility, and the fact that the margin above the distribution threshold can still disappear if economic capital or required capital moves the wrong way. The next few quarters should therefore be read less through a profit of a few hundred thousand shekels at the issuer shell, and more through one question: whether the move to 116% becomes a real capital buffer or remains a technical crossing of a minimum line.

Company Setup

Migdal Insurance Capital is not an operating insurer and not a normal holding company. It is a private company wholly owned by Migdal Insurance, and its only role is to raise funding in Israel through bonds and deposit the proceeds as subordinated deposits with the insurance parent on identical terms. Its economic engine is not revenue growth, underwriting, or investment management. It is access to the debt market and the conversion of that debt into regulatory capital at the insurance parent.

That is why the income statement is almost misleading if read like a normal company report. In Q1, finance income was NIS 75.7 million and finance expense was the same amount. The reimbursement from the parent was NIS 353 thousand, matching general and administrative expenses. Net profit, NIS 309 thousand, came mainly from a NIS 474 thousand decrease in the impairment provision on subordinated deposits. This is not profit that tells us anything about a new business. It is a small accounting result inside a vehicle designed to transfer capital to the parent.

Cash flow gives the same message. Operating cash flow was zero: the company received NIS 47.6 million of interest and paid the same amount. There is no independent cash generation here. There is a pass-through structure in which debt, deposits, interest, and expenses are designed so that the real economic risk sits at Migdal Insurance, and the investor's real question is the parent's capital position and the quality of the instrument being issued.

Series 19 Crossed The Line, Not By Much

The important point in the report is not quarterly profit, but the move from a solvency read that looks strong with transitional measures to one that finally starts to stand on its own without that relief. At the end of 2025, Migdal Insurance's solvency ratio was 138% with transitional measures, and 142% after including Series 19. That looks comfortable. But the relevant metric for dividend capacity is the ratio excluding transitional measures, and there the picture is much tighter: 112% before the capital action, 116% after it, against a board target of 115%.

The chart shows why this quarter changes the read, but also why it should not be overstated. Excluding transitional measures, Migdal Insurance moved from a meaningful shortfall against the target at the end of 2024 to only a small surplus after the April 2026 issuance. The surplus over the 115% target is NIS 93 million, small compared with required capital of NIS 15.8 billion and with the possible volatility in the economic capital of a large insurer. This is not a comfortable distribution runway. It is a move from a red line to a borderline position.

The same issue appears in the transitional measures. The full amount of the transitional deduction increased to about NIS 6.4 billion at the end of 2025, while the reduced balance declined to about NIS 3.4 billion from about NIS 3.7 billion at the end of 2024. The relief is still large, but it keeps running down toward 2032. Readers of the prior annual analysis were waiting for exactly this checkpoint: whether the gap excluding transitional measures really closed, or merely came closer. The current answer is that it closed on paper, but very close to the line.

The New Debt Is Deeper Capital, And More Sensitive For Holders

Series 19 is not just another Tier 2 extension. On April 16, 2026, the company issued about NIS 531 million par value, and net proceeds of about NIS 524 million were deposited and recorded at Migdal Insurance. With the regulator's approval, the proceeds were recognized as Additional Tier 1 capital. That is a higher-quality regulatory capital layer than Tier 2, because the instrument sits deeper in the loss-absorbing stack.

The price of that layer is clear in the instrument terms. Series 19 carries an annual interest rate of 4.92%, is not CPI-linked, received an A2.il(hyb) rating with a positive outlook, and has a final principal payment in June 2076 if the company does not redeem it earlier. The first early-redemption date is June 30, 2037. Under specified suspension circumstances, interest can be cancelled, principal payment can be deferred, and the principal can be written down in full or in part. For Migdal Insurance, this is a capital layer that strengthens solvency. For debtholders, it receives stronger regulatory recognition precisely because it is designed to absorb more loss.

That table brings the discussion back to the point made in the follow-up analysis on capital quality: the question is not only how much debt was raised, but how much of it is counted as loss-absorbing regulatory capital. Series 19 improves that answer. It also shows that the market is no longer looking only at Tier 2 availability, but at how quickly Migdal Insurance can replace reliance on transitional measures with recognized, stronger capital layers.

The Shell Balance Sheet Still Points To The Call Windows

Migdal Insurance Capital's balance sheet remains almost symmetrical: NIS 6.49 billion of assets against NIS 6.51 billion of liabilities and a capital deficit of NIS 16.3 million. Subordinated deposits with the parent were NIS 6.48 billion after an impairment provision of about NIS 25.0 million. That provision declined slightly from the end of 2025 and supported quarterly profit, but it also reminds us that the deposit is not a standalone risk-free asset. It is a derivative of the credit and capital quality of the insurance parent.

The split between current and non-current assets also says something. Current maturities of subordinated deposits jumped to NIS 1.34 billion from NIS 709 million at the end of 2025, because the deposits backing Series 7 and Series 8 are presented as current. That does not change the long legal maturities of the debt, but it reinforces the point from the analysis of early-redemption windows: in the company's economic schedule, call windows matter almost as much as final maturity.

Series 7 reaches its first early-redemption date in December 2026, and Series 8 in March 2027. Series 9 reaches its first early-redemption date in April 2027. The next test is therefore not only whether capital stays above the threshold, but whether the debt market remains open enough to refinance or manage series approaching those windows without making the whole structure more expensive. The quarterly market backdrop is not simple: Israeli government and corporate bond yields rose during Q1, and the company itself emphasizes that group results are affected by capital-market volatility and changes in the interest-rate curve.

What Will Decide The Next Few Quarters

This quarter turns 2026 into a capital proof year. Not an operating breakout year, because Migdal Insurance Capital does not operate a standalone business, but a year in which Migdal Insurance has to show that crossing the 115% threshold is not only the result of one April transaction. The first checkpoint will be the next solvency ratio excluding transitional measures. If it remains above target after market moves, rate changes, and actuarial-assumption updates, Series 19 will look like part of a normal capital-building process. If the ratio stays close to the line, the market will read it more as an issue that bought time.

The second trigger is governance and supervision. In January, March, and April 2026, the regulator's letters around the composition of Migdal Insurance's board and the process concerning a specific director continued, and in May the holding company above the insurer submitted its response. In addition, the CEO of the company and of the holding company announced in April that he intends to step down effective July 15, 2026. These are not numbers that directly move the solvency ratio, but they do keep a regulatory and management friction around an issuer whose debt story depends heavily on confidence in the capital layer and management stability.

The third trigger is the funding schedule. Series 19 showed that the market was willing to absorb an Additional Tier 1 instrument, with a lower rating than Tier 2 and stronger loss-absorption features. Now the question is whether that window remains open as older Tier 2 series approach their early-redemption dates. Early redemption is an issuer option, not an obligation. If market conditions remain supportive, active management of the series makes economic sense. If funding costs rise, some of the long legal maturity tail becomes more relevant again.

Conclusion

Migdal Insurance Capital moved in Q1 from a monitoring point to a proof point. The Series 19 issuance resolved the formal question left open at the end of 2025: Migdal Insurance's solvency ratio excluding transitional measures moved above the 115% board threshold for distribution. But the result is not wide enough to make the story comfortable. The new margin over the target is very narrow against possible volatility in economic capital, required capital, and markets.

The current read is cautiously positive: the capital window is more open than it was, capital quality improved, and the move to Additional Tier 1 gives the insurer a stronger tool than Tier 2 alone. The counter-thesis is that the company still depends on billions of shekels of transitional relief, an open debt market, and quieter regulatory governance. If the ratio excluding transitional measures becomes established above 115% in the next reports, the market can treat Series 19 as the beginning of a real capital margin. If it remains around the threshold, this report will look less like a turning point and more like a technical crossing of a minimum line.