Ayalon in the First Quarter: Capital Strengthened, but Savings Sales Still Need Repeatability

Ayalon gave a better answer in the first quarter to the question left open after 2025: whether high profit comes with enough distributable capital and enough future-profit engines. Comprehensive income rose to NIS 81.5 million, the solvency ratio without transitional measures reached 131% after capital actions, and the board approved a NIS 30 million dividend after quarter-end. Those datapoints support a more constructive read, but they do not make the story clean. Investment-contract receipts jumped to NIS 1.33 billion in one quarter, yet most of the inflow came from one-off receipts, so it proves sales access and client reach more than a recurring base. At the same time, Wesure reported higher comprehensive profit but lower core profit, and health insurance was hit by weaker group claims experience. Ayalon's first quarter is therefore a proof quarter, not a decisive breakout: capital looks more comfortable, but over the next 2-4 quarters the company still needs to show repeatable savings sales, Wesure that does not require further support, and non-life profit that is not overly dependent on prior-year reserve development.

Profit Is Stronger, but Core Quality Is Uneven

Ayalon is an insurance and financial-services group whose profit is built from four main layers: Ayalon's own non-life insurance, Wesure, life and savings, and health. Above all of them sits capital, because in an insurer reported profit is not enough by itself. The question is whether profit survives solvency requirements, market volatility, claims, shareholder distributions and the need to support subsidiaries.

The open issues in the previous annual Deep TASE analysis on Ayalon were clear: whether capital would be enough after distributions, whether the savings engine would begin to build future profit, and whether Wesure would stop consuming capital inside the group. The first quarter advances two of those issues. The solvency ratio improved, and CSM, the future-profit inventory from insurance contracts, grew to NIS 1.08 billion. But the quarter also marks what is not solved: investment-contract inflows look very strong, yet it is hard to build a full forecast on them when most of the jump comes from one-off receipts.

Comprehensive income after tax rose to NIS 81.5 million from NIS 56.7 million, and pretax core profit rose to NIS 122.9 million from NIS 93.6 million. Still, the mix inside core profit matters: Ayalon's own non-life business strengthened and life and savings improved, but health weakened and Wesure is not yet a strong independent profit engine.

The best part of the quarter came from Ayalon's own non-life business. Pretax core profit in that activity rose to NIS 82.2 million from NIS 60.7 million, despite an approximately 11% decline in gross premiums to NIS 837.3 million. That is an important point: the company did not show simple volume growth here, but better underwriting profitability, mainly through favorable prior accident-year claims development in compulsory motor, comprehensive and third-party motor, businesses, apartments, contractors and guarantees.

That part is positive, but it needs caution. Favorable prior-year claims development is real profit, but it is not the same as clean premium growth or certain improvement in new underwriting years. When competition is eroding tariffs and reducing premiums in parts of Ayalon's business, the market will need to see that profitability holds without unusual support from prior-year claims development.

Wesure tells almost the opposite story. Its pretax comprehensive profit rose to NIS 7.1 million from NIS 5.4 million, but core profit fell to NIS 4.8 million from NIS 6.7 million. Comprehensive and third-party motor improved sharply, with core profit of NIS 7.0 million compared with NIS 1.1 million, but compulsory motor moved to a core loss of NIS 1.9 million from a profit of NIS 5.4 million. In other words, the Wesure headline is better than its operating quarter. It also benefited from a better financial margin, so the rise in comprehensive profit should not be read as full proof that the business already stands on its own.

Health was the weakest part. Pretax core profit fell to NIS 19.7 million from NIS 29.9 million, mainly because group health moved from lower-than-expected claims to higher-than-expected claims. The private business was steadier and benefited from higher CSM recognition from new business, but the group needs to show that the group-health weakness is claims volatility rather than deeper pricing pressure.

Solvency Is Less of an Open Question, but the Dividend Still Needs Recurring Profit

The datapoint that supports the dividend is not first-quarter cash flow, but regulatory capital. The solvency ratio without transitional measures was 131% after capital actions, including the effect of the NIS 30 million dividend declared after the calculation date. With transitional measures, the ratio was 137%. In capital-surplus terms, that means about NIS 619 million without transitional measures and about NIS 732 million with them.

That means the main concern around distributions after 2025 has weakened. In a previous analysis on Ayalon's capital cushion, the checkpoint was whether dividends and redemption of subordinated notes would narrow the margin above the capital target. The first quarter gives a better answer: the company can distribute NIS 30 million and still show a meaningful regulatory buffer.

But this is not a dividend based on simple surplus cash flow in the quarter. Operating cash flow was negative NIS 18.9 million, and the cash balance fell by about NIS 33.4 million during the quarter. In an insurer, quarterly cash flow can be noisy because of investments, claims and client flows, so it should not be overburdened. Still, if Ayalon wants to be read as a more consistent capital-return equity, it needs to show that underwriting profit and savings sales generate recurring regulatory capital, not only accounting profit in favorable market periods.

There is also another capital tool on the table. Ayalon is considering an issue of additional Tier 1 subordinated notes of up to about NIS 350 million, after receiving approval to include them in solvency own funds and an A.IL rating for a possible series. The proceeds may be used for early redemption of an existing Tier 2 series with NIS 150 million outstanding. If completed on reasonable terms, the move could improve capital management, but it is not completed yet and it does not replace recurring profit.

Wesure remains a smaller but material friction point. Its solvency ratio was 98% at the end of 2025 before capital actions and 106% after NIS 16 million of Tier 1 injections from Ayalon. That is above the 105% target, but not a wide cushion. Wesure is less worrying than before, but it is still not free capital flowing upward. It has to prove core profit and solvency without again relying on Ayalon support.

The Savings Engine Grew, but Most of the Money Arrived at Once

The most tempting datapoint in the quarter is investment-contract receipts: NIS 1.326 billion in one quarter versus NIS 129.6 million in the comparable quarter. That is almost 80% of all receipts recorded in 2025, so the initial read can be that Ayalon has opened a new savings engine at a very different scale.

But the quality of the datapoint depends on its composition. Of the quarter's receipts, about NIS 1.144 billion came from one-off receipts, while new annualized receipts were NIS 13.4 million. That does not cancel the achievement. Raising that amount signals better access to clients and greater confidence in Ayalon's savings products. But it means the quarter proved the ability to bring in money, not necessarily a recurring pace.

CSM reinforces the picture, but also sharpens the complexity. Net CSM rose to NIS 1.079 billion from NIS 1.036 billion at the end of 2025, and the ratio of new CSM to CSM release reached 102% compared with 51% in the comparable quarter. In growth products, the ratio reached 187%. That is a constructive answer to the question of whether Ayalon is starting to build future-profit inventory rather than only releasing the existing book.

Still, the CSM mix is not uniform. In health, net CSM rose to NIS 556 million from NIS 481 million. In life and savings, net CSM fell to NIS 523 million from NIS 555 million. The advance in future-profit inventory is therefore not yet a clean life-and-savings story. It also relies on health and growth products, while part of the classic savings engine still needs to show clearer improvement.

Agencies and Provident Funds Remain Watchpoints

The license Ayalon received to establish a wholly owned provident-fund company fits the quarter's strategic direction: increasing exposure to savings and connecting it to the distribution platform. But it is still a license and infrastructure, not profit contribution. 2026 becomes a proof year here: Ayalon needs to show that the license turns into assets under management, management fees, additional CSM or core profit, not only an expanded business perimeter.

Another post-quarter event relates to insurance agencies. Wesure GlobalTech, Ayalon's controlling shareholder, approached Ayalon's board to open negotiations to acquire all or at least 80% of Ayalon Ne'emanim and Nechonim, two wholly owned insurance agencies. The board decided to appoint the audit committee to review the proposal, negotiate, examine alternatives and recommend whether to proceed.

There is no price, binding term sheet or certainty of a deal yet. It therefore cannot support a standalone thesis. But it is a watchpoint because insurance agencies are part of Ayalon's distribution infrastructure and value base. If that asset moves to the controlling shareholder, the question will not only be how much cash enters Ayalon, but whether the value created by the distribution platform remains accessible to Ayalon shareholders or moves one layer up.

In the short term, the market is likely to test four points. First, whether investment-contract receipts remain high after the one-off component cools. Second, whether the ratio of new CSM to release stays above 100%, mainly in growth products. Third, whether Wesure improves core profit and solvency without additional injections from Ayalon. Fourth, whether group health returns to positive contribution or starts pointing to a pricing problem.

Conclusions

The first quarter improves Ayalon's position more than it changes the entire story. Capital looks stronger, the NIS 30 million dividend receives reasonable regulatory support, and core profit in Ayalon's non-life business shows good underwriting capability. That is enough to weaken the counter-thesis that 2025 profit was high but difficult to distribute or too dependent on capital markets.

The constructive read still needs repeat proof. Investment-contract receipts in the quarter were excellent, but their one-off composition means the market needs to see continuity before treating them as a stable profit engine. Wesure is no longer the same capital pressure point it was before, but it is still too close to its capital target and still has not shown core profit rising together with comprehensive profit. Health reminds investors that insurance profit can erode quickly when group claims move. Ayalon exits the first quarter with a better read, but not a complete answer: the next read will be set by repeatability in savings sales, quality of new underwriting, and solvency that does not require further support for subsidiaries.