Phoenix Capital Raising in the First Quarter: More Tier 1 Capital Meets Upstream Dividends

The first quarter at Phoenix Capital Raising is not a normal earnings story. It is a question of how much regulatory capital remains inside Phoenix Insurance after issuances, fair-value marks and upstream distributions. The issuer reported a NIS 24.9 million accounting loss, mainly because of a negative fair-value mark on the deferred deposit linked to Series 12, but that is not where cash is created or consumed at the issuer: operating cash flow was zero and cash remained only NIS 7 thousand. The event that changes the current read came around the report: a NIS 273.2 million expansion of Series 18, recognized as Additional Tier 1 capital at Phoenix Insurance, alongside approval of a NIS 300 million dividend from Phoenix Insurance to Phoenix Financial. That combination reinforces the conclusion from the prior annual analysis, which framed the issuer as a capital conduit with almost no independent cushion, but adds a new layer: the solvency buffer still appears wide enough to allow another distribution, yet it remains actively managed rather than locked. The quarter is therefore more positive for market access and regulatory recognition, but less clean as a pure capital-strengthening story for holders. Over the next few quarters, the market will likely focus less on the issuer's net profit and more on the solvency ratio without transition measures, distribution pace, approval of the stochastic model and the terms of future debt issuance.

The Issuer Is a Capital Conduit, While the Risk Sits at Phoenix Insurance

Phoenix Capital Raising is a wholly owned issuance arm of Phoenix Insurance. Its only activity is to raise sources for Phoenix Insurance through bonds, notes and capital instruments, and to place the proceeds as deferred deposits with Phoenix Insurance. The deposit terms mirror the issued bonds, while Phoenix Insurance uses the funds at its discretion and responsibility.

This is not an insurer that earns through underwriting, not a holding company with a portfolio of assets, and not a regular listed equity that should be screened through a P/E multiple. The company's shares are not traded, so the relevant analysis is mainly about debt, Phoenix Insurance's regulatory capital and the group's internal distribution policy. The issuer's income statement can therefore become accounting noise, while the real risk sits in whether Phoenix Insurance maintains a sufficient capital buffer and open access to the debt market.

That structure is visible in the balance sheet. At the end of March 2026, the deferred deposit, including current maturities, stood at NIS 6.884 billion, against total assets of NIS 6.934 billion. Cash was NIS 7 thousand. On the liability side, the bonds and financial liabilities sit almost directly against the same deposit. In other words, bondholder protection is not built by an independent cash reserve at Phoenix Capital Raising, but by Phoenix Insurance's ability to stand behind the deposit and by regulatory recognition of the instruments that were raised.

Coverage continuity matters here. The March analysis of the group's capital chain and distributions raised the question of whether the 2025 issuances were building a durable buffer inside Phoenix Insurance, or whether part of the margin would later be upstreamed to Phoenix Financial. The first-quarter report does not close that question. It strengthens both sides of it: a new Tier 1 issuance was accepted and recognized, while Phoenix Insurance's board approved another dividend shortly afterward.

The Accounting Loss Does Not Build or Burn Cash

The accounting headline is weak: a comprehensive loss of NIS 24.9 million, versus a NIS 3.25 million profit in the parallel quarter and a NIS 85.8 million profit in all of 2025. But the company's earnings mechanism is not operating activity. Finance income of NIS 54.5 million was matched by finance expense of the same amount, and the loss mainly came from a NIS 38.1 million negative mark on the deferred deposit measured at fair value.

That distinction changes the way the quarter should be read. Equity declined from NIS 146.5 million at the end of 2025 to NIS 121.7 million at the end of March 2026, but operating cash flow remained zero. Interest paid and interest received also move against each other, because the issued instrument and the deposit with Phoenix Insurance are built almost as mirror images. All-in cash flexibility at the issuer itself is simply not meaningful in the usual corporate sense: there is no large independent cash reserve, no operating cash flow accumulation, and no cash source that is not dependent on Phoenix Insurance.

The financial-instruments note points in the same direction. The fair value of the deposits at the end of March was NIS 6.738 billion, below their NIS 6.884 billion carrying amount. On the liability side, the fair value of the bonds was also NIS 6.738 billion, versus a carrying amount of NIS 6.749 billion. These numbers do not indicate an immediate mismatch between asset and liability. They show that the issuer is constructed largely as an accounting and legal passage between the market and Phoenix Insurance.

More Tier 1 Capital, Alongside Another Dividend

After quarter-end came the most important point in the current cycle: in May 2026, Phoenix Capital Raising completed an expansion of Series 18, deferred notes classified as Additional Tier 1 capital, in the amount of NIS 273.2 million. The series was rated Aa3.il(hyb) with a stable outlook by Midroog and ilAA- by S&P Maalot, and was recognized by the Capital Market Authority as an Additional Tier 1 instrument for Phoenix Insurance.

That recognition is not a technical detail. After capital actions, Phoenix Insurance's solvency ratio without transition measures rose from 155% to 157%, versus a minimum target of 123%. Excess capital over that target stood at NIS 3.526 billion. The ratio including transition measures also improved, from 175% to 178%. This is important evidence of the group's access to the debt market and its continued ability to use hybrid regulatory capital instruments.

But the same cycle also includes a distribution. On May 26, 2026, alongside approval of Phoenix Insurance's first-quarter financial statements, Phoenix Insurance's board approved a NIS 300 million dividend. That dividend is already included in the solvency-ratio results as of December 31, 2025. In other words, the ratios above target do not ignore the dividend. They already absorb it.

The immediate report on the dividend adds another checkpoint. The board also reviewed the possible completion of remaining in-kind distributions that had previously been approved, including Beit Havered and another Phoenix Mortgages asset. If that distribution is completed, it is expected to reduce the solvency ratio without transition measures by about 6%, while still leaving the ratio above the capital target. This is the key dynamic for holders: the capital buffer is wide, but part of it can continue to move upward as long as the board and solvency position allow it.

The Stochastic Model Can Change the Capital Buffer, but It Is Not Final Yet

The less immediate but potentially more important forward-looking item is the stochastic model. Phoenix Insurance is reviewing the use of economic scenario generators to estimate asymmetric insurance liabilities, mainly those tied to future variable management fees. The current estimate is that implementing the model would add about 12 percentage points to the solvency ratio, both with and without transition measures, as of the end of 2025.

That could become more important than another single issuance. A 12-point addition, if approved and included in the calculation, would change the capital-management margin and could support more distributions or more flexibility against the debt market. But it is not yet a confirmed cushion. The calculation is neither audited nor reviewed, the auditor is still performing preliminary review work, and inclusion of the result depends on completion of the review and approval by the Capital Market Authority under the framework received in May 2026.

The separation between solvency and profit matters here. The model is expected to have a material positive effect on CSM, the contractual service margin that reflects future value in insurance contracts. Its effect on net profit is expected to be positive but immaterial. So a reader looking for an improvement in Phoenix Capital Raising's income statement is looking in the wrong place. The story is regulatory capital-management capacity, not new operating profit at the issuer.

Rates also return through the same lens. A 50 basis-point decline in risk-free rates, under the scenario reviewed by Phoenix Insurance, reduces the solvency ratio by about 7% including transition measures. After quarter-end, the Bank of Israel already cut rates by 25 basis points, while parts of the shekel curve and the liquidity premium declined. The company does not provide a second-quarter forecast, but the market's checklist is clear: whether lower rates and the new model offset each other, or whether one of them starts to erode the margin above target.

Conclusion

The first quarter strengthens the view of Phoenix Capital Raising as an efficient issuance arm, not as a company that creates its own protection layer. The accounting loss is not the main problem, because it did not change the fact that operating cash flow is zero and cash is almost nonexistent. What matters is that Phoenix Insurance continues to enjoy access to the debt market and can still have a new Tier 1 instrument recognized, while also upstreaming capital when the solvency ratio allows it.

The current read is cautiously positive: the system is still working, the May issuance was recognized as Additional Tier 1 capital, and the ratio without transition measures remains far above target even after the dividend. But this is not a clean capital-strengthening thesis. Every new shekel that enters through Phoenix Capital Raising has to be read against the uses approved at Phoenix Insurance and against assets that may still be distributed in kind.

The strongest counter-thesis is that the concern is overstated. If a 157% ratio without transition measures after capital actions, compared with a 123% target, is not enough to support a distribution, then almost every insurer would look too conservative. In addition, the stochastic model may add a meaningful capital margin if approved. That is a strong argument, but it depends on continued market access, regulatory approval, and distributions not running ahead of the capital buffer.

The next two to four quarters have clear proof points: approval or delay of the stochastic model, progress or suspension of the remaining in-kind dividend, the terms of future debt issuance, and the ratio without transition measures after all capital uses. If these remain comfortable, the first quarter will look like continued efficient capital management. If rates, distributions or market conditions narrow the margin faster than new issuances rebuild it, the discussion will move from "excess capital" to how much of that excess really remains behind holders of the instruments.