Phoenix in the First Quarter: Dividend Coverage Is Clear, Underwriting Profitability Still Needs Proof

Phoenix opened 2026 with a quarter that strengthens its capital-return capacity, but still does not close the question of insurance earnings quality. Comprehensive income attributable to shareholders rose to NIS 702 million, after-tax core income totaled NIS 709 million, and dividends declared by subsidiaries to Phoenix Financial reached NIS 484 million against a quarterly dividend of NIS 320 million and NIS 85 million of buybacks. This is a quarter in which the payout looks covered even after acquisitions, and not merely supported by a high profit headline. The remaining bottleneck is general insurance: pre-tax core income fell to NIS 209 million, and the retained combined ratio rose to 83.0% from 80.2% in the comparable quarter. The current read is therefore positive but specific: Phoenix is moving closer to being a cash-return equity and a broader fee platform, while underwriting quality and the pace of CSM, contractual service margin, build still need proof. If new motor tariffs, BUYME, and Fidelis begin to contribute without eroding surplus capital, 2026 will look like a proof year. If general insurance keeps relying on rates and capital markets, the dividend may remain covered but recurring earnings will look lower-quality.

An Insurance, Fee, and Dividend Platform

Phoenix is already more than a classic insurer. Alongside general insurance, health, life, and savings, it has pension and provident funds, an investment house, agencies, credit, and new service activities. At the end of the first quarter the group managed more than NIS 623 billion of assets. Its economics now split into two engines: insurance, where value comes from underwriting, rates, and release of future profit, and an asset-management and distribution platform that should generate fees and dividends that are more accessible to the parent company.

For a large insurer, volatility from investments and rates is part of the business. A high solvency ratio also does not by itself prove freely available cash, because some capital sits inside regulation. The unusual point this quarter is the combination of moves: the company is returning capital at a high pace, buying new activities, and expanding fee platforms while general insurance has not yet shown clean underwriting improvement. The previous Deep TASE analysis on BUYME framed the deal as a capital-allocation test. The current quarter gives a partial answer: BUYME was completed after the balance-sheet date, the buyback was executed, the dividend was announced, and solvency and solo debt metrics still look comfortable.

Profit Grew, Underwriting Did Not Lead the Increase

After-tax comprehensive income attributable to shareholders rose 24% to NIS 702 million, and quarterly annualized ROE reached 24.1%. After-tax core income rose 13% to NIS 709 million, but the split matters more than the headline. Asset management contributed NIS 251 million versus NIS 204 million in the comparable quarter, up 23%, while insurance contributed NIS 458 million versus NIS 422 million, up 9%. Before tax, insurance core income rose from NIS 631 million to NIS 682 million, but NIS 64 million of the improvement came from "other equity", meaning financial margin and investments not allocated to operating segments.

General insurance is the main caution point. Pre-tax comprehensive income in the segment reached NIS 261 million, but core income fell to NIS 209 million from NIS 215 million. The improvement in the total line came mainly from investment income and rates: investments contributed NIS 8 million versus a NIS 24 million loss in the comparable quarter, and rates contributed NIS 47 million versus NIS 34 million. The retained combined ratio rose to 83.0% from 80.2%. Compulsory motor improved to 90.4% from 93.0%, but comprehensive and third-party motor worsened to 85.6% from 84.8%. Approved tariff updates can help later, but in the first quarter they had not yet translated into cleaner underwriting.

CSM and additional future profits rose to NIS 9.204 billion from NIS 9.049 billion at the start of the year. But new business contributed NIS 197 million, releases reduced the balance by NIS 241 million, and economic, rate, and other effects added NIS 198 million. In health growth products, the balance fell to NIS 5.047 billion from NIS 5.091 billion because releases exceeded new business. The reservoir is large, but quality will be tested by the pace of new-business build.

The Dividend Is Covered, Acquisitions Need to Contribute

The strong part of the quarter is how profit reached the parent company. Dividends declared by subsidiaries to Phoenix Financial totaled NIS 484 million: NIS 300 million from the insurance company, NIS 60 million from the investment house, NIS 103 million from agencies, and NIS 21 million from Gama. Against that, the quarterly dividend to shareholders is NIS 320 million, and buybacks executed during the quarter totaled about NIS 85 million. On an all-in cash flexibility basis at the parent level for this quarter, subsidiary remittances covered the dividend and buyback together before further strategic uses.

At the solo level, financial assets totaled NIS 2.87 billion, but they include a NIS 1.35 billion investment in the insurance company's Tier 1 capital instrument. Net financial debt after the declared dividend was only NIS 107 million, and LTV was below 1%. The solvency ratio with transitional measures stood at 178% after material capital actions, above the 150% to 170% target range, and without transitional measures it stood at 157% versus a 123% minimum target. External signals also support the capital picture: S&P Global Ratings initiated a BBB rating with stable outlook for the company, and Moody's upgraded the insurance company to A3 with stable outlook.

That room needs to fund more than distributions. Fidelis was consolidated after a 30% purchase for about NIS 32 million, with an obligation to buy additional shares over eight years up to about 90% ownership, and a call option for another 31% by the end of 2026. BUYME was completed after the balance-sheet date for consideration of about NIS 545 million for 64.85% of the shares, alongside PUT and CALL mechanisms for remaining shareholders. The Wobi transaction, at about NIS 140 million, has already received Competition Authority approval but still awaits Capital Market Authority approval. Each deal is reasonable on its own, but together they raise the required proof: the new activities need to add profit and dividends, not only expand the activity map.

Conclusions for the Next Quarters

Management targets 2028 core income of NIS 3.3 billion to NIS 3.5 billion, including NIS 1.9 billion to NIS 2.1 billion in insurance and NIS 1.3 billion to NIS 1.5 billion in asset management. The first quarter supports that direction through asset management, agencies, strong solvency, and subsidiary dividends. Still, this is a proof year. The next quarters need to show a better combined ratio in general insurance after motor-tariff updates, first contribution from BUYME and Fidelis, and continued subsidiary remittances at a pace that covers both dividends and buybacks.

The current conclusion is that Phoenix looks stronger at the capital-return level than at the underwriting-quality level. That is enough to make the quarter positive, but not enough to clear all the questions. The counter-thesis is that the caution may be too harsh: solvency is high, ratings improved, asset management is growing quickly, and the payout was actually covered. What will decide the next market read is the source of profit. If underwriting and new business strengthen, the market can increasingly view Phoenix as a stable fee and cash-return platform. If profit continues to come mainly from markets, rates, and other equity, valuation will remain closer to that of a strong but cyclical insurer.