Clal Insurance in the First Quarter: Stronger Core Profit Still Needs Repeatability

Clal Insurance Enterprises received an early confirmation in the first quarter of 2026 that this year is not only a continuation of a strong 2025, but a live test of earnings quality. Core pre-tax profit rose 13% to NIS 589 million, while excess financial margin declined to NIS 72 million and comprehensive profit after tax rose more modestly to NIS 436 million. That matters against the prior annual analysis, where the key question was how much of Clal's profit came from recurring insurance and financial operations and how much still leaned on capital markets. The answer this quarter is more positive, but not complete: general insurance improved sharply, partly because unusual quarterly conditions reduced claims, health still carries pressure from individual long-term care, and Max credit quality looks controlled even though credit-loss expenses no longer benefit from the unusually low base of the comparable quarter. On capital, Clal Insurance's solvency ratio and the holding company's debt issuance close part of the follow-up questions left open at year-end 2025, but the NIS 400 million dividend has already moved cash out of the upper layer. The quarter therefore improves the read on Clal, but it does not release 2026 from its proof burden: underwriting must hold without event-driven claims help, CSM must be replenished through new business rather than mainly through financial effects, and Max must keep growing without renewed credit-quality erosion.

One Company, Three Profit Engines, One Holding Layer

Clal is no longer just a listed insurance company driven by capital markets. It is a financial holding company with three main profit engines: insurance and savings, credit cards through Max, and a holding-company layer that receives dividends, manages debt, and decides how much cash can be returned to shareholders. That distinction is critical because strong profit at the insurance subsidiary does not automatically equal free cash at the holding-company level, and profit at Max does not automatically become distributable if capital is needed to support credit growth.

The first quarter provides a fairly clear activity map. Core pre-tax profit was NIS 589 million, of which NIS 399 million came from insurance and savings, NIS 114 million from credit cards, and the net balance from agencies, financing expenses, and activity not allocated to operating segments. Insurance and savings still provide most of the profit, but Max is already large enough that any change in its credit quality or funding cost affects the reading of the whole group.

Management's presentation frames the group as having diversified growth engines. The numbers partly support that framing: assets under management rose to NIS 426 billion at the end of March, and core profit increased faster than reported profit. Still, diversification does not eliminate the active bottleneck. At Clal, the question is not only whether each engine grows, but whether that growth is repeatable and allows continued distributions without pushing too much risk into the capital layer.

Core Earnings Improved, but General Insurance Still Needs a Normal Quarter

The good number in the quarter is not the 7% increase in comprehensive profit after tax. It is what happened underneath. Core pre-tax profit increased by NIS 68 million year over year, while excess financial margin declined by NIS 14 million. In other words, the improvement came mainly from operating core activity, especially insurance, rather than from capital-market support.

Within insurance and savings, core operating profit rose from NIS 332 million to NIS 399 million. Life insurance added NIS 17 million, health added only NIS 3 million, pension and provident activity added NIS 4 million, and general insurance alone added NIS 43 million. That is a better picture than the one available at the end of 2025: the core was not only preserved, it grew.

Still, core quality is not uniform. In life insurance, comprehensive pre-tax profit rose to NIS 293 million from NIS 209 million, helped by higher insurance and savings service profit, higher normalized financial margin, and a more positive impact from the risk-free-rate curve on liabilities. This is a strong engine, but it remains sensitive to interest rates, returns, and actuarial changes.

Contractual service margin, or CSM, is the more delicate point. CSM is the stock of future insurance service profit not yet recognized. Net CSM increased only slightly, from NIS 10.264 billion at the start of the period to NIS 10.293 billion at the end of March. New business at recognition added NIS 206 million, less than the NIS 234 million CSM release, while NIS 58 million of financial margin, expected-versus-actual effects, and assumption changes kept the balance positive. Management highlights that risk portfolios sold in the period added CSM equal to about 145% of the CSM released from those portfolios, which is a positive signal. At group level, however, the quarter still does not prove full replenishment of the future-profit stock purely through new business.

General insurance moved the quarter. Gross premiums slipped from NIS 1.174 billion to NIS 1.156 billion, but insurance service and operating profit rose from NIS 73 million to NIS 104 million, and core operating profit rose from NIS 97 million to NIS 140 million. In motor own-damage and third-party property cover, the combined ratio improved from 90% to 86%, meaning that every shekel of premium left more underwriting profit.

The point that keeps the number from looking too clean is in the sector explanation. In motor own-damage and third-party property cover, premiums declined because of lower average premium and lower volumes, but profit rose because claims costs improved, partly due to Operation Shaagat Ha'ari. That does not mean the improvement is not real, but it does mean part of it may depend on an unusual quarter in which traffic and economic activity changed. If activity normalizes in coming quarters, the relevant question will be whether the combined ratio remains low without that support.

At the same time, the rest of the general-insurance portfolio shows a better-quality picture. Premiums rose from NIS 434 million to NIS 483 million, and insurance service and operating profit almost doubled from NIS 25 million to NIS 48 million, mainly due to underwriting improvement in liability and other property lines and growth in sale-law guarantees. That looks less like a one-quarter accident and more like a broader business contribution, but another quarter or two is needed before treating it as a new level rather than favorable timing.

Health, Max, and the Holding Layer Keep 2026 in Proof Mode

Health was one of the weak links in 2025, and the first quarter does not close the issue. Premiums increased to NIS 494 million from NIS 481 million, and insurance service and operating profit rose slightly to NIS 87 million. But comprehensive pre-tax profit declined to NIS 93 million from NIS 113 million, mainly because residual financial margin became more negative. Within the segment, individual long-term care moved from a NIS 14 million profit to a NIS 3 million loss, driven by worse-than-expected claims costs and lower CSM release following estimate changes made in 2025.

That does not erase the improvement in other health lines. Individual medical and disability improved from NIS 24 million to NIS 32 million, group medical and disability moved from a NIS 5 million loss to a NIS 1 million profit, and the rest of the portfolio kept high profit. But the segment still does not fully answer the question left open at year-end 2025: whether premium growth is translating into recurring service profit, or whether total profit remains too sensitive to financial layers and long-term-care portfolios.

Max carries a different kind of complexity. Credit-card transaction volume rose to NIS 37.4 billion from NIS 36.2 billion, active cards rose to 3.475 million, and net interest income increased to NIS 214 million. On the other hand, comprehensive pre-tax profit in the credit-card activity declined to NIS 104 million from NIS 109 million, mainly because credit-loss expenses increased to NIS 55 million from NIS 46 million.

The read here is not sharp deterioration, but normalization after an easy comparison base. The allowance-to-card-receivables ratio was 2.00%, below 2.20% in the comparable quarter but above 1.95% at year-end 2025. Non-accrual receivables were 1.09%, close to 1.10% in the comparable quarter and slightly above 1.06% at year-end 2025. Net charge-offs declined to 0.97%, from 1.31% in the comparable quarter and 1.15% at year-end 2025. Max is still growing, and there is no material credit deterioration in the current data, but the quarter reminds investors that credit growth is not free: it requires close monitoring of losses, capital, and funding.

The holding-company story improved faster than it looked at the end of 2025. Clal Insurance's solvency ratio, after capital actions and under the transitional provisions, rose to 170% at year-end 2025, compared with 158% at year-end 2024. Without the transitional provisions, the ratio rose to 144% from 128%, and capital surplus relative to the board target reached NIS 3.106 billion. This is an important anchor for the NIS 600 million dividend from Clal Insurance and for the ability to move value up to the listed holding company.

The holding company itself also changed. Cash and cash equivalents were NIS 634 million at the end of March, compared with NIS 67 million at the end of 2025, and total financial assets reached NIS 1.421 billion. Net financial debt fell to only NIS 81 million, compared with NIS 686 million at year-end 2025. After the reporting date, the company issued Series D bonds for net proceeds of about NIS 600 million and fully redeemed the remaining Series A bonds with NIS 549 million of par value. The follow-up point left open in the prior cash-access article therefore received a practical answer: the market allowed Clal to replace shorter debt with a new structure.

The cash framing matters. This is all-in cash flexibility after known holding-company cash uses, not normalized cash generation from the insurance business. The March data still sit before the NIS 400 million dividend paid to shareholders on April 23 and before the April-May debt replacement was completed. They are therefore not a full snapshot of the cash balance after those events. They do show that the company is no longer facing the Series A bond redemption with the same narrow room it had at year-end 2025.

Conclusion

The first quarter strengthens Clal, but only after separating three layers. The first is core profit: it is working better, and the increase in core earnings does not look like a result that relied only on capital markets. The second is earnings quality: general insurance improved sharply, but part of the improvement is tied to unusual claims conditions, and health has not yet closed the individual long-term-care weakness. The third is capital access: solvency, subsidiary dividends, and the bond refinancing improve the holding layer, but a NIS 400 million shareholder distribution still requires continued cash moving up from subsidiaries.

The current conclusion is that Clal enters 2026 from a better position than one could assume from a quick reading of 2025 alone, but it remains in a proof year. If core profit remains near a similar run-rate without unusual claims help, if CSM is replenished through new business, and if Max keeps charge-offs low and capital above targets while the credit portfolio grows, the read will improve. The counter-thesis is that the quarter looks strong because of a favorable combination of interest rates, capital markets, unusual claims conditions, and successful debt refinancing, so it is still too early to treat this profitability as recurring. What could change the short-to-medium-term market read is not another headline profit number, but two or three consecutive quarters in which underwriting, credit, and distributions hold together.