Hachshara Insurance in the First Quarter: The Capital Cushion Crossed Target As Life Claims Reduced CSM

Hachshara Insurance closed the most urgent gap from the previous cycle in the first quarter: its solvency ratio excluding transition measures rose to 111.3%, above the board's 110% target, after standing at only 100.3% at the end of 2024. That is a real change, because it lowers the immediate capital pressure and shows that Best Invest, capital markets and new business contributed to the capital surplus. The income statement alone does not show that change: comprehensive profit after tax was NIS 23.2 million versus NIS 23.7 million in the comparable quarter. The quality of the sources matters more than profit itself. Motor insurance improved and fee income from investment contracts rose 32.1%, while life insurance service activity moved into a loss and claims reduced CSM. The cushion above the board target is only NIS 14.9 million, so the next proof points are life underwriting, continued motor profitability and the ability to grow fee income without eroding capital.

The Capital Cushion Improved, But The Margin Above Target Is Small

Hachshara Insurance is a reporting insurance company that also funds itself through subordinated instruments and listed bonds. Control is concentrated with Eli Elezra through Hachshara Holdings Insurance, which owns about 96.47% of the company, while Iris Termachi owns about 3.53%. At the end of March 2026, the company managed about NIS 37.8 billion: about NIS 32.2 billion in assets backing participating policies and investment contracts, about NIS 2.1 billion backing non-participating life and nostro assets, and about NIS 3.5 billion backing general insurance and equity. This is a financial machine that creates value through underwriting, fees and investments, and each engine can increase earnings while also increasing required capital.

In the previous annual analysis and the solvency follow-up, the open issue was the capital cushion excluding transition measures. The current report changes that starting point: the solvency ratio at the end of 2025 was 120.1% with transition measures, and the capital surplus reached NIS 226.9 million. After capital actions between the calculation date and the publication date, the ratio with transition measures rises to 122.3%. The more important number for distribution policy and flexibility is excluding transition measures: 111.3%, a NIS 128.6 million surplus above SCR, and only NIS 14.9 million above the board's 110% target.

The movement in capital explains the quality of the improvement. Economic activity added NIS 69.3 million to the capital surplus, mainly through positive returns in the nostro and participating portfolios. New business added NIS 35.0 million, mainly Best Invest savings policies and risk policies. Operating activity reduced the surplus by NIS 5.1 million, and capital instrument issuances and redemptions reduced it by a net NIS 21.6 million. In May 2026, the company signed a bank subordinated note of about NIS 30 million, recognized as Tier 2 capital and bearing prime plus 1.12%. That is not a weakness by itself, but it shows management is still managing capital close to the solvency targets.

Fees And Motor Insurance Held Earnings

Comprehensive profit after tax barely changed, but its sources moved. General insurance improved, Best Invest strengthened, and life insurance service activity moved into a loss. The quarter is therefore not a simple stability story, but a shift in profit engines inside an insurer with a narrow capital cushion.

In general insurance, gross premiums rose 1.9% to NIS 484.3 million, and comprehensive pre-tax profit increased to NIS 14.3 million from NIS 10.0 million. The important improvement was in motor property, meaning comprehensive and third-party coverage: the branch moved from a NIS 5.0 million comprehensive pre-tax loss to a small NIS 0.3 million profit, and the gross combined ratio fell from 103.7% to 96.8%. On a net basis, the ratio fell from 102.9% to 99.3%. The company attributes the improvement to underwriting and claims management, making this a central checkpoint because a weak motor branch can quickly consume the profit generated by fees.

In motor compulsory, comprehensive pre-tax profit rose to NIS 9.3 million from NIS 6.9 million. In February 2026, the company signed a settlement with the National Insurance Institute covering bodily-injury claims from motor accidents in 2016-2022. The total settlement amount is about NIS 206 million, while the company's net retention share after reinsurers is about NIS 39 million. The company says the settlements, after reinsurers' share, did not have a material impact on the financial statements, but closing that old claims layer helps explain the decline in motor compulsory liabilities.

Life insurance and long-term savings were the weak side of the quarter. Gross premiums fell 6.2% to NIS 81.3 million, mainly because of an NIS 8.5 million decline in closed savings products, while new risk products added NIS 3.1 million. Net insurance service result moved to a NIS 7.0 million loss from an NIS 11.2 million profit in the comparable quarter. The company explains the decline by larger losses from onerous contracts, mainly guaranteed-return products and personal accident, and by actual claims developing worse than the actuarial model, mainly in the death-risk product.

The assumption-update note supports that read. In the first quarter, the expense-model update reduced CSM by NIS 5.35 million in the life segment, although the rate effect increased CSM by NIS 11.5 million. CSM, the contractual service margin, is future profit expected to release over the life of contracts if the assumptions hold. Erosion caused by claims or onerous contracts changes the quality of future earnings, not only the quarter's result.

Best Invest Increases Profit And Capital Requirements

The strong part of the quarter came from investment contracts. Profit from investment products rose to NIS 14.6 million from NIS 4.8 million, and fee income from investment contracts reached NIS 58.1 million versus NIS 44.0 million. Participating policies from 1992 onward posted a negative gross return of 0.49%, and the general track from 2004 onward posted a negative gross return of 0.22%. Fees grew because the asset base and investment contracts grew, not because the quarter was especially strong for clients.

This is the hidden value point in the quarter. Best Invest is a source of fees and profit, and also an activity with a capital cost. The solvency report says the increase in investment-contract liabilities reflects growth in the Best Invest book, from both market returns and net inflows. The same report says new business, mainly Best Invest and risk policies, increased the value of in-force business and added capital surplus, while also increasing required capital mainly through lapse risk.

That cost also appears on the accounting balance sheet. The asset for costs to obtain investment management service contracts rose to NIS 263.1 million at the end of March 2026, from NIS 245.2 million at the end of 2025. In the solvency report, those assets do not receive positive value in the same way they appear in the financial statements. Best Invest growth should therefore be read through two layers: the fees it adds now, and the capital it consumes through acquisition costs, lapse risk and dependence on asset values.

Conclusions For The Coming Quarters

The solvency report shows why the capital cushion is still narrow. A 50-basis-point decline in the risk-free rate would reduce the solvency ratio by 7.8 percentage points. A 25% decline in equity assets would reduce it by 6.6 percentage points. A 10% decline in real estate assets would reduce it by 9.4 percentage points.

The real estate sensitivity matters because of the SOHO asset in Ashdod. In the previous real-estate analysis, the point was that the real estate value is real, but access to that value at the company level is not full or simple. In the current report, assets held for sale remained at about NIS 508.6 million, and in April 2026 the company reported that negotiations with Afridar over its rights in lots 202 and 212 in the SOHO compound in Ashdod ended without a transaction. As long as the asset is not sold, its contribution to the thesis comes through value and sensitivity, not near-term cash.

The current read is improvement with tight monitoring discipline. Hachshara crossed the capital target excluding transition measures, motor insurance is starting to show an underwriting correction, and Best Invest is contributing fees and profit. The risk points have moved to whether life underwriting stops reducing CSM, whether comprehensive and third-party motor keep a combined ratio below 100%, and whether Best Invest growth remains profitable after acquisition costs and required capital. If one of those three weakens, the market may return to reading the company through the capital constraint rather than through the earnings improvement.