Non-Life Insurance

Transcription

1 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance u Non-Life Insurance 103

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3 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance Table of Contents ACTIVITIES IN DEPARTMENTS OF GENERAL INSURANCE Market Structure Characteristics of Activities General and Administrative Expenses Selection of Insurance Product Business Results of Health Insurance 133 TABLES Table C-1 Number of Active Insurance Companies in Departments of General Insurance in Table C-2 Total Amount of Gross Insurance per Departments of General Insurance in Years Table C-3 Total Amount of Gross Insurance in General Insurance per Insurance Groups in Years Table C-4 Indices of Concentration in Departments of General Insurance in Years Table C-5 Market Share of Gross Insurance Amounts in Departments of General Insurance by Insurance Groups 113 Table C-6 Magnitude of Profit from Gross Insurance Amounts in Insurance Departments in Years Table C-7 Market Share by Profit in Departments of General Insurance per Insurance Group for Table C-8 Magnitude of Commissions for Insurance Brokers from Gross Insurance Amounts per Departments of General Insurance in Years Table C-9 General And Administrative Expenses in General Insurance per Department in Years Table C-10 Data in Group Health Insurance by Sub-department in Table C-11 Data in Private Health Insurance by Sub-department in Table C-12 Gross Insurance Amounts per Significant Sub-departments of Health Insurance in Years Table C-13 Gross Claims by Significant Sub-departments in Health Insurance in Years Table C-14 Gross Insurance Amounts in Insurance Companies by Significant Sub-departments in Private Health Insurance in Table C-15 Gross Insurance Amounts in Insurance Companies by Significant Sub-departments for Group Health Insurance in

4 CHARTS Chart C-1 Profits in Selected Branches of General Insurance in Years Chart C-2 Market Share by Insurance Premiums vs. Market Share by Profits in Chart C-3 Market Share by Insurance Premiums vs. Market Share by Profits in General Insurance Business in Chart C-4 Magnitude of Profit of Insurance Premiums Distributed by Insurance Companies in Chart C-5 Magnitude of Insurance Premiums and Magnitude of Profits in the Compulsory Vehicle Insurance Branch in Years Chart C-6 Income from Investments in Compulsory Vehicle vs. Income from Investments in All General Insurance Branches in Years Chart C-7 Trends in Compulsory Vehicle Insurance 125 Chart C-8 Magnitude of Difference in Average Insurance Premiums Paid by Insured Party in Compulsory Vehicle Insurance Branch 126 Chart C-9 Trends in Vehicle Property Insurance 127 Chart C-10 Magnitude of Insurance Premiums Left Over from Gross Insurance Premiums in Years Chart C-11 Total Gross Insurance Premiums in Health Insurance in Years (without sub-branch of work disability insurance) 133 Chart C-12 Distribution of Gross Insurance Premiums According to Sub-branches of Health Insurance in 2007 (without sub-branch of work disability insurance) 134 Chart C-13 Magnitude of Damages in Group Insurance by Sub-branches of Health Insurance in Years Chart C-14 Magnitude of damages in Private Insurance by Central Sub-branches of Health Insurance in Years Chart C-15 Magnitude of Direct Commissions in Group Insurance from Gross Insurance Premiums by Central Sub-branches in Health Insurance in Years Chart C-16 Magnitude of Direct Commissions in Private Insurance from Gross Insurance Premiums by Central Sub-branches of Health Insurance in Years Chart C-17 Distribution of Gross Insurance Premiums by Insurance Companies in Health Area in Years (without sub-branch of work disability insurance)

5 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance ACTIVITES IN GENERAL INSURANCE 1 1. Market Structure The branches of general insurance include all branches of insurance not in the area of life insurance, such as vehicle insurance, residential, health insurance, property loss, liability insurance and other. Table C-1 Number of Active Insurance Companies in Branches of General Insurance in 2007 Compulsory Vehicle 2 16 Vehicle Property 13 Comprehensive Residential 13 Personal Accident 13 Employer Liability 12 Sickness and Hospitalization 3 12 Engineering Insurance 11 Loss of Property 10 Comprehensive Business 9 Mortgage Banks 8 Cargo Movement 8 Airplanes and Water Vehicles 7 Credit Insurance 4 Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. Table C-1 presents the number of insurance companies that are active in the general insurance branches, meaning the companies that collected insurance premiums in This year 23 insurance companies were active in the branch after the merger of the Migdal and Hamagen companies; as appears from the table most 1. The data appearing in this chapter are based on own reporting by insurance companies to the inspector of insurance through Form 2 and Form In the branch of compulsory vehicle insurance there are 13 companies operating including Karnit, Hapol and Avner. 3. See detail and expansion in Chapter on health insurance. 107

6 companies are active in the insurance vehicle branches, residential, employer liability, other risks, personal accidents and illness and hospitalization; whereas credit insurance has remained through the years as the branch where the least number of companies operate. Insurance companies that operate in the branch of compulsory vehicle insurance (except for Karnit, Hapol and Avner) also operate in the branch of vehicle property insurance. In addition to the areas of insurance, the branches of general insurance differ from each other during the life of the policy and at the rate of disposition of claims. For example, for a policy of property insurance the insurance term is usually one year, and the claims thereon are investigated within a relatively short period of time. Also policies in liability insurance are for the length of one year but the rate of investigation is slower because of the legal complexity and because of the need of a longer period to investigate the damage. Branches whose cases of insurance are investigated for a long period of time (i.e., compulsory vehicle insurance) are therefore characterized by a long disposition period. Table C-2 details the gross insurance premium for branches of general insurance in the years , the measure of the difference in every one of the branches for the last two years and the relative share of insurance premiums in every branch of overall insurance premiums in the branches of general insurance. The total of insurance premiums in the branches of general insurance in 2007 amounted to NIS18.7 billion. Insurance premiums increased by approximately NIS404 million in comparison to 2006, an increase of approximately 2.2%. The increase is smaller than the previous year's where there was an increase of NIS628 million, meaning a growth of 3.6% in insurance premiums in comparison to The branches of vehicle insurance (compulsory and property) in which most of the insurance companies are active produce approximately half of all insurance premiums in the branches of general insurance. These branches maintained their relative share throughout the recent years. In the branch of engineering insurance the increase in insurance premiums became smaller and stood at 4.3%, in comparison to a growth of 15.2% in the previous year. In the branch of sickness and hospitalization 4 there was a significant increase of 12% in insurance premiums, in continuation of a growth of 12.7% in the branch in The increase in insurance premiums may be due to more public awareness of this branch. In the other liability branches there was a significant decrease in insurance premiums. The rate of decrease in 2007 stood at 9.1% in comparison to a growth of 13.6% in The trend of growth in credit insurance continued which expressed itself in an increase of 11.5% in insurance premiums. In mortgage banks the trend of decrease of insurance premiums was reversed despite a decrease in 4. See detail in chapter regarding health insurance. 108

7 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance rates. In 2007 there was a growth of 9.3% in comparison to a decrease of 14.8% in the previous year. The increase in amount of insurance premiums may arise from the change in reporting by certain insurance companies. In the compulsory vehicle branch there was an increase of 3.3% in total insurance premiums after two years of no change. Table C-2 Total Amount of Gross Insurance per Branches of General Insurance in Years (in NIS million, percentages) Vehicle Property Compulsory Vehicle Sickness and Hospitalization Other Liability Branches Comprehensive Residential Loss of Property Other Risks Comprehensive Business Engineering Insurance Employee Liability Mortgage Banks Personal Accident Cargo Movement Credit Insurance Airplanes and Water Vehicles TOTAL ,953 4,222 1,630 1, , , ,139 4,140 1,839 1,669 1,006 1, ,585 Years ,152 4,117 1,955 1,662 1,050 1, , ,189 4,114 2,202 1,887 1,090 1, , ,385 4,250 2,467 1,716 1,152 1, ,686 Percentage of Change in Insurance Premiums % -0.1% 12.7% 13.6% 3.7% 3.5% -3.5% -0.1% 15.2% 1.8% -14.7% 14.4% 9.0% 7.9% 10.7% 3.6% % 3.3% 12.0% -9.1% 5.7% -14.6% 11.1% -1.1% 4.3% -0.9% 9.3% -2.4% 7.9% 11.5% -1.8% 2.2% Breakdown by Branch % 22.5% 12.0% 10.3% 6.0% 6.8% 2.7% 3.1% 1.7% 1.8% 1.5% 1.6% 0.9% 0.4% 0.2% % 22.7% 13.2% 9.2% 6.2% 5.7% 3.0% 3.0% 1.7% 1.7% 1.6% 1.6% 0.9% 0.4% 0.2% 100.0% 100.0% Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. 109

8 Table C-3 Total Amount of Gross Insurance in General Insurance per Insurance Groups in Years (in NIS million, percentages) Insurance Premiums Market Share Percentage of Change in Insurance Premiums Harel Group 5 3,430 3,290 3,621 3, % 18.6% 19.8% 19.0% 10.1% -2.0% Clal Group 6 3,503 3,456 3,357 3, % 19.6% 18.4% 17.9% -3.0% -0.5% The Phoenix 2,146 2,105 2,148 2, % 11.9% 11.7% 11.8% 2.0% 2.6% Menorah 1,561 1,731 1,779 1, % 9.8% 9.7% 10.4% 2.7% 8.8% Migdal 1,740 1,694 1,668 1, % 9.6% 9.1% 9.0% -1.6% 1.0% Ayalon 1,078 1,100 1,207 1, % 6.2% 6.6% 6.6% 9.7% 2.4% Eliyahu % 4.6% 4.5% 4.4% 1.5% -1.7% Hachsharat Hayishuv % 3.9% 3.7% 4.1% -1.5% 13.8%.I.D.I % 3.8% 3.4% 3.5% -7.0% 6.5% Shirbit % 2.7% 3.1% 3.0% 19.3% 0.3% AIG % 2.3% 2.5% 2.9% 12.0% 18.1% Bituach Haklai Central Cooperative % 2.6% 3.0% 2.8% 17.7% -4.6% Shomera % 1.5% 1.7% 1.9% 16.9% 16.0% Karnit % 1.1% 1.1% 1.0% 0.2% 0.0% Fund for Natural Damages % 0.9% 0.8% 0.9% -9.4% 14.0% EMI % 0.5% 0.5% 0.6% 12.7% 15.2% Ashra Inbal Total , , , , % 0.1% 0.3% 0.1% 0.3% 0.1% 0.3% 0.0% 100.0% 100.0% 100.0% 100.0% 4.0% 43.6% 3.5% -3.6% -99.1% Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. 2.2% The analysis of data of gross insurance premiums in general insurance according insurance groups (Table C-3) shows that in the area of general insurance in the last year the five large insurance companies Harel, Clal, Menorah, Migdal, The Phoenix collected approximately 68% of all insurance premiums, a decrease of 1% from the previous year. The Harel group maintained its leadership after taking over from Clal in the previous year the market share of the Harel and Clal groups of total gross insurance premiums stood this year at 19% 5. The Harel group includes Harel, Dikla and the new BSSH. 6. The Clal group includes Clal, Clal Health Insurance, and Clal Credit. 110

9 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance and 17.9%, respectively. From the data of market share by insurance premiums one can see in these recent years a trend of growth of market share of the smaller companies as opposed to a decrease in shares of the large companies, a trend that testifies to the increase in competition in the branches of general insurance. The absence of competition in the branches of general insurance at times brings along higher insurance premiums and so too a lower level of customer service, since the companies do not have an incentive to become more efficient and reduce rates for the good of the customer. In a situation of a lack of competition the companies can pass on costs for higher profits that do not reflect the pure risk that is included in the insurance product. The level of concentration in the branch serves as an index as to the level of concentration in the marketplace, and high concentration generally points to insufficient concentration in the branch. Table C-4 presents the results of indices of concentration for 2007 in the main branches of insurance. In order to estimate the concentration we shall present three key indices: 1. The Rapindel-Hirshman index (HHI index) this index is calculated by the amounts of the market share of each of the insurance companies. For purposes of calculating market share of each company one calculates the ratio of gross insurance premiums that the company collected to the total of insurance premiums in the branch. The index ranges from 0 and 1 (1 indicates maximum concentration in the branch in which only one company operates). 2. Concentration Index Ratio (concentration ratio) CR3 This index summarizes the market share of the three largest companies or insurance groups in the branch. The larger the percentage arrived at, the greater the concentration in the branch. 3. Concentration Index Ratio (concentration ratio_ CR-5 this index summarizes the market share of the five largest companies or insurance groups in the branch. 111

10 Table C-4 Indices of Concentration in Departments of General Insurance in Years (By Insurance Premiums) Compulsory Vehicle Vehicle Property Comprehensive Residential Employer Liability Other Liability Branches Engineering Insurance Cargo Movement Other Risks Comprehensive Business Personal Accident Sickness and Hospitalization Airplanes and Water Vehicles Mortgage Banks Comprehensive Business Credit Insurance Total Business - Israel HHI % 41.02% 51.73% 53.06% 63.58% 62.14% 67.06% 60.35% 70.40% 62.08% 70.89% 79.30% 79.53% 85.29% 99.96% 49.92% CR % 40.43% 48.92% 54.33% 58.20% 60.40% 65.96% 61.47% 67.65% 65.90% 71.77% 82.75% 84.83% 87.70% 99.98% 43.82% % 60.05% 71.09% 77.29% 81.66% 80.53% 89.45% 77.77% 85.76% 80.20% 88.26% 94.01% 95.76% 93.45% % 68.77% CR % 59.39% 72.62% 80.91% 79.87% 83.88% 90.23% 80.25% 85.60% 83.57% 88.39% 96.19% 99.04% 95.28% % 63.19% Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. According to the indices in Table C-4 the overall concentration of the general insurance market per the HHI index remains with almost no change this year as well, and can be seen with a continued small yet steady decrease whereas the CR-3 and CR-5 indices decreased substantially from

11 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance The branch where concentration is lowest is the compulsory vehicle insurance branch; however in 2007 the decrease in concentration in this branch is after six years of steady decrease. The branches with the most concentration are the credit insurance branch, the sub-branch of residential insurance via mortgage banks, which belong to the comprehensive residential insurance branch, and the comprehensive business insurance branch. According the HHI index one can see that the concentration in the credit insurance and mortgage banks branches rose relative to In the branches of property insurance, such as property loss, vehicle loss and comprehensive residential, there is recorded stability in the level of concentration in recent years, similar to the stability recorded in overall insurance premiums in these branches. Table C-5 EMI (Percentages) Harel Group Clal Group The Phoenix Menorah Migdal Ayalon Eliyahu Hachsharat Hayishuv I.D.I. Shirbit AIG Bituach Haklai Central Cooperative Shomera Karnit Fund for Natural Damages EMI Ashra Loss of Property 26.3% 32.1% 8.9% 6.4% 9.3% 3.8% 1.5% 2.6% 9.0% Sickness and Airplanes Comprehensivhensivsory Liability Compre- Compul- Other Cargo Engineering Credit Other Mortgage Vehicle Employers' Personal and Movement Insurance Insurance Risks Banks Property Insurance Accident Water Residential Business Vehicle Branches Hospitalization 37.1% 20.1% 22.1% 9.1% 7.5% 2.4% 0.1% 0.3% 0.6% 0.6% 0.1% 8.5% 8.6% 7.7% 38.5% 14.7% 15.7% 19.4% 12.5% 15.1% 16.1% 28.5% 23.7% 3.8% 25.6% 29.1% 60.3% 14.2% 18.4% 52.4% 4.9% 15.5% 13.3% 21.1% 18.2% 27.8% 27.7% 22.3% 17.5% 4.3% 14.9% 13.0% 17.7% 6.4% 11.0% 15.0% 10.7% 9.7% 36.2% 18.1% 13.3% 4.6% 14.3% 4.4% 16.9% 8.8% 12.0% 11.6% 11.0% 3.5% 18.9% 15.7% 13.8% 1.2% 9.5% 9.8% 53.2% 6.9% 7.8% 17.2% 11.5% 4.4% 1.2% 10.2% 0.5% 6.2% 0.8% 7.9% 8.0% 8.0% 8.7% 7.9% 3.3% 0.1% 0.1% 3.7% 8.6% 6.1% 2.2% 1.0% 0.5% 5.2% 2.1% 0.4% 3.4% 2.7% 8.1% 5.7% 2.0% 1.3% 0.5% 6.1% 0.5% 5.3% 6.6% 0.1% 0.1% 4.9% 1.3% 1.0% 2.5% 5.1% 5.2% 0.8% 1.2% 0.9% 4.3% 0.2% 2.5% 3.4% 1.3% 4.8% 20.2% 3.9% 1.2% 1.1% 0.3% 0.2% 4.0% 2.9% 4.6% 3.1% 0.3% 0.5% 2.3% 1.6% 3.8% 2.9% 0.8% 0.3% 0.2% 4.5% 30.3% 19.1% 9.1% Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. 113

12 The data in Table C-5 shows that the two largest insurance groups, Clal and Harel, hold the greatest market shares in the majority of the general insurance branches: in the loss of property branch they together hold a market share of approximately 58.4%, in the sub-branch of residential insurance via mortgage banks which belongs to the comprehensive residential insurance branch, they hold a market share of approximately 71.8%, and in the comprehensive residential insurance branch they hold a market share of 34.1%. So too, in the sickness and hospitalization branch they hold a market share of approximately 57.2%. It is further evident from the table that in most of the insurance branches a small number of insurance companies hold a material share of the market; however in the compulsory vehicle insurance branch the insurance premiums are spread over relatively all the insurance companies, and the two largest companies hold in this branch a market share of approximately 28% only. This fact is apparent also in Table C-4 indices of concentration in the general insurance branches. 2. Characteristics of Activities The profits of insurance companies are influenced in particular by the insurance premiums they collect in relation to the risk that they take on and from the profits from their investment activities. The system of recording revenues in the financial statements and manner of calculating provisions varies from one insurance branch to the next, and also influences the profits reported in the financial statements. In the property branch the recording of all the insurance premiums as income is done at the time of issuance of the policy, and the relative share of insurance premiums received during the period subsequent to the date of the financial statements is recorded as a "provision for risks not yet resolved". The insurance companies invest the monies of the provisions and benefit from the profits from those investments, and these profits are recorded immediately in the statement of profit and loss. For the liability insurance branches the system of recording insurance premiums is identical to that in practice in the property branches, but because of the long period required to clarify claims in the liability branches, the companies are not permitted to recognize profits in these branches immediately. All profits from the underwriting year ended are set aside in these branches as an additional provision for a period from three to five years until final clarification of claims. The profits which are set aside in this provision consist of income recorded from insurance premiums, less general and administrative expenses, commissions to agents and claims paid. Also recorded in profits are additional yields from investments in on provision money. This profit is released and transferred to the profit and loss statement only at the end of the aforesaid period. Accordingly, accumulated profits (or losses) in respect of 2007 were recorded in the profit and loss statement for 2007 for the property branches, and also profits (or losses) in the liability branches in respect of underwriting year 2004 and years prior to that. The monies in the provisions that the insurance company provides for are invested in the capital markets subject to the set limitations as per investment regulations. The profits of insurance 114

13 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance companies from the capital markets are part of their revenues and are derived both from the level of provisions they set aside and from investments made. CHART C-1: Profits in Selected Branches of General Insurance in Years (In NIS millions) Vehicle property Comprehensive residential Comprehensive business Compulsory Vehicle Sickneess and hospitalization Other Insurance Branches Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. Chart C-1 presents the profits in the significant general insurance branches for the years The chart points to large differences in profits earned in the insurance branches throughout the years. The comparison of the change in profits (Table C-6) with the change in insurance premiums in certain branches (Table C-2) shows that there is not always a direct correlation between the change in insurance premiums and the change in profits. It can be seen that nearly all the significant insurance branches showed profitability in In this connection it should be mentioned again that the profits presented in the property insurance branches are mostly in respect of the most recent underwriting year, whereas in the liability insurance branches the profit presented is in respect of results of underwritings in previous years. So too, the profit is also influenced by operating costs and payment of commissions to agents. During 2007 the compulsory vehicle insurance branch showed slightly lower profits than for However it still remains the profitable branch of all the general insurance branches. The profit consists of underwriting profits from 2004 and prior. So too, a significant amount of this profit derives from income on investment 115

14 of provision monies. One of the explanations for a decrease in profits can be the decrease in income from investments in this year. In the sickness and hospitalization branch there was an increase of approximately NIS15 million in profits which constitutes an increase of approximately 4% of profits, when at the same time insurance premiums increased by 12%. In the vehicle branch profit stability was maintained and there is no recognized change over the years. In the comprehensive residential branch one can see an increase of approximately NIS13 million in profits, this after recording in the previous year a decrease of approximately NIS30 million in profits. Table C-6 Magnitude of Profit from Gross Insurance Amounts in Insurance Departments in Years (Percentages) Credit Insurance 9.2% 19.5% 20.5% 32.5% 31.6% Compulsory Vehicle 31.9% 28.7% 29.1% 22.2% 16.9% Sickness and Hospitalization 7.8% 4.9% 17.1% 18.2% 16.8% Engineering Insurance 12.9% 12.5% 10.3% 7.5% 10.3% Other Risks 7.1% 7.0% 3.7% 13.8% 9.4% Personal Accident 4.4% 8.4% 9.1% 8.4% 9.1% Airplanes and Water Vehicles 7.3% -0.7% 1.2% 5.1% 8.6% Cargo Movement 9.3% 8.1% 8.3% 3.2% 6.5% Property Vehicle 3.7% 4.9% 5.4% 5.2% 5.1% Mortgage Banks 9.6% 7.0% 6.5% 4.5% 4.8% Other Liability Branches 10.4% 4.2% 7.4% 8.4% 4.8% Comprehensive Residential 8.1% 8.1% 7.1% 3.7% 4.6% Loss of Property 4.7% 3.7% 0.4% -1.3% 0.9% Comprehensive Business -3.1% 3.9% -4.2% -1.5% -0.4% Employer Liability 26.2% 13.7% -2.7% 5.4% -8.8% Total 12.5% 10.8% 11.8% 10.6% 9.0% Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. 116

15 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance Table C-6 presents the measure of profits out of gross insurance premiums of the branches of general insurance branches in the years During 2007 positive profits from insurance premiums were recorded in most branches of general insurance, except for the comprehensive business and employer liability branches. There is a trend toward reduction in profits from insurance premiums in the compulsory vehicle insurance branch in recent years, and for this year it stands at 16.9% vs. 31.9% in As opposed to certain liability branches, in the majority of property branches stability was maintained in terms of measure of profits from gross insurance premiums over the years. It is important to remind again in this connection that the manner of reporting profits in the property branches differs from the manner of reporting profits in the liability branches. Companies do not recognize income immediately liability branch profits due to the requirement to assign the profits to a provision for a three to five year period because of the long time required to clarify claims. In the credit insurance branch one can distinguish the increasing trend in the magnitude of profits from insurance premiums, and this year stood at 31.6% vs. 9.2 for

16 CHART C-2: Market Share by Insurance Premiums vs. Market Share by Profits in % 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% Other liability lines Other risks Comprehensive residential Personal accident Engineering insurance Credit insurance Employers liability Mortgage banks Cargo in transit Aircraft and marine vessels Comprehensive business premises Property loss 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Vehicle compulsory Sickneess and hospitalization Vehicle property By Profits By Insurance Premiums Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. 118

17 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance Chart C-2 presents the measure of insurance premiums in each insurance branch vs. the measure of profits by branch from all the general insurance branches. As is evident from the chart and continued from Table C-7 (Market share by profits in branches of general insurance by insurance groups), the most prominent branches are those of sickness and hospitalization and the vehicle branches (compulsory and property). The share of the vehicle branches out of total insurance premiums in the branches of general insurance stands at 52%, and the share of profits stands at 59% share the share of the compulsory vehicle branch out of total insurance premiums stands at 22.7% and its share of total profits stands at 42.5%, and the share of the property branch stands at 28.8% of total insurance premiums and 16.2% of total profits. The sickness and hospitalization branch represents 24.6% of total profits in general insurance and 13.2% of gross insurance premiums. It is important to note again that the profits presented in the property insurance branches are for the most part in respect of the most recent operating year, whereas in the liability insurance branches the profit presented is in respect of underwriting results of prior years. 20% CHART C-3: Market Share by Insurance Premiums vs. Market Share by Profits in General Insurance Business in % 10% % 0% -5.0% Harel Group Clal Group Phoenix Menorah Migdal Group Ayalon Eliahu Hachsharat Hayishuv IDI Shirbit AIG Bituach Haklai Shomera Emi Ashra By Profits By Insurance Premiums Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. 119

18 30% 25% 20% CHART C-4: Magnitude of Profit of Insurance Premiums Distributed by Insurance Companies in 2007 (Percentages) 15% % 5% 0% -5.0% -10.0% -15.0% Eliahu AIG Menorah Ashra Phoenix Harel Group Migdal Group IDI Ayalon Clal Group Shirbit Hachsharat Hayishuv Bituach Haklai Shomera Emi Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. Chart C-3 presents the share of each group from total insurance premiums collected and the profits from general insurance business dealings; and Chart C-4 presents the share of profits from insurance premiums of all insurance companies, the efficiency of the company for the branches in which it operates and also the investment policy of the various companies which are the principal factors contributing to the profits of the insurance companies. It is possible to see in Chart C-3 that the share of the market by profits of The Phoenix, Menorah, Eliyahu and AIG were greater than their share of the market by amount of insurance premiums. The Eliyahu company stands out in that its market share from insurance transactions is nearly twice as much as its market share of insurance premiums; as such, even by the share of insurance premiums it is considered as the seventh largest insurance company; in the context of share of profits it is considered as the fifth largest after the Clal, Harel, Migdal and Menorah groups; also the size of profits of the company, as can be seen in Chart C-4, is significantly greater in relation to the other companies in the marketplace and stands at approximately 25.5%. 120

19 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance Table C-7 Market Share by Profit in Departments of General Insurance per Insurance Groups for 2007 (Percentages) rance Comprehensive Mortgage Vehicle Employer Personal and Sickness Comprehensivlsory Insurance and Water Moveering Compu- Other Airplanes Cargo Engine- Loss of Property Residential Banks Property Liability Accident Hospitalization Business Vehicle Branches יInsurance Vehicles ment Credit Insu- Other Risks Total Company Share Harel Group 74.1% 22.8% 28.2% 9.1% 12.4% -6.2% -0.4% 45.5% 35.2% 11.6% -0.8% 9.3% 38.5% 45.3% 18.9% Clal Group 103.4% 6.2% 53.2% 442.8% 11.9% 11.5% -20.4% -12.9% 30.6% 17.5% -0.3% 46.2% 13.1% 59.6% 36.9% 14.7% The Phoenix -58.3% 13.8% 6.3% % 5.7% 23.7% 67.9% 15.7% -11.6% 23.8% 18.9% 15.3% 21.4% 2.6% 12.9% Menorah 33.7% 18.9% 0.7% 9.1% 12.9% 5.2% 48.0% 59.2% 6.5% 8.9% 33.9% 11.2% 16.3% 12.9% 12.4% Migdal Ayalon 39.8% -9.4% 1.4% 11.1% 0.1% 155.7% 10.9% 6.3% 4.0% 10.6% -14.5% 29.2% 14.9% 5.7% -4.6% 4.2% 10.4% 2.5% 11.3% 14.0% 4.9% 5.9% 19.4% 9.9% 0.3% 8.9% 5.6% Eliyahu 18.4% 1.7% -0.1% 25.1% 7.5% -0.8% 3.2% -0.2% 8.0% 0.2% 12.3% Hachsharat Hayishuv 6.1% 3.0% 1.2% 2.7% 3.8% -9.6% 2.8% 2.0% 1.1% 3.7% 0.8% 2.3% I.D.I. Shirbit 16.3% 7.9% -1.1% -24.5% -71.0% 3.5% 2.7% 7.5% 3.2% -1.2% 1.7% -2.6% 4.4% 0.4% 0.7% 24.4% 3.0% -0.2% 3.5% 2.2% AIG -2.7% 16.5% 1.6% 4.9% 5.1% -1.5% 5.9% 25.8% 0.5% 0.5% 4.3% Bituach Haklai Central Cooperative % -0.5% 2.1% 2.3% 4.1% 6.9% 8.5% -2.8% 7.4% 2.0% 5.3% 1.6% Shomera 1.4% -7.0% 2.1% 1.6% 2.2% -1.6% 0.2% -0.3% 1.1% EMI -24.0% -0.7% Ashra 10.3% 0.3% Market share by branch 0.6% 3.2% 0.9% -0.1% 42.6% 16.2% -1.7% 4.9% 1.6% 24.6% 0.2% 0.7% 2.0% 1.4% 3.1% 100% Table C-7 presents the share of the market for the total profits of the general insurance branches for all insurance companies, and it can be learned how the share of profits is distributed among the different companies in all insurance branches. The table shows that the compulsory vehicle insurance branch is the largest of the general insurance branches from the standpoint of profits, and where there were reported profits of 42.6% of all profits in the marketplace (a decrease from 2006 where profits stood at 47.2%). As mentioned, in the branch of compulsory vehicle insurance all profits from the underwriting year that ended were assigned to 121

20 an additional provision for a period of three years and earn profits on investments, which can explain the high share of profits of the branch in the marketplace. The highest share of profits in compulsory vehicle insurance belongs to the Eliyahu company, and stands at 25.2%. After them come Menorah, the Clal and Migdal groups with 13%, 12% and 11%, respectively. It can be seen that the distribution of profits among the companies in this branch is more balanced than with other branches. For the vehicle property branch the share of profits of The Phoenix increased from 14.5% in 2006 to 23.7% this year, and together with the Yarel group was given a market share of profits of 12.4% - and the Clal group with a share of profits of 11.5%, being the leaders in the branch. One can see that in the comprehensive business branch the losses slowed, and represent 0.1% of the market share of the branch, vs. 0.4% in It is customary for Israeli insurance companies to acquire secondary insurance with foreign companies in order to narrow the risk they are exposed to and to transfer a portion of the risk to other factors. The secondary insurer obligates itself to cover a portion of the risks that the insurance companies are exposed to, in accordance with the type of secondary insurance. The setting of the range of secondary insurance is derived from, among other factors, the experience and specialization in each insurance branch, of insurance companies acquiring the secondary insurance. The more an insurance company is active in a particular branch, the more experience it has generally in costing risk and can permit itself to acquire less secondary insurance, whereas a company without experience will be forced to acquire more comprehensive secondary insurance. Among the additional factors that an insurance company considers in setting the scope of secondary insurance, can be noted the cost of secondary insurance, quality of risk spread of its portfolio and also division of large claims out of total claims in that particular insurance branch. The extent of insurance premiums which remain with an insurance company not transferred to secondary insurance the remainder constitutes and indicates the scope of secondary insurance of that insurance company. On occasion, the greater the remainder means that with that insurance company there remains a greater portion of the risk; however on occasion the size of the remainder comes from the secondary insurance that was acquired. 122

21 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance BOX A VEHICLE INSURANCE COMPULSORY AND PROPERTY As noted, the compulsory vehicle insurance branch is one of the main branches of general insurance. During 2007 there were approximately 2.3 million vehicles in Israel. And each moving vehicle user requires compulsory insurance, in accordance with the insurance directive for moving vehicles (New Version) CHART C-5: Magnitude of Insurance Premiums and Magnitude of Profits in the Compulsory Vehicle Insurance Branch in Years % 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Percentage of Profits Percentage of Insurance Premiums Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. The importance of this branch of general insurance can be learned from Table C-1 which shows that the greatest number of insurance companies operate in the branch of compulsory vehicle insurance in relation to the other branches. So too in this branch other companies operate such as Karnit, the fund for compensation to vehicle accident victims (whose purpose is to compensate the victim who is eligible for damages according to law and does not have the ability to submit a claim for damages); the entity administering the database of those insured by compulsory vehicle insurance (Hapol Ltd. whose function is to ensure each applicant that was not successful in obtaining insurance coverage by an ordinary insurer); Avner, Organization for Vehicle Accident Victims, Ltd. (commencing from 2003 is in the process of Run off and deals only with disposition of claims). From Table C-2 which presents the detail of gross insurance premiums by branch, it can be concluded that this branch is the second largest. It can be seen that the compulsory vehicle and vehicle property branches constitute approximately half of the insurance premiums of total general insurance whereas the compulsory vehicle branch itself constitutes 22.74%. 123

22 Chart C-5 describes the relative share of the compulsory vehicle branch from general insurance in two main parameters gross insurance premiums and profits. The importance of this branch to insurance companies can be seen because of its contribution to profits. Whereas the extent of insurance premiums is relatively consistent over the years and stood at approximately 23%, its contribution to profitability over the years is greater and amounted this year to approximately 43%. The contribution to profitability is showing a downward trend, and it can be seen that in 2006 the share of profits stood at approximately 47% and for 2005 at approximately 58%. The downward trend in profitability of the compulsory vehicle insurance branch can come from the decrease in share of profits in this branch, as can be seen in Table C-6. In 2003 the share of profits stood at 31.9% and in 2007 at 16.9%. NIS thousands 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, , ,000 CHART C-6: Income from Investments in Compulsory Vehicle vs. Income from Investments in All General Insurance Branches in Years (in NIS millions) % 50% 40% 30% 20% 10% 0-10% - 20% -30% Yields on the TA 100 index calculated via the base index. Income from Investments in all Branches of General Insurance Income from Investments is in Compulsory Vehicle TA 100 Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. Claims in the liability branches and particularly in the compulsory vehicle insurance branch, are submitted at times a long time after the insurance period expires, and at times several years pass between submission of the claim until its final disposition. As part of the means taken in order to ensure that the insurance companies could meet future payments to the insured parties in respect of these claims the inspector of insurance requires the insurance companies to maintain provisions in the compulsory vehicle branch in respect of policies that 124

23 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance were sold in the past three years, and they cannot recognize as profit the portion of insurance premiums not paid as compensation to insured parties at the end of that calendar year. The monies they receive from the insured parties, which are recorded as insurance provisions, are invested in various instruments in the capital market. From Chart C-6 which describes the income from investments in the compulsory vehicle area vs. income from investments in all branches of general insurance (including compulsory vehicle), can be seen that also here the compulsory insurance vehicle branch is of great importance. Since most of the investment assets in general insurance are invested in the local capital markets it can be seen the trend of change in income from investments in all branches from 2001 to 2007 is similar to the trend of change in the Tel Aviv 100 index in those years. Except for 2002 where the income from investments in all branches was negative, in every year the income from investments in the compulsory vehicle branch was approximately 60% of the total income from investments in all branches of general insurance. During years 2006 and 2007 the income from investments stood at 61.9% and 62.3% respectively of total income from investments in all branches of general insurance. CHART C-7: Trends in Compulsory Vehicle Insurance Insurance Premiums, NIS 3,000 2,900 2,800 2,700 2,600 2,500 2,400 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1, ,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0 Vehicle Total Insurance Premiums Average Insurance Premiums Average Indexed Insurance Premiums Total Insurance Premiums Vehicle Status Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. NOTE: Average insurance premiums (insurance premium / vehicle status) Average insurance premiums indexed (insurance premium / vehicle status) in 2007 costs Insurance premiums include payments for insurance fund, stamp tax and monies that were transferred to Karnit from Avner. 125

24 In Chart C-7 are presented insurance premiums in the compulsory vehicle branch, and also the status of the vehicles in Israel. As can be learned from the chart, during the last decade there was a dramatic drop in the level of premiums in the compulsory vehicle insurance branch, and this mainly following the opening of the branch to competition, and further the use of a differential rate based on characteristics of the driver and the vehicle (the insurance companies make use of parameters of the age of the driver, sex, length of time with a driver's license, prior claims, revocation of license and size of motor and air pillows in the vehicle). It can be seen that despite there being a steady increase in the number of moving vehicles there has not been a similar increase in insurance premiums collected. This fact arises from that insurance charges are steadily dropping since the reform that began in the compulsory vehicle insurance branch. CHART C-8: Magnitude of Difference in Average Insurance Premiums Paid by Insured Party in Compulsory Vehicle Insurance Branch (percentages) 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% -30.0% -35.0% -40.0% -45.0% percentage Rate of Decrease in Indexed Average Insurance Premiums Rate of Decrease in Average Insurance Premiums Source: NOTE: Processing by capital markets, insurance and savings area to annual reports of insurance companies based on the companies' own reporting. Average insurance premiums (insurance premium / vehicle status) Average insurance premiums indexed (insurance premium / vehicle status) in 2007 costs Insurance premiums include payments for insurance fund, stamp tax and monies that were transferred to Karnit from Avner. 126

25 NIS thousands Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance From an examination of Charts C-7 and C-8 it can be seen that from 1995 until 2007 there was a decrease of approximately 40% in the level of average real insurance premiums in 2007 costs (premiums / vehicle status). This decrease results from a number of factors, where the main one is the opening to competition in the branch, and additional factors such as: cancellation of the insurance fund, cancellation of stamp tax and decrease in the payment collected by the insurance companies for Karnit. In 1995 the real average insurance premiums (in 2007 costs) that were paid by insured parties totaled approximately NIS2,960 vs. NIS1,793 in 2207, a decrease of 40%. From 1995 until 2001 the premiums for private vehicles were uniform and set by motor size. In 1995 the premium was approximately NIS2,530 in 2007 prices for a motor size of 1,501-1,800 ccm, and for a motor size up to 1,000 ccm the premium was approximately NIS2,220 in 2007 prices. Since commencement of the reform in 2001 the insurance companies set the premiums according risk parameters which characterize the driver and the vehicle. In 2007 the average premium for private vehicles was NIS1,700 whereas the minimum premium was approximately NIS1,200 and the maximum approximately NIS 2,800. CHART C-9: Trends in Vehicle Property Insurance 6,000 5,000 4,000 3,000 2,000 1, ,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Vehicle Total Claims in Vehicle Property Vehicle Thefts Insurance Premiums for Vehicle Property Vehicle Status Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. Note: In order to arrive at the correct status of the vehicle, multiply by 1,

26 Chart C-9 presents the total gross insurance premiums in the vehicle property branch, and the total claims in this branch compared to data on auto thefts and the status of vehicles in Israel. It can be seen that the upward trend in status of vehicles in recent years matches the upward trend in insurance premiums in the property vehicle branch. The claims in the vehicle property branch consist of claims on accidents and claims on vehicles thereon. From the chart it is evident that significant decreases in the number of thefts (as occurred in 2002 and 2007) do not reflect fully the number of claims in this branch, and there was even recorded an increase in claims in those years. Chart C-10: Magnitude of Insurance Premiums Left Over from Gross Insurance Premiums in Years (percentages) 80.0% 79.0% 78.0% 77.0% 76.0% 75.0% 74.0% 73.0% Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. From Chart C-10 it is evident that the rate of increase from 2002 to 2005 in the ratio between the remainder of insurance premiums to gross insurance premiums was halted in This ratio decreased approximately 1% this year, whereas in 2007 there was an increase of approximately 2.2% when the total remainder of insurance premiums stood that year at approximately NIS 14.9 billion out of a total of NIS18.7 billion. The increase in size of the remainder derives mainly form the increase in the mortgage bank branches, credit insurance, loss of property and comprehensive residential property by 13%, 7%, 2% and 1%, respectively. Further, the increase could testify to the change in the type of secondary insurance that the insurance companies acquired that year. 128

27 Ministry of Finance The Capital Market, Insurance & Saving Division Non Life Insurance Table C-8 Magnitude of Commissions for Insurance Brokers from Gross Insurance Amount per Departments of General Insurance in Years (percentages) Credit Insurance Other Risks Compulsory Vehicle Loss of Property Engineering Insurance Personal Accident Other Liability Branches Comprehensive Business Employer Liability Property Vehicle Airplanes and Water Vehicles Sickness and Hospitalization Comprehensive Residential Cargo Movement Mortgage Banks % 10.0% 3.5% 11.7% 11.9% 15.0% 12.9% 13.7% 15.4% 15.3% 16.3% 20.7% 23.2% 22.1% 37.5% % 2.7% 3.7% 11.2% 11.9% 15.7% 13.4% 13.5% 15.7% 15.1% 16.4% 21.8% 22.6% 29.2% 38.1% % 2.3% 3.7% 8.7% 11.4% 13.2% 12.6% 13.6% 14.9% 15.3% 16.3% 20.1% 22.5% 30.4% 37.3% % 2.8% 3.9% 9.7% 11.7% 13.1% 13.4% 13.8% 15.1% 15.4% 15.5% 18.0% 22.5% 29.1% 40.9% Source: Processing by capital markets, insurance and savings area from annual reports of insurance companies based on the companies' own reporting. 129

28 Table C-8 details the rate of commissions paid to insurance agents from gross insurance premiums during the years 2004 to 2007 by insurance branch. As is presented in Table C-8 the amount of commissions from insurance premiums is especially high in the private branches: in the comprehensive residential property branch the rate reaches 22.5% whereas in the sub-branch of house insurance through mortgage banks the rate reached 40.9% in On the other hand for the comprehensive business, engineering insurance and loss of property branches, the percentage of commissions on insurance premiums is 13.8%, 11.7% and 9.7%, respectively. An explanation for this difference can be the greater advantage of the insured business over the insured individual, which expresses itself in the negotiating abilities of the insured business regarding insurance premiums, which includes commissions; and so too the ability of the insured business to purchase insurance directly from underwriters of the company without agents as middlemen. An exception is the compulsory vehicle insurance branch - directives of the inspector limit the amount of insurance premiums in this branch to 16.25% of the risk rate and therefore the level of commissions paid to agents from insurance premiums is relatively low and stands at only approximately 4%. 130