Table of Contents. 1. Company description Organization structure 1-1

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1 Clal Insurance Enterprises Holdings Ltd Financial Statements As At September 30,, 2014 Board of Directors' Report..11 Condensed consolidated interim financial statements Financial data from the consolidated interim financial statements assigned to the Company itself (Regulation 38 D) Report concerning the effectiveness of internal control over o financial reporting and disclosure.24 This report is an unofficial translationn from the Hebrew language and is intended for convenience purposes only. The binding version off the report language only. is in the Hebrew

2 Table of Contents 1. Company description Organization structure Board of directors explanations on the state of the corporation's businesses 2.1 Financial data according to operating segments 2.2 Additional financial data 2.3 Main data from the consolidated statements of financial position 2.4 Cash flow 2.5 Financing sources 3. Developments subsequent to publication of the periodic report 3.1 General 3.2 Legal proceedings 3.3 Restrictions and supervision on corporation's businesses 4. Description of business environment 4.1 Developments and material changes in the macroeconomic environment during the reporting period 4.2 Developments in Israeli insurance market 5. Exposure to market risks and their management 6. Aspects in corporate governance 6.1 Disclosure regarding the process of approving the Company's financial statements 6.2 Transactions with controlling shareholders 6.3 Negligible transactions 7. Disclosure regarding the corporation's financial reporting 7.1 Report concerning critical accounting estimates 7.2 Contingent liabilities 7.3 Internal control over financial reporting and disclosure

3 Board of Directors' Report The Board of Directors' Report on the state of the corporation's affairs for the period ended September 30, 2014 (hereinafter: Board of Directors' Report) reviews the principal changes in the activities of Clal Insurance Enterprises Holdings Ltd (hereinafter: the Company) during the first nine months of the year 2014 (hereinafter: Reporting Period). The Board of Directors' Report was prepared in accordance with the Securities (Periodic and Immediate Reports) Regulations, , and with assumption that the reader is also in possession of the Company's complete periodic report for the year ended December 31, 2013 (hereinafter: Periodic Report). With respect to the insurance business, the Board of Directors' Report was prepared according to the Supervision of Insurance Business (Accounting Details) Regulations, 1998, and according to the circular published by the Commissioner of the Capital Market, Insurance and Savings (hereinafter: Commissioner) from January 20, 2014 regarding "Updating Directives regarding Periodic Reports of Insurance Companies". 1. Company description 1.1 Organizational structure Following are details regarding the principal shareholders of the Company, whose shares are traded on the Stock Exchange and whose rates of holdings are approximately as follows: As at September 30, 2014 Holding voting rights in Holding voting rights in the the Company Company at fully diluted 1) Shareholder % % IDB Development Corporation Ltd 2) Bank Hapoalim ) The rate of holdings at fully diluted was prepared according to the theoretic assumption of the exercise of the options from the 2007 plan (see Note 44 (a) of Part C' of the Periodic Report Financial Statements) to an identical number of Company shares and a maximal theoretic assumption that all the options from the 2013 plan were exercised, whereas the price for the Company share on the Stock Exchange will reach the price when an automatic exercise is performed according to the option plan and allotment agreements, subject to adjustments, all as specified in 2013 plan. 2) Note that IDB Development pledged approximately 4% (approximately 3.88% fully diluted) of the Company's shares to a financial entity. In addition on August 21, 2013, 51% of the issued share capital and voting rights in the Company held by IDB Development Ltd (hereinafter: Means of Control) were transferred by demand of the Commissioner to a trust account in the name of Mr. Moshe Tery (hereinafter: Mr. Tery) and Mr. Tery was also given an irrevocable power of attorney regarding these shares in order to exercise the authorities given by virtue of these shares according to the provisions of the trust deed signed between IDB Development and Mr. Tery. For additional data regarding the controlling shareholders' holdings in the Company, including the approval of the creditors arrangement in IDB Holdings on January 5, 2014 and its completion on May 7, 2014 (according to which the control of IDB Holdings was taken from the previous controlling shareholders), regarding changes in the control of IDB Development (as a result of which, as of the date of the report, IDB Development is indirectly controlled by Mr. Eduardo Elsztain and Mr. Mordechai Ben Moshe), regarding the appointment of a trustee for the controlling shares in the Company, regarding the Commissioner's letters from November 27, 2013 and May 8, 2014, regarding exercising the rights accompanying the Means of Control and regarding the request for a new control permit by the controlling shareholders in IDB Development, see Note 1 in the consolidated interim financial statements as at September 30, 2014 (hereinafter: Interim Reports). 2. Board of directors explanations on the state of the corporation's businesses 2.1 Financial data according to operating segments The group operates in the following segments: Long term savings, nonlife insurance and health insurance. Additionally, the group also has other operation segments that are not included in its operating segments. For information about the group's operating segments see Note 4 to the Interim Reports.

4 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) 3 Following are details regarding the increase in the accumulated comprehensive profit: For the period of nine months ended September 30 Rate of change in percent For the period of three months ended September 30 Rate of change in percent For the year ended December NIS in millions Unaudited Unaudited Audited Long term savings Gross earned premiums in life insurance 3,550 Income from life insurance management fees 467 Profit (loss) from life insurance before tax ( 109) Total comprehensive profit (loss) before tax from life insurance 68 Income from pensions insurance management fees 188 Profit before tax from pension 38 Total comprehensive profit before tax from pension 39 Income from provident fund management fees 187 Profit before tax from provident fund 58 Total comprehensive profit before tax from provident fund 58 Total profit (loss) before tax in long term savings division ( 13) Total comprehensive profit (loss) before tax in long term savings division 164 Nonlife insurance segments Gross earned premiums 2,020 Earned premiums on retention 1,457 Profit before tax in the nonlife insurance division 205 Comprehensive profit before tax in the nonlife insurance division 225 Health insurance Gross earned premiums 1,214 Earned premiums on retention 1,066 Profit before tax in the health insurance division 100 Comprehensive profit before tax in the health insurance division 120 Total profit before tax from insurance branches 292 Total comprehensive profit before tax from insurance branches 509 Financing expenses 110 Others and sections not included in insurance branches Net profits from investments and financing income 132 3,692 ( 4) 1, # ( 45) 317 ( 79) ( 3) ( 12) ( 12) # ( 10) 409 ( 60) 66 2,110 ( 4) 675 1,531 ( 5) , , ( 53) ( 24) ( 28) 42 1,212 ( 3) 4, ( 15) # ( 78) ( 3) ( 30) ( 30) # ( 60) ( 7) 2, ( 9) 2, ( 3) ( 3) 1, ( 1) 1, ( 34) ( 79) ( 38) ( 30) ( 33) 7 68 ( 90) 283 General and administrative expenses ( 20) 50 Other expenses (incomes) ( 12) 9 # 6 ( 3) # 9 Loss before tax in Clal Finance ( 38) ( 18) 111 ( 20) ( 16) 25 ( 27) Profit (loss) before tax from continued activities, from adjustments and offsets ( 14) ( 11) 27 ( 3) ( 8) ( 63) ( 3) Profit (loss) before tax from continued activities from other sectors Total other profit before tax and sections not included in the insurance branches ( 38) ( 25) 41 # 195 Total other comprehensive profit before tax and sections not included in the insurance branches ( 16) 9 92 ( 90) 215 Total profit before tax from continued activities ( 56) ( 14) 232 # 918 Total comprehensive profit before tax from continued activities ( 21) ( 57) 983 Taxes on comprehensive profit from continued activities ( 23) ( 57) 394 Total comprehensive profit from continued operations, net of tax ( 20) ( 56) 589 Comprehensive profit from discontinued operations, net of tax 7 # ( 1) # Total comprehensive profit (loss) from discontinued operations, net of tax 7 # ( 1) # Total comprehensive profit for period, net of tax ( 21) ( 56) 589 Comprehensive profit for period assigned to Company shareholders ( 21) ( 57) 583 Comprehensive profit for period assigned to holders of noncontrolling interest Return on equity in annual terms (in percent) *) ( 31) 7 18 ( 63) 17 *) The return on equity is calculated according to the profit for the period assigned to shareholders of the Company divided by the equity at the beginning of the period assigned to shareholders in the Company.

5 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Description of development of comprehensive profit after tax: The comprehensive profit after tax for Company shareholders for the Reporting Period amounted to approximately NIS 321 million, compared to approximately NIS 408 million last year. The comprehensive profit after tax to Company shareholders during the period of three months ended the date of the report amounted to approximately NIS 70 million, compared to approximately NIS163 million last year. Insurance branches The comprehensive profit before tax from insurance branches in the Reporting Period amounted to approximately NIS 509 million compared to approximately NIS 669 million last year. The comprehensive profit before tax from the insurance branches during the period of three months ended the date of the report amounted to approximately NIS155 million, compared to approximately NIS 249 million last year. During the Reporting Period, the insurance branches were mainly affected by the following factors: a. Reinforcing insurance reserves in the low interest environment and its effect on the capitalization rates in nonlife insurance and life insurance 1. Insurance liabilities in the branches of compulsory motor and obligations on retention increased by approximately NIS 41 million during the Reporting Period (increase in contingent claims on retention of approximately NIS 52 million offset by decrease in accumulations). Without effect in the period of three months ended the date of the report. For additional data see Note 2 (b) of the Interim Reports. 2. Due to the updating of interest rates used in capitalizing liabilities for supplementing the annuity and pension liabilities by repayment and the liability adequacy test (LAT), the reserve increased by the sum of approximately NIS 274 million and approximately NIS 101 million during the periods of nine and three months ended September 30, 2014, respectively. See note 2 (b) of the Interim Reports. 3. The total effect of that stated in sections 12 above, amounted to approximately NIS 315 million and approximately NIS 101 million before tax (the sum of approximately NIS 195 million and approximately NIS 63 million) during the Reporting Period and the period of three months ended the report date, respectively.

6 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Insurance branches (cont.) b. Reinforcing health and life insurance reserves other 1. The reserve for claims in the nursing branch increased in the Reporting Period by the sum of approximately NIS 22 million based on an actuarial calculation that relies inter alia on parameters from the Company's reinsurers, without a change in the period of three months ended the report date compared to the profit for releasing the reserve for continuity in the nursing insurance transaction to members of Maccabi Healthcare Services Ltd in the sum of approximately NIS 22 million during the comparative period last year. 2. During the Reporting Period, the liability to supplement the deferred provident fund and pension liabilities for repayment increased mainly due to the rise in the estimate of realizing the benefit in the sum of approximately NIS 59 million compared to NIS 42 million in the comparative period last year and approximately NIS 21 million in the period of three months ended the report date compared to approximately NIS 33 million in the comparative period last year. c. Improvement in the underwriting profit of general insurance 1. In the compulsory motor branch the comprehensive profit for the Reporting Period was recorded at approximately NIS 159 million mainly as a result of a positive development in the claims for the closed years in the Reporting Period of approximately NIS 109 million, an increase in investment profits beyond the rate required in order to calculate the excess of income over expenditure and release of the excess for the underwriting year 2011 in the sum of approximately NIS 24 million. In the comparative period last year the comprehensive profit was approximately NIS 133 million mainly as a result of a positive development in claims for the closed years in the report date in the sum of approximately NIS 91 million and release of the excess for the underwriting year 2010 in the sum of approximately NIS 32 million. 2. In other liability branches the comprehensive profit before tax amounted to approximately NIS 10 million compared to a loss of approximately NIS 43 million in the comparative period last year (the profit for the period of three months ended the report date totaled approximately NIS 7 million, compared to a loss of approximately NIS 46 million in the comparative period last year) due to a positive development in the actuarial model.

7 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Insurance branches (cont.) d. Life insurance investments 1. In the branch of life insurance there was a decrease in the period of the report in collection of variable management fees in a gross amount of approximately NIS 213 million compared to approximately NIS 223 million in the comparative period last year, reflecting a decrease in CPIadjustment return after payment of management fees to 4.39% in the Reporting Period compared to 5.24% last year. In the period of three months ended the report date, there was a decrease in collection of variable management fees to the sum of approximately NIS 68 million as compared to approximately NIS 101 million in the comparative period last year which reflects a decrease in CPIadjustment return after payment of management fees to the rate of 1.34% in the Reporting Period compared to 2.31% last year. 2. An increase in income from Nostro investments compared to the comparative period last year, including a revaluation of holdings in shares of Mobileye in the sum of approximately NIS 164 million in the Reporting Period (NIS 88 million in the three month period ) as detailed in Note 9 (k) of the Interim Reports. e. Class actions Following the aforementioned in Note 7 (d), the Company included provisions for contingent liabilities and claims, including for class actions, in the sum of approximately NIS 35 million before tax and approximately NIS 29 million in the Reporting Period and the period of three months ended the report date, respectively. Sections not included in the insurance branches The comprehensive profit from sections that are not included in the insurance branches is of approximately NIS 139 million in the Reporting Period compared to approximately NIS 166 million in the comparative period last year. The main changes in profit are as a result of: 1. A loss in the sum of approximately NIS 38 million from activity in Clal Finance compared to the sum of approximately NIS 18 million last year which includes a loss of approximately NIS 20 million on redemption of bonds. The aforementioned loss refers to the difference between the balance of liabilities to bond holders as registered in the Company's books and the final redemption price that was determined as specified in Note 8 (a) (2) and the loss of approximately NIS 17 million on the revaluation of the Alon Delek bonds. 2. A capital gain of approximately NIS 20 million from sale of the HQ building as part of moving to the Atidim Tower (see Note 9 (c) of the Interim Reports). 3. Reevaluating real estate as a result of changing the designation from selfuse to investment in the sum of approximately NIS 33 million in the Reporting Period (see note 9 (j) of the Interim Reports).

8 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Sections not included in the insurance branches (cont.) For additional data about sections not included in the insurance branches see section below Long term savings Life insurance activities The gross earned premiums in the Reporting Period totaled approximately NIS 3,550 million as compared to the sum of approximately NIS 3,692 million last year. The decrease mainly results from the group's policy not to accept policies with benefit coefficients that can be moved until the end of 2013, decrease in onetime deposits in the sum of approximately NIS 38 million and redemptions and cancellations, including voluntary cancellations by the Company due to collection delays. The gross earned premiums in the period of three months that ended the report date amounted to approximately NIS 1,179 million as compared to the sum of approximately NIS1,212 million last year, a decrease of approximately 2.7% compared to the comparative period last year (compared to a decrease of 3.0% in the second quarter of 2014 and a decrease of 5.7% in the first quarter). The comprehensive profit for the Reporting Period is of approximately NIS 68 million as compared to the sum of approximately NIS 317 million in the comparative period last year. The results in the Reporting Period were mainly affected by the decrease in the capitalization rate of liabilities for supplementing the provident and pensions funds by payment and the liability adequacy test (LAT) in the sum of approximately NIS 274 million without a similar effect in the comparative period last year. Reinforcing the liabilities mentioned above is mainly on account of noninvestment linked insurance contracts which are supported by approximately 73% designated bonds (Hetz). The low updated return rate for the surplus assets supporting the aforementioned liabilities (free investments) requires that Clal Insurance increase its liabilities. Additionally the provision for provident and pension funds by payment increased in the Reporting Period mainly due to an increase in the estimate for realizing the benefit and liabilities to supplement the provident and pension fund by payment in the sum of approximately NIS 59 million as compared to approximately NIS 42 million in the comparative period last year. During the Reporting Period an increase in the income from management fees of approximately NIS 17 million was recorded in regard to last year. Additionally an increase in income from Nostro investments was registered mainly for revaluation of the Mobileye shares in the sum of approximately NIS 164 million see Note 9 (k) of the Interim Reports. In the Reporting Period and the comparative period, the rate of redemptions of life insurance policies from an average reserve for the period in annual terms, amounted to approximately 2.7%. In the period of three months ended the report date and the comparative period last year, the rate of redemption of life insurance policies from an average reserve for the period in annual terms, amounted to approximately 2.5%.

9 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Sections not included in the insurance branches (cont.) Long term savings (cont.) Composition of management fees: For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 NIS in millions 2014 % of total 2013 % of total % chan ge 2014 % of total 2013 % of total % chan ge 2013 % of total Variable management fees ( 4) ( 33) Fixed management fees Total all management fees ( 15) Composition of gross earned premiums in the long term savings segment For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 NIS in millions 2014 % of total 2013 % of total % change 2014 % of total 2013 % of total % chang e 2013 % of total Current premiums 3, , ( 3) 1, , ( 3) 4, Onetime premiums ( 30) Total earned premiums, gross 3, , ( 4) 1, , ( 3) 4, Composition of pure savings premiums (investment contracts) For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 NIS in millions 2014 % of total 2013 % of total % change 2014 % of total 2013 % of total % change 2013 % of total Current premiums ( 7) ( 14) Onetime premiums ( 13) Total earned premiums, gross ( 10)

10 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Sections not included in the insurance branches (cont.) Long term savings (cont.) Composition of total premiums in the long term savings segment For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 NIS in millions 2014 % of % % of % of % % of total 2013 % of total change 2014 total 2013 total change 2013 total Current premiums 3, , ( 3) 1, , ( 3) 4, Onetime premiums ( 18) Total earned premiums, gross 3, , ( 4) 1, , ( 1) 5, Additional data for life insurance activity Data about rates of return in profit participating policies Policies issued during the years (Fund J) For the period of three months ended September 30 For the period of nine months ended September 30 For the year ended December 31 In percentage CPIadjusted return before payment of management fees CPIadjusted return after payment of management fees Nominal return before payment of management fees Nominal return after payment of management fees Policies issued beginning in 2004 (new Fund J) For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 In percentage CPIadjusted return before payment of management fees CPIadjusted return after payment of management fees Nominal return before payment of management fees Nominal return after payment of management fees

11 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Sections not included in the insurance branches (cont.) Long term savings (cont.) Data about investment profits assigned to policyholders in profit participating policies and management fees*) Policies issued during the years (Fund J) For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 NIS in millions Nominal investment profits assigned to policyholders after management fees 1,863 2, ,290 3,545 Management fees *) For the savings component in profit participating policies and personal profiles Provident funds activity The comprehensive profit in the Reporting Period totals approximately NIS 58 million as compared to approximately NIS 66 million last year. The decrease in profit during the Reporting Period includes a decrease in income from management fees as a result of regulatory provisions and the competition conditions in the branch, net of the effect of positive returns in the capital market. As mentioned in Note 9 (m) of the Interim Reports, according to a test conducted by the group as at June 30, the recoverable amount of the provident fund activity is higher than the book value. As at September 30, 2014 there were no indications of an impairment in goodwill. The comprehensive profit in the period of three months ended the report date amounted to approximately NIS 16 million as compared to approximately NIS 23 million last year Pension activity The comprehensive profit in the Reporting Period totals approximately NIS 39 million as compared to approximately NIS 27 million last year. The increase in profit mainly resulted from the increase in management fees of new pensions funds compared to last year due to the increase in accumulation and deposits, after offsetting a decrease of approximately NIS 4 million due to the decline in the rate of management fees from deposits compared to last year. The comprehensive profit for the period of three months ended the report date amounted to approximately NIS 20 million as compared to approximately NIS 7 million last year.

12 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Nonlife insurance Following is the distribution of premiums and comprehensive profit in nonlife insurance 1): For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December % of total 2013 % of total 2014 % of total 2013 % of total 2013 % of total NIS in millions Unaudited Audited Motor property insurance Gross premiums Premiums on retention Profit (loss) before tax Comprehensive profit (loss) before tax Loss ratio gross 73% 76% 74% 72% 76% Loss ratio on retention 73% 75% 74% 71% 76% Combined ratio gross 99% 101% 100% 97% 102% Combined ratio on retention 99% 100% 100% 97% 102% Compulsory motor insurance Gross premiums Premiums on retention Profit before tax Comprehensive profit before tax The pool effect on operation results ( 10) ( 12) ( 1) ( 20) Loss ratio gross *) 63% 85% 96% 104% 80% Loss ratio on retention *) 67% 85% 95% 107% 80% Combined ratio gross *) 78% 98% 111% 118% 94% Combined ratio on retention *) 82% 99% 110% 121% 95% Property and other branches Gross premiums , Premiums on retention Profit before tax Comprehensive profit before tax Loss ratio gross **) 41% 74% 42% 41% 75% Loss ratio on retention 53% 54% 54% 51% 57% Combined ratio gross **) 70% 102% 69% 68% 105% Combined ratio on retention 93% 96% 92% 89% 102% Liabilities branch Gross premiums Premiums on retention Profit before tax 4 2 ( 47) # 2 12 ( 52) # ( 24) # Comprehensive profit (loss) before tax 10 4 ( 43) # 7 19 ( 46) # ( 21) # Loss ratio gross ***) 90% 102% 85% 153% 112% Loss ratio on retention ***) 89% 127% 82% 192% 110% Combined ratio gross ***) 117% 128% 113% 181% 139% Combined ratio on retention ***) 124% 162% 118% 226% 147% Total in nonlife insurance sectors Gross premiums 2, , , Premiums on retention 1, , , Profit before tax Comprehensive profit before tax Loss ratio gross 61% 81% 67% 78% 82% Loss ratio in retention 69% 79% 76% 91% 77% Combined ratio gross 86% 104% 92% 102% 107% Combined ratio on retention 96% 106% 103% 117% 105% *) The improvement in underwriting profitability mainly results from positive developments of claims for previous underwriting years which was also expressed in the actuarial model, compared to last year and offsetting the effect of decreasing the capitalized interest for the period. The effect of decreasing the capitalized interest in the report period (as specified in section below) contributed to a 5% increase in the LR on retention rate. **) The improvement in quarterly gross underwriting profitability compared to last year mainly results from natural disasters that occurred during ***) The improvement in underwriting profitability mainly results from positive developments of claims that were expressed in the actuarial model.

13 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) 1) Loss Ratio (LR)= Payments and changes in liabilities for insurance contracts and investment contracts (gross/in retention) Earned premiums (gross/in retention) Payments and changes in liabilities for insurance contracts and investment contracts (gross/in retention) + commissions Combined Ratio (CR) = (Gross/in retention) + general and administrative expenses + other expenses Earned premiums (gross/in retention) Nonlife insurance (cont.) The gross premiums in the Reporting Period totaled approximately NIS 2,058 million, as compared to approximately NIS 2,227 million in the parallel period last year. The gross premiums in the period of three months ended the report date totaled approximately NIS 715 million, as compared to approximately NIS719 million in the comparative period last year. The comprehensive profit before tax in the Reporting Period is of approximately NIS 225 million as compared to approximately NIS 154 million in the parallel period last year. The comprehensive profit before tax in the three month period ended on the report date is of approx. NIS 36 million as compared to approximately NIS 37 million in the comparative period last year. The group improved its underwriting profit as expressed in the results. The loss ratio on retention was reduced in the Reporting Period from 79% in the comparative period last year to 69% (the combined ratio on retention was reduced during the Reporting Period from 106% to 96%). In addition, the loss ratio on retention was reduced in the period of three months ended on the report date from 91% to 76% (the combined ratio on retention was reduced in the aforementioned period of three months from 117% to 103%) Motor property The gross premiums in the Reporting Period totaled the sum of approximately NIS 594 million, as compared to approximately NIS 596 million in the comparative period last year. The comprehensive profit in the Reporting Period totaled approximately NIS 17 million as compared to approximately NIS 14 million in the comparative period last year. The comprehensive profit in the three months period ended the report date is of approximately NIS 4 million as compared to approximately NIS 15 million in the comparative period last year. The increase in profit in the Reporting Period mainly results from the improvement in the underwriting profitability due to improving the portfolio and increase in the individual business segment on account of collectives and car fleets. The decrease in profitability in the period of three months ended the report date compared to the comparative period last year, mainly results from a positive development in claims in the actuarial model of the quarter last year.

14 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Nonlife insurance (cont.) The loss ratio on retention was reduced in the Reporting Period from 75% in the comparative period last year to 73% (the combined ratio on retention was reduced in the Reporting period from 100% to 99%). In addition, the loss ratio on retention increased in the three months period ended the report date from 71% to 74% (the combined ratio on retention increased in the three months period ended report date from 97% to 100%) Compulsory motor The gross premiums in the Reporting Period amounted to approximately NIS 431 million as compared to approximately NIS 455 million in the comparative period last year. The decrease in gross premiums in the Reporting Period of approximately NIS 24 million mainly results from improvement of the portfolio by nonrenewal of losing business, including collective business. The comprehensive profit in the Reporting Period totaled approximately NIS 159 million as compared to approximately NIS 133 million in the comparative period last year. The comprehensive profit mainly results from a positive development in claims for closed years in the Reporting Period compared to the comparative period last year of approximately NIS 18 million and an increase in investment profits beyond the rate needed to calculate excess of income over expenditures. On the other hand, in the Reporting Period, the capitalized interest used to calculate insurance liabilities in the compulsory motor and liabilities branch was reduced (for additional data see Note 2 (b) of the Interim Reports). The comprehensive profit in the period of three months ended the report date totaled approximately NIS 17 million as compared to approximately NIS 37 million in the comparative period last year. The decrease in profit mainly results from positive developments in claims for closed years in the comparative period last year compared to the Reporting Period in the sum of approximately NIS 15 million. The loss ratio on retention was reduced in the Reporting Period from 85% in the comparative period last year to 67% (the combined ratio on retention in the Reporting period reduced from 99% to 82%). Additionally the loss ratio on retention was reduced in the three months period ended on the report date from 107% to 95% (the combined ratio on retention was reduced in the period of three months ended on the report date from 121% to 110%) Property and other branches The gross premiums in the Reporting Period amounted to approximately NIS 775 million as compared to approximately NIS 864 million in the comparative period last year. The decrease in gross premiums in the sum of approximately NIS 89 million mainly results from improvement of the portfolio by nonrenewal of losing business, including collective business. The comprehensive profit in the Reporting Period totaled approximately NIS 39 million as compared to approximately NIS 49 million in the comparative period last year. The change in profit mainly results from a loss in the sum of approximately NIS 22 million in fire and property branches compared to the comparative period last year, mainly as a result of the increase in prices of reinsurance contracts in

15 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Nonlife insurance (cont.) these branches. On the other hand there is a transition from loss to profit in the personal accidents branch in the sum of approximately NIS 16 million resulting from developments in claims in the actuarial model. The comprehensive profit in the period of three months ended on the report date totaled approximately NIS 9 million as compared to approximately NIS 30 million in the comparative period last year. The change mainly results from the transition from profit to loss in the fire and property branch in the sum of NIS 10 million as compared to the comparative quarter last year and a decrease in the profit of personal accidents in the sum of approximately NIS 7 million as a result of developments in claims in the actuarial model. The loss ratio on retention was reduced in the Reporting Period from 54% in the comparative period last year to 53% (the combined ratio on retention was reduced in the Reporting Period from 96% to 93%). Additionally, the loss ratio on retention was increased in the period of three months ended on the report date to 54% compared to 51% (the combined ratio on retention increased in the period of three months ended on the report date from 89% to 92%) Other liability branches The gross premiums in the Reporting Period amounted to approximately NIS 258 million as compared to approximately NIS 312 million in the comparative period last year. The decrease in gross premiums in the sum of approximately NIS 54 million is mainly as a result of improvement in the portfolio by the non renewal of losing business, including collective business. The comprehensive profit before tax in the Reporting Period totaled approximately NIS 10 million as compared to a loss in the sum of approximately NIS 43 million in the comparative period last year. The comprehensive profit before tax for the period of three months ended on the report date totaled approximately NIS 7 million, as compared to a loss of approximately NIS 46 million in the comparative period last year. The difference results from positive developments in the actuarial model in this year compared to negative developments in the actuarial model last year. On the other hand, during the Reporting Period the capitalized interest used to calculate the insurance obligations in the branches of compulsory motor and liabilities, was decreased (for additional data see Note 2 (b) of the Interim Reports). The loss ratio on retention was reduced in the Reporting Period from 127% in the comparative period last year to 89% (the combined ratio on retention was reduced in the Reporting Period from 162% to 124%). Additionally, the loss ratio on retention in the period of three months ended on the report date was reduced from 192% to 82% (the combined ratio on retention was reduced in the period of three months ended on the report date from 226% to 118%).

16 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Health insurance The comprehensive profit in the Reporting Period totaled approximately NIS120million as compared to approximately NIS 106 million in the comparative period last year. The increase in profit during the Reporting Period is mainly as a result of the increase in income from investments which are higher than the amounts needed for an increase in insurance liabilities compared to the comparative period last year after offsetting the decrease in profit in the sum of approximately NIS 22 million following a development in the actuarial assessment of claims in the nursing branch, based inter alia on parameters from the Company's reinsurers compared to a profit for releasing the continuity reserve in the sum of approximately NIS 22 million in the comparative period last year. The comprehensive profit in the period of three months ended on the report date totaled approximately NIS 53 million as compared to a comprehensive profit of approximately NIS 46 million in the comparative period last year. The increase in profit during the Reporting Period results from an increase in income from investments higher than the amounts needed for increasing insurance liabilities compared to the comparative quarter last year. Data about investment profits assigned to insureds in profit participating nursing type life insurance policies: Individual and collective nursing policies For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 NIS in millions Investment profits assigned to insureds Other and sections not included in insurance branches The comprehensive profit from sections not included in the insurance branches totaled the sum of approximately NIS 139 million in the Reporting Period compared to approximately NIS 166 million in the comparative period last year. In addition to the aforementioned in section 2.1 above regarding capital gains from the sale of the HQ building and revaluation of real estate as a result of change in designation, the majority of the profit results from: 1. Reducing the activities in the financing division for which there was a profit of approximately NIS 1 million recorded in the Reporting Period compared to a loss of approximately NIS 15 million last year.

17 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) 2. A loss of approximately NIS 38 million from activities of Clal Finance compared to approximately NIS 18 million last year, which includes a loss of approximately NIS 20 million for redemption of bonds as specified in Note 8 (a) (2) and a loss of approximately NIS 17 million from revaluation of the Alon Delek bonds. Regarding financing expenses in Clal finance see section below. 3. A decrease in income from investments in the Reporting Period in the sum of approximately NIS 89 million as compared to the comparative period last year and a decrease of approximately NIS 79 million for the period of three months ended in the Reporting Period compared to the comparative period last year Financing expenses The group's financing expenses are mainly affected by the change in the CPI as well as fund raising in Clal Insurance and early payments as well as loan agreements in Clal Holdings. Following are details regarding the change in the known index: For the period of nine months ended September 30 For the period of three months ended September 30 In percent Rate of change

18 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) Operations not assigned to sectors The financing expenses in the Reporting Period amounted to approximately NIS 110 million as compared to approximately NIS 153 million last year. The financing expenses in the period of three months ended on the report date amounted to approximately NIS 42 million as compared to approximately NIS 60 million last year. Clal Finance The financing expenses in the Reporting Period amounted to approximately NIS 40 million as compared to approximately NIS 20 million last year. Financing expenses in the period of three months ended on the report date totaled approximately NIS 20 million as compared to the sum of approximately NIS 6 million last year. These expenses included a loss from early redemption and final repayment of liabilities to bond holders in the sum of approximately NIS 20 million, the stated loss refers to the difference between the balance of liabilities to bond holders as recorded in the Company's books and the final redemption price as determined. See Note 8 (a) (2).

19 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.1 Financial data according to operating segments (cont.) General and administrative expenses Following the aforementioned in section 3.1 of Part B of the Periodic Report of 2013 the Board of Directors' Report regarding the decrease in general and administrative expenses in activities which generated losses for the group and are not in congruence with the Company's strategy, during the Reporting Period a decrease in general and administrative expenses from discontinued operations in the sum of approximately NIS 107 million was recorded as specified in Note 8 (c) of the Interim reports regarding the decrease in expenses of discontinued operations recorded in For the year 2012 the sum of approximately NIS 201 million see Note 38 in the Periodic Report for Additional financial data For the period of nine months ended September 30 Main movements in equity For the period of three months ended September 30 For the year ended December 31 NIS in millions Profit for the period *) 147 Other comprehensive profit for the period **) 178 Comprehensive profit 325 Comprehensive profit to Company shareholders 321 Comprehensive profit for noncontrolling interest 4 Comprehensive profit 325 Paid dividend 370 ( 14) *) Following the aforementioned in Note 3 (f) (1) of the Annual Statements, note that the profit (loss) from increase (decrease) in fair value of financial assets (marketable debt assets and nonnegotiable equity assets) is split in the financial statements between the statement of profit and loss and the statement of other comprehensive profit, whereas the provision for reinforcing insurance reserves in a low interest environment as mentioned in Note 2 (b) (2) is entirely credited to profit for the period. **) The other comprehensive profit is mainly affected by profit (loss) from an increase (decrease) in fair value of financial assets (marketable debt assets and nonnegotiable equity assets) which are not included in investment portfolios in exchange for profit participating policies (Nostro), from foreign currency translation differences of foreign operations, profit for reevaluation of real estate classified as investment property and actuarial profits(loss) for employee benefits.

20 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.2 Additional financial data (cont) Main data from consolidated statements of financial positions Assets As at September 30 Rate of change As at December 31 NIS in millions % 2013 Total assets 91,036 84, ,050 From assets: Total assets for investment linked contracts in consolidated insurance companies 51,142 Other financial investments 1) 30,660 45, ,994 29, ,322 Assets managed for others (not Nostro) in the group (NIS in millions ): For insurance contracts and investment linked insurance 51,142 For provident funds members 1) 36,755 45, ,994 35, ,182 For pension fund members *) 40,958 34, ,101 Total assets managed for others 128,855 Total assets managed by the old fund *) 8, , ,277 7, ,435 1) The consolidated financial statements do not include assets managed in provident funds (except for the provident fund for which Clal Insurance assumed its liabilities for a guaranteed minimal annual yield) and pension funds. For additional data see Note 3 (a) (2) to the Annual Financial Statements.

21 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.2 Additional financial data (cont) Liabilities As at September 30 Rate of change As at December 31 NIS in millions % 2013 Total liabilities 86,779 Liabilities in respect of insurance contracts and noninvestment linked insurance 29,804 Liabilities in respect of insurance contracts and investment linked insurance 50,394 Total liabilities in respect of insurance and investment contracts 80,198 Deferred liability notes 1) 2,855 80, ,123 29, ,281 44, ,424 73, ,705 2, ,434 Liabilities to banking corporations: Loan balance after report date The Company 2) ( 9) 417 Clal Credit and Finance 3) ( 71) 241 Other liabilities 10 # 2 Total loans ( 42) 660 Liabilities for discontinued operations 4) 72 # 82 Liabilities for derivative financial instruments and short sale 6) Total liabilities to banking corporations and others 1,010 1,093 ( 8) 827 Clal Finance bonds 5) 259 # 251

22 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.3 Main data from consolidated statements of financial positions (cont.) 1) For data about issuing Tier 2 hybrid equity during the Reporting Period, see Note 6 (c) (7) of the Interim Reports. 2) According to the policy determined for reducing the debt and the Company's financing costs, on November 11, 2014 the Company made a voluntary early repayment and paid the sum of approximately NIS 243 million of its loans to banking corporations. For additional information see Note 9 (e) of the Interim Reports. 3) As part of the strategy to discontinue operations which are not part of the core business, the Company completed a transaction to transfer most of its factoring customers to a third party as specified in Note 46 (g) (1) of the financial statements for 2013 and additionally the Company ceased giving new loans through Clal Consumer Credit as specified in Note 46 (g) (2) of the financial statements for 2013 and through Clal Business Credit as specified in Note 46 (g) (4) of the financial statements for Furthermore, after the balance sheet date, Clal Consumer Credit performed an early redemption of loans in the sum of approximately NIS 23 million. 4) The decrease results from paying liabilities for discontinued operations Broadgate see Note 6 (c) of the Interim Reports. 5) Regarding early repayment of bonds during the Reporting Period see Note 8 (a) (2) of the Interim Reports. 6) An increase mainly resulting from the effect of the rise in the rate of the dollar on liabilities for derivatives as part of the hedging policy and the group's exposure to foreign currency. The sum of approximately NIS 427 million as at September 30, 2014 for investment linked liabilities, compared to approximately NIS 122 million in the comparative period last year and approximately 77M NIS as at December 31, Equity and capital requirements As at September 30 As at December 31 Rate of change NIS in millions % The Company Total equity assigned to Company shareholders 4,223 Total equity required of the Company *) 2,877 Surplus 1,346 3, ,885 1, Rate of retained earnings from required equity 46.8% 35.1% 26 Clal Insurance **) Total equity and retained equity required 4,502 Total Tier 1 hybrid equity 4,106 Total Tier 2 hybrid equity ***) 2,529 Total recognized equity 6,635 Surplus 2,133 4,504 3, , , , Rate of surplus from equity from required retained equity 47.4% 32.2% 47 Tier 2 equity from total recognized equity 38.1% 36.7% 4

23 2. Board of directors explanations on the state of the corporation's businesses (cont.) 2.3 Main data from consolidated statements of financial positions (cont.) 2.4 Cash flow *) For data about capital requirements according to the control permit in the insured and the Commissioner's notice from May 8, 2014 cancelling the permit, see Note 6 (c) (4) of the Interim Reports. **) For additional data about equity requirements of companies in the group, see Note 6 in the Interim Reports. ***) For data about issuing Tier 2 hybrid equity during the Reporting Period, see Note 6 (c) (7) of the Interim Reports. Main data from statement of cash flows For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 NIS in millions Net cash flows from continued activities (used in continued operations) ( 1,474) *) 1,447 ( 1,481) *) ( 528) 1,825 Net cash flow from investments (used in investments) ( 273) Net cash flow from financing (used in financing) ( 200) Effect of exchange rate fluctuations on cash balances ( 62) ( 823) 163 ( 33) ( 375) ( 1,017) ( 5) ( 31) Total increase (decrease) in cash balances ( 1,911) *) 716 ( 1,354) *) ( 906) 831 Cash and cash equivalents for beginning of period 4,349 3,517 3,792 5,140 3,517 Cash and cash equivalents for end of period 2,438 4,234 2,438 4,234 4,349 *) The decrease in cash during the Reporting Period mainly results from purchasing investment property in the Nostro portfolio and the investment linked portfolio and purchasing financial investments in the portfolio held in exchange for investment linked contracts. 2.5 Financing sources The Company attaches great importance to maintaining and preserving sufficient cash balances in a manner that allows it to repay its financial liabilities as well as support, if necessary, the capital requirements of Clal Insurance as well as other investees in the group. Additional financing sources include inter alia dividend distribution of investees and the possibility of realizing holdings in investees as well as financing from the banking system and/or the public.

24 2. Board of directors explanations on the state of the corporation's businesses (cont.) Liquidity means and credit lines Following are details about the main liquidity means and credit lines of the Company and its subsidiaries: NIS in millions As at September 30 Shortly before the report date Company's liquidity means (solo) *)**) Liquidity means Clal Finances (solo) *) Unused credit lines the Company *) For data about a loan from Clal Finance to the Company in the sum of approximately NIS 248 million, see Note 8 (a) (1) and (2) of the Interim Reports. **) For data about early redemption of loans as part of the strategy to reduce the debt and the financing burden, see Note 9 (e). Using the abovementioned credit lines is subject to compliance with financial covenants, as explained in section (c) below Financing characteristics a. The Company, being a holding company, reviews the value of its assets compared to liabilities in the context of the financing and liquidity issues, as well as the existence of liquidity means and a reasonable accessibility assessment for these means, required for its activities and repayment of its debts. b. The Company's activity (debt repayment, investments, general and administrative expenses and dividends) is usually financed by dividends received from investees, loans from banking corporations and the consideration from realizing assets. c. For data regarding the financial covenants for loans taken from banking corporations by the Company and/or its subsidiaries guaranteed by the Company, see Note 29 (b) and 29 (d) of the financial statements for As of September 30, 2014 the Company is in compliance with its covenants. d. For data about the Company's main financial movements (solo) see details of cash flow ascribed to the Company itself (solo), included in the Interim Reports. e. For data about the distributable earnings of the Company, adjusted to the Company's capital requirements, as well as equity and capital requirements in the consolidated institutional entities and additional companies in the group, see section below.

25 2. Board of directors explanations on the state of the corporation's businesses (cont.) Financing characteristics (cont.) f. Following is a specification of repayment of the Company's contractual liabilities in the next year: In thousand NIS Principal Interest Total Principal Interest Total Loans from banks 1) 15,000 6,975 21, ,240 6, ,957 Loans from banks 2) 15,000 2,087 17,087 15,000 2,173 17,173 1) These repayments are based on dates stipulated in agreements with the banks. 2) After early redemption of the loans in the sum of approximately NIS 243 million from balances resulting from Clal Finance, after the report date, see Note 9 (e) of the Interim Reports. For additional data see the immediate report published by the Company regarding the Company's liabilities quota according to repayment dates (T126) (reference ).

26 3. Developments subsequent to publication of the periodic report 3.1 General For data regarding distributable earnings as of the report date according to the Companies Law and the capital requirements resulting from the control permit in the institutional entities held by the Company, see Note 6 (c) (3) of the Interim Reports For data regarding the collective agreement signed with the employees committee, see Note 9 (a) of the Interim Reports For data about the move to the Atidim Tower and selling the HQ building, see Note 9 (c) of the Interim Reports For data about closing the exposure for the open years on account of the Broadgate businesses after selling it, see Note 9 (d) of the Interim Reports For data about the group's rating, see Note 9 (f) For data about the Israeli Securities Authority's decision to extend the period for issue of Company securities according to the Company's shelf prospectus from May 31, 2012 see Note 9 (h) of the Interim Reports For data about publishing a shelf prospectus and issue of bonds by Clalbit Finance, see Note 9 (i) of the Interim Reports For data about the change in designation of property, plant and equipment to investment real estate, see Note 9 (j) of the Interim Reports Clal Insurance after receiving the recommendation of Clal Insurance's compensation committee, on September 30, 2014 the Board of Directors of Clal Insurance approved a compensation policy for Clal Insurance (hereinafter: Compensation Policy for an Institutional Entity). The Compensation Policy for an Institutional entity is intended to help achieve the objectives of Clal Insurance as well as its work plans with a long term outlook, while considering its risk management, and includes updates regarding the compensation policy of Clal Insurance for the year 2013 according to the directives of the circular for institutional entities no on "compensation policy in institutional entities" published by the Commissioner on April 10, 2014, including but not only, the following issues: the ratio between variable pay and fixed pay, the limit of the fixed pay, spreading the variable pay and retirement arrangements. In light of the fact that the Company's shareholders meeting approved the Company's compensation policy on September 10, 2013 (reference ) and in light of the fact that the Company's officers are also officers in Clal Insurance and until the Company's compensation policy is amended, the Company decided to apply the more severe of the two compensation policy documents to the aforementioned officers Clal Finance a. For data about developments regarding the transaction for selling Clal Finance shares, see Note 8 (a) (1) of the Interim Reports. For data about early redemption of bonds (Series A) see Note 8 (a) (2) of the Interim Reports.

27 3. Developments subsequent to publication of the periodic report (cont.) b. For data about developments concerning the dispute between Clal Finance Batucha Investment Management Ltd (Clal Batucha) and the Tax Authority see Note 7 (c) (1) For data about developments in markets after the balance sheet date see Note 9 (o). 3.2 Legal proceedings For data regarding developments in class actions and contingent actions against the group's companies (not in the regular course of business) see Note 7 of the Interim Reports. 3.3 Restrictions and supervision on corporation's businesses This chapter will review the laws, regulations, circulars and most material position papers or drafts of laws, regulations, circulars and most relevant position papers published by the Knesset, the Government or the Commissioner of Insurance, as applicable, after the date of publishing the Periodic Report General Consultants and agents circular "involvement of an entity that is not licensed in marketing and selling insurance products that is not collective insurance" In November 2014, an agents and consultants circular "involvement of an entity that is not licensed in marketing and selling insurance products that is not collective insurance" was published and is intended to determine principles for arranging the manner of a supervised entity engaging with a person or entity that is not licensed by the Commissioner (hereinafter: External Entity) concerning the involvement of an External entity in marketing or selling individual insurance products (hereinafter: the Draft). The circular determines, inter alia the action of an External entity that does not contradict the provisions of the law regarding the involvement of an External entity in marketing or selling individual insurance products, as well as characteristics of permitted engagement between a supervised entity and an External entity intended for using the assistance of an External entity in marketing individual insurance products. The circular also stipulates that some entities are entitled to be a collective owner according to the Supervision of Financial Services (Insurance) (Collective Health Insurance) Law, and in any case, banks are not entitled to get involved in the sale of insurance products as said. The arrangements stipulated in the circular might lead to expending the manner of distributing insurance products and increase competition in the branch Circular and bill on limitation of an insurance contract that includes disability insurance coverage In August 2013, a circular was published in the issue of limitation of insurance contracts that include disability insurance coverage (hereinafter: the Circular) as well as a clarification on this matter. As part of the circular, rules were determined for handling applications for extending the limitation period in disability claims yet to be established and also stipulated disclosure obligations for insureds regarding their rights to receive an extension as said. At the same time, in March 2014 Amendment No. 6 for the Insurance Contract Law, was published and determined that if the cause of action according to the policy is disability caused to a policyholder from an accident or illness, the limitation period will begin on the date that the policyholder became entitled to claim insurance benefits according to the Insurance Contract Law. In light of publishing the aforementioned amendment to the Insurance Contract Law, in April 2014 the Commissioner of Insurance announced that the circular is revoked Compensation policy in institutional entities In April 2014, a circular was published regarding the compensation policy in institutional entities and a bill for Compensating Officers in Financial Corporations (Special Approval and Limitation on Expenses for Tax Purposes due to Extraordinary Compensation) , which amended and revoked a previous circular on compensation policies from 2009 in light of findings from reviewing the application of the circular from 2009 combined with adjusting it to international standards and regulation in Israel, including, Amendment 20 and the Supervisor of Banks instructions regarding banking corporations. According to the circular, the compensation policy will apply to officers, investment managers and another group of employees whose compensation exceeds the sum specified in the circular and anyone included in the group of employees subject to the compensation arrangements according to the compensation policy in institutional entities in which the variable component of the

28 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) General (cont.) Compensation policy in institutional entities (cont.) compensation, accrued, might expose the institutional entity or the savers' funds to a material risk. As part of the circular it was determined inter alia that a suitable ratio between the fixed compensation component and the variable pay component will be determined so that the rate of the annual variable component will not exceed 100% of the annual fixed component and in cases of exceptional conditions to be determined (concerning a onetime business event), it will be possible to determine that the rate of the annual variable component will not exceed 200% of the fixed component, except in regard to the CEO and chairman of the board. It was also determined that any payment of the variable component will be subject to postponement arrangements so that at least 50% of the variable component will be postponed and spread in the straight line method over a period of not less than three years. As part of the circular various arrangements were determined in connection to granting shares or share based instruments, in connection to retirement grants and other issues. The circular became valid as of July 1, 2014 (hereinafter: Application Date) yet compensation agreements approved before the date of publishing the circular draft (December 25, 2013) will be adjusted to the circular's provisions until the end of 2016 and compensation agreements approved as of the date of publishing the circular draft until the Application Date, will be adjusted until the end of On June 30, 2014 Clal Insurance approved a new compensation policy. Note that in regard to officers that are joint officers for Clal Insurance and the Company whose compensation policy was approved on September 10, 2013 according to the provisions of Amendment 20 of the Companies Law, the Company's Board of Directors decided to act according to the more strict of the two policy documents. In July 2014 a bill was published for Compensating Officers in Financial Corporations (Special Approval and Limitation on Expenses for Tax Purposes due to Extraordinary Compensation) (hereinafter: Bill) which was approved in the first reading, following the law memorandum on the matter that was published on June 5, The objective of the Bill is to limit and reduce the pay for senior officers in financial entities. The Bill determines a corporate mechanism for approving the engagement for compensating an employee in a financial corporation (a financial entity or corporation controlled or controlling a financial entity) whose foreseen expenditure, as calculated as of the approval date according to acceptable accounting regulations, is expected to exceed NIS 3.5 million, whereby his or her terms of employment will be submitted for the approval of the compensation (or audit) committee, Board of Directors (by special majority of external directors) and special meeting of that company and in a public company by special majority of minority shareholders in the general meeting. In addition it is proposed to determine that the cost of an employee's fees in a financial corporation that exceeds NIS 3.5 million net of the expenditure for granting shares or the right to receive shares, will not be tax deductible by the company. According to the transitory provisions, at the end of a year from publishing the law, its provisions will apply to engagements approved before publishing the law, and if not they will not be valid. On June 9, 2014 the Capital Market Division informed institutional entities that the Commissioner expects that at the time of establishing the compensation policy, the institutional entities will refer to the maximum cost of fees stipulated in the memorandum, which according to the Commissioner reflects a suitable maximum compensation for managers in financial entities. The Commissioner also announced that in light of the amendment of the regulations regarding the participation of a managing company in a general meeting at the time of approving the compensation policy in public companies that are financial corporations or that control corporations as mentioned or banking corporations, he expects that when an institutional entity votes in a meeting as said, reference will be made to the maximum cost of fees stipulated in the memorandum. Note that in their compensation policy that was approved at the end of June 2014, the institutional entities in the Clal group decided that when determining the maximum extent of compensation to a key functionary, they will consider the provisions of the memorandum according to its final version as legislated by the Knesset.

29 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) General (cont.) Concentration law Following the aforementioned in section in Part A of the Periodic Report, the report describing the corporation's businesses and continuing the aforementioned in Note 1 (b) (1) of the Interim reports regarding completing the creditors arrangement in IDB Holdings and changing control in IDB Development, as of this date, IDB Development, as a controlling shareholder in the Company, is considered a "first layer company" (and not a "second layer company"), the Company is considered a "second layer company" (and not a "third layer company") and Clalbit Finance Ltd a reporting corporation controlled by Clal Insurance and Clal Finance, is considered an "additional layer company" (third) (and not an "additional layer (fourth)") as these terms are defined in the Law for Promotion of Competition and Reduction of Concentration, (hereinafter: Concentration Law). Regarding the application of the provisions of the Concentration Law on Clalbit Finance and Clal Finance (until September 28, 2014 when it stopped being a reporting corporation) see section and Note 1 (b) (1) as aforesaid. In July 2014 Regulations for Promotion of Competition and Reduction of Concentration (Type of Company that is not a Layer Company and Provisions for Ascribing Control), were published and will be retroactively applied as of June 11, According to the aforementioned regulations, an issuing company, classified as a layer company and is a subsidiary of a banking corporation or an insurer that is not a layer company, will enjoy an easement in regard to the severe corporate governance rules in the interim period referring to the requirement for a number of independent and external directors. The aforementioned easement will apply to Clalbit Finance.

30 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) General (cont.) Draft of Regulations for Supervision of Financial Services (Insurance) (Commissions), An amended draft of Regulations for the Supervision of Financial Services (Insurance) (Commissions), (hereinafter: the Draft) was published in September According to the provisions of the Draft, insurance agents will only be entitled to commissions of the following types: (1) service commission a commission paid on a current basis which also includes reimbursement of office expenses. (2) target commission a commission paid for complying with sales targets due to marketing all insurance products of the institutional entity included in a certain type of insurance product, (3) reimbursement of professional guidance expenses. According to the provisions of the Draft, the commissions will be paid by monetary payment only. The Draft also stipulates that no commissions will be paid for a certain insurance product in connection to management fees paid by the customer for the product. The regulations will be applied as of July 1, 2015 as mentioned in the Draft. If the provisions of the Draft are accepted and become a binding version, the possibility of rewarding insurance agents with nonmonetary benefits such as overseas travel will be denied as will the possibility of short term special offers. Additionally, the provisions of the Draft might affect the Company's possibility of encouraging synergy between various products by payment of commission as part of a combined adherence to inclusive sales targets in terms of products that are not of the same type of insurance product as defined in the Draft. The Draft requirements that the service commission for a certain insurance product not for a limited period during the initial 60 months of the policy's life, will not be less than the commission paid for the second month of the insurance and that the amount of target commission does not exceed 20 times the amount of service commission paid for the second month of the policy's life, might lead to preserving insurance policies, decreasing commissions paid in the first years of the policy's life for long term policies and thereby reducing the deferred acquisition costs (DAC) and might also affect the advisability of agents selling long term policies. On the other hand, these provisions might lead to increasing the monthly service commission. Negating the connection between the extent of the management fees actually collected from the customer and the extent of commission paid to the agent, might affect the rate of management fees to be charged to customers. Not paying the agent commission for a member that is not connected, a member who passed away and also not paying commission to more than one licensee, might decrease the commissions paid to agents in these cases compared to commissions currently paid to them. The group's estimations regarding the Draft of the Commission Regulations, is considered as forward looking information based on information that the group has on the date of the report. At this stage and before publishing the final version of the Draft, it is impossible to estimate their implications and inter alia they depend on the final version, when received, the conduct of competing entities, the agents and the manner of applying the provisions of the regulations, including in regard to the extent of management fees to be collected from members and payment of office expenses to agents that are not limited in amount.

31 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) General (cont.) Draft of Regulations for Equal Rights for Persons with Disabilities (Insurer's Notice Regarding Different Treatment for a Person or Refusing to Insure the Person), In June 2014 a draft of a principle decision regarding the Equal Rights for Persons with Disabilities, 1998 (hereinafter: Equal Rights Law) was published. As part of the draft it was clarified inter alia that an insurance company must give a disabled insured that was treated differently, as defined in the law, or a disabled person that was refused insurance, a written explanation that will include a summary of the actuarial, statistical, medical or other details that based the insurance company's decision, as well as a summary of the information the company relied on in making the decision regarding that person. Regarding the class action conducted against Clal Insurance in this matter, see Note 7 (a) (a2) (6) and 7 (a) (a2) (7) of the Interim Reports. At this stage, deliberations are held with the Commissioner in regard to the decision draft. If the decision draft is published as a binding version, it will give the Commissioner authority in regard to applying the provisions of the law. Later in September 2014, a draft was published for the Equal Rights for Persons with Disabilities (Insurer's Notice Regarding Different Treatment for a Person or Refusing to Insure the Person), (hereinafter: Regulations Draft) that specifies, inter alia the version of the notice that must be delivered to the policyholder according to the Equal Rights Law, stating that a person who was refused insurance or who was treated differently as specified in the Equal Rights Law, has the right to file a complaint to the Commissioner of Insurance and the Complaints Committee or to file a claim to the court of law. The Regulations will be applied 30 days after publication. The companies are conducting deliberations with the Commissioner regarding the Regulations Draft Memorandum of Penal Law (Amendment Corporate Criminal Liability, (hereinafter: Memorandum) In October 2014 a Memorandum of Penal Law (Amendment Corporate Criminal Liability, (hereinafter: Memorandum) was published on behalf of the government. The Memorandum is based on the conclusions of the team set up by the Minister of Justice (at the time) a few years ago to review criminal liability of corporations and manners of penalizing them, headed by the Assistant Legal Advisor to the Government (Criminal). The purpose of the Memorandum is to amend section 23 of the Penal Law, (hereinafter: Penal Law) on the matter of updating the scope of criminal liability of a corporation and adding the supervision obligation of a corporation as well as defining cases that will lead to ending criminal proceedings against a corporation that ceased to exist or continuing them in case of a merged corporation. The Memorandum proposes perfecting and clarifying tests that exist in verdicts regarding the identity of the organ whose criminal actions and thought will be considered as that of a corporation. Inter alia the Memorandum includes a clear and defined definition for a "functional test" according to which a corporation might be obligated for criminal liability, even if the offense was committed by someone with a managerial authority in the corporation in the branch of the committed offense and also if the managerial authority is included in corporation's job definition or if it results from circumstances. The Memorandum also determines a condition whereby the corporation's liability will not be imposed when the organ did not intend to benefit the corporation and the nature of the act was not one that which benefits the corporation. The Memorandum also adds the supervision obligation of a corporation to prevent committing certain offenses by an agent associated with the corporation (including an employee, officer and service provider). The offenses that the Memorandum refers to are offenses according to the Prohibition of Money Laundering Law, bribes, offenses according to the Securities Law and according to Restrictive Trade Practices Law. At this stage the Memorandum does not include reference to penalizing corporation as said.

32 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Long term savings Supervision of Financial Services (Provident Funds) (Management Fees) (Amendment) Regulations, The Supervision of Financial Services (Provident Funds) (Management Fees) (Amendment) Regulations, (hereinafter: Minimum Management Fees Regulations) were published in March 2014, determining the minimum annual management fees in provident funds. According to the regulations, if one of a member's accounts in a provident fund that is not a life insurance reserve contains monies from a component of employee payments or a component of employer payments that were deposited for the tax year before the tax year 2008, the management fees mechanism in the provident funds will change so that as of January 2016 the company managing the provident fund will be entitled to charge management fees according to the higher of: (a) the balance accumulated in the member's account in the rate of 1.05% for the year and in addition the rate of 4% out of the payments transferred for the member; (b) from the balance accumulated for the member in all his or her accounts in the provident fund an amount that does not exceed 6 NIS for the month (this amount will be linked to the index as of December 1, 2015 and will be updated once a year) Supervision of Financial Services (Provident Funds) (Withdrawing Funds from Provident Fund) (Accounts with a Low Accumulated Balance) (Temporary Order) Regulations, ; Circular of withdrawing funds from small accounts in a provident fund; Letter of instructions from the Tax Authority An amendment to the Supervision of Financial Services (Provident Funds) (Temporary Order), was published in January 2014 (hereinafter: Temporary Order) authorizing the Minister of Finance to determine instructions for withdrawing funds from a nonpaying reserve for pension as a onetime thing, instructions regarding withdrawal of funds from a provident fund for benefits and instructions regarding notices to members on these matters. By virtue of the Temporary Order and as a step towards completing the Minimum Management Fees Regulations, the Supervision of Financial Services (Provident Funds) (Withdrawing Funds from Provident Fund) (Accounts with a Low Accumulated Balance) (Temporary Order) Regulations, (hereinafter: Withdrawal Regulations) were published in March 2014 as well as a circular regarding withdrawing funds from small accounts in a provident fund. The objectives of the Regulations and circular are to entitle members with accounts that contain a low accumulated balance in provident funds for pension, a nonpaying provident fund for a pension and a personal provident fund that is not a life insurance reserve for severance pay (hereinafter: Permitted Provident Fund) to withdraw a one time, tax exempt amount of provident funds in the following accumulated conditions: (1) the member's total accumulated balance in all accounts in the provident fund before January 1, 2013 did not exceed NIS 7,000, (2) funds were not deposited in the accounts of the Permitted Provident Fund since January 1, 2012, (3) funds from another provident fund were not transferred into or out of the account or into another provident fund since January 1, 2013 and thereafter. The Withdrawal Regulations are a Temporary Order that will be valid until March 31, The circular determines provisions on giving notice to members that hold accounts with a low accumulated balance regarding their entitlement to withdraw funds, provisions on publications in the website of the managing company and the obligation to report to the Commissioner of performing withdrawals as said. As a step towards completing the Withdrawal Regulations, in March 2014 a letter with instructions from the Tax Authority was published specifying that the Withdrawal Regulations only apply to provident funds and tax must not be deducted for withdrawing severance pay from Permitted Provident Funds fulfilling the conditions for withdrawal as specified in the Withdrawal Regulations as aforesaid.

33 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Circular for a discount in management fees for pension recipients in a pension fund In June 2014 the Commissioner published a circular for a discount in management fees for pension recipients in a new pension fund (hereinafter: Management Fees Circular). The circular determines that a discount will be given in the management fees of a member receiving a pension for the entire period of paying the pension and also determines that the discount in the management fees given to the recipient of an old age pension, will also apply to his or her surviving relatives, if any. It was also determined that for a pension recipient entitled to a discount in management fees, the managing company will calculate the pension according to which maximal management fees (a pension calculated according to a conversion coefficient that includes management fees at a maximal rate) and the actual pension (a pension calculated according to a conversion coefficient that includes management fees after discount). According to the provisions of the circular, it will become valid from the date of publication, July 27, According to the group's estimations, the circular's instructions regarding a discount in management fees can and will affect the competition conditions in the market of pension funds, also after the stage of receiving the pension. Additionally if discounts in management fees will be given in the future to recipients of pensions in pension funds, the liability to offer discounts throughout the lifetime of the policyholder and his surviving relatives, might have a material effect on the extent of management fees that Clal Pension and Provident Funds will charge from pension receiving members and their surviving relatives. At this initial stage it is not possible to fully foresee the effect of the circular and inter alia it depends on the manner of actually applying it, the conduct of competitors, distributing agents and customers. Regarding the class action filed against the subsidiary Clal Pension and Provident Fund concerning the management fees in pension funds upon receiving the pension see Note 7 (a2) of the Interim Reports. The group's estimation in regard to the draft of the management fees circular is considered forward looking information based on information held by the group on the date of the report. The actual results might differ from the estimated results inter alia due to the reasons mentioned above Circular regarding stipulations in pension arrangements that include insurance coverage In November 2014 the Commissioner published a circular on stipulations in pension arrangements that include insurance coverage intended to determine instructions for reducing the fear of conflict of interests between an employer and employees in joining retirement saving arrangements. The circular determines limitations on stipulating purchasing of insurance coverage for loss of working capacity or death (hereinafter: Insurance Coverage) in managing a retirement saving product with an institutional entity, prohibited the stipulation of discount in management fees from a pension product in purchasing Insurance Coverage and also determined that the premium presented to the insured in the insurance schedule for personal Insurance Coverage, will be the cost of actual Insurance Coverage throughout the entire insurance period and not a fixed period, after deducting the discount given to an insured for the cost of the Insurance Coverage. In addition, if the company decides to give an additional discount, the company will send the insured an updated insurance schedule. The circular will apply to institutional entities and insurance companies for personal Insurance Coverage policies or collective Insurance Coverage policies. The circular applies from the date of publication.

34 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Long term savings (cont.) Draft of circular regarding explanatory document In June 2014 a second draft of a circular regarding an explanatory document was published. The draft is intended to amend the existing draft from 2009 which requires the licensee to forward an explanatory document to a customer at the time of giving a recommendation regarding the customer's retirement savings. The draft of the circular is intended to determine a focused and standard structure for an explanatory document aimed to make it easier for the customer to handle the scope of information that the customer is exposed to at the time of receiving recommendations regarding the retirement savings and also to allow mechanizing the information and transferring it through a central pension clearing system (pension clearing system). As part of the amendment it is proposed to expand the obligation of preparing the explanatory document to other cases except purchasing pension products where licensee had not prepared explanatory documents until now, it is also suggested to expand the obligation of control by the institutional entity on the explanatory document received from the licensee. At this stage deliberations are being conducted with the Commissioner regarding the final version of the circular, including the scope of control obligations that must be imposed on the institutional entity as well as the period of time necessary in order to get organized for applying the new directives included therein Draft of Supervision of Financial Services (Provident Funds) (Distribution Commissions) Regulations, In June 2014, a draft of Supervision of Financial Services (Provident Funds) (Distribution Commissions) Regulations, (hereinafter: Regulations Draft) that amends the Supervision of Financial Services (Provident Funds) (Distribution Commissions) Regulations, (hereinafter: Main Regulations) was forwarded to the Finances Committee of the Knesset. As part of the Regulations Draft, it was proposed to amend the Main Regulations, inter alia by expanding the application of the provisions of the regulations beyond companies managing pension and provident funds, to insurance policies recognized as provident funds sold by the insurer, except for such policies that guarantee yields. The Regulations Draft proposes changing the rate of distribution commissions paid to a pension consultant for consulting services for provident funds, so that instead of a distribution commission of 0.25% of the accumulation, it will be possible to pay a distribution commission that constitutes the amount of: (1) the rate of 0.2% of the accumulation or 40% of the management fees actually charged from the accumulation by the institutional entity whichever is lower; (2) 1.6% of the deposits or 40% of the management fees that the institutional entity actually collects from the deposits whichever is lower. The rate of the distribution commission that can be paid for a study fund did not change and remains 0.25% of the accumulation. According to the draft, an institutional entity can engage in a distribution agreement with a pension consultant only if they engaged in regard to all the provident funds managed by it, including all investment tracks in that fund and all insurance plans and it is suggested to allow the institutional entity to refrain from paying distribution commission for members that the connection with them ended and members that passed away. According to the draft, the regulations will be applied as of January 1, 2015, however for members in respect of whom the distribution commission was paid for prior to inception of the regulations, the regulations will apply as of January 1, According to the Regulations Draft it is proposed to reduce the distribution fees collected from the accumulation compared to the current situation, including if the customer gets a discount in the management fees collected from that customer. Collecting distribution commissions from deposits might also encourage pension consultation regarding pension products in the first years after purchasing them while the accumulation is still low.

35 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Long term savings (cont.) Draft of Supervision of Financial Services (Provident Funds) (Distribution Commissions) Regulations, (cont.) At this stage, the Company cannot estimate the implications of the Regulations Draft in the life insurance branch due regarding the uncertainty of agreements to be signed between the insurance companies and banks, if and when signed. The engagements as stated, if signed, might expand the distribution potential of insurance products, increase the competition in the branch and push small agents out of the industry. Furthermore, paying distribution commission for insurance products sold in the past might increase the expenses for these policies, specifically in regard to policies sold in the past and mainly expenses for their distribution paid in the years shortly after the selling them. The group's estimation in regard to the Regulations Draft regarding distribution fees is considered forward looking information based on information held by the group on the date of the report. At this stage and before publishing the final version of the Regulations Draft it is impossible to estimate the implications thereof and they depend inter alia on the conduct of the distributing agents, the extent that pension consultants enter and get involved in the retirement savings market, choices by customers and the competition in the branch Supervision of Financial Services (Provident Funds) (Payments to Provident Funds) Regulations, The Supervision of Financial Services (Provident Funds) (Payments to Provident Funds) Regulations, (hereinafter: Regulations) aimed to arrange the manner of depositing payments to provident funds, were published in August The Regulations determine that a provident fund is entitled to receive payments through various means of payment, except cash, and defines the details that must be delivered to the managing company at the time of depositing payments even if payments for provident funds are no longer made for employees (except if employment ended or if the employee or the deposits were transferred to a different provident fund). The institutional entity will be required to send the employer feedback about the deposits to the reserve on various dates which determined in the Regulations in order to update the employer of deposits received and their intactness. According to the draft, registering information about deposits cannot be conditioned by receiving additional information beyond the aforementioned in the Regulations. The Regulations define the date for depositing payments to provident funds by the employer for employees and the implications if depositing funds for employees is delayed. The information to be forwarded by the employers and the feedback given by the managing company will only be in a mechanized data file in a standard structure to be determined by the Commissioner. In addition to the aforementioned Regulations that will apply in January 2016, in September 2014 the Commissioner published a collection interface that will become valid in January 2016 in regard to employers debts as part of the standard structure circular. Applying the provisions of the Regulations and the circular entail extensive operational and mechanized preparations and might require increasing the scopes of collection for employers' debts in arrears as well as the need to settle differences, if any, between the data held by institutional entities and the data forwarded by the employers. The group's estimation in regard to the draft of the Regulations of payments to provident funds is considered forward looking information based on information held by the group on the date of the report. The actual results might differ from the estimated results due inter alia to the extent of cooperation from employers in applying the provisions of the Regulations and their operational preparations for applying them.

36 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Long term savings (cont.) Supervision of Financial Services (Provident Funds) (Payments to Provident Funds) Regulations, (cont.) Supervision of Financial Services (Advice, Marketing and Pension Clearing System) Bill, (Amendment No. 6), Following the plan to increase competition in the pension consultation market published by the Commissioner in November 2010 aiming to improve the market, the competition and transparency and later the Commissioner's intent to limit the gaps in information between distributors and customers (employees and employers), in March 2014 the Supervision of Financial Services (Advice, Marketing and Pension Clearing System) Bill, (Amendment No. 6), (hereinafter: Bill) was published and determined inter alia that an employee asking to perform a transaction with a pension product will be able to perform it through any licensee of its choice; an employer will not be able to condition a transaction through a specific licensee including a licensee providing operating services. In addition the Bill prohibits the employer from conditioning rendering of any other service that it must render to an employee, including operating services or benefits to an employee, including a discount on management fees that it obtained for its employees, on performing a pension transaction by a specific licensee. If approved the Bill might affect the terms of the contractual engagement of employers and their employees and the operational preparations required as a result of the need to individually engage with the employee through an agent selected by the employee instead of with the employer. Granting the customer the right to select an agent might affect the employer's position and connection with the institutional entity. In addition, granting the customer the right of selecting the agent while preserving the employer's right to continue and choose the agent from which it wishes to receive operating services, might increase the operating pressure on the institutional entity and effect the activity of the arrangement managers by reinforcing the status of pension consultants as well as small and medium sized agents. The group's estimation in regard to the Bill is considered forward looking information based on information held by the group on the date of the report. The actual results might differ from the estimated results due inter alia to the customers' choices in regard to realizing the right to select an agent, the conduct of distributors and employers' choices in regard to managing the connection between them and the institutional entities Division of Retirement Savings Between Separated Spouses Law, In August 2014 the Division of Retirement Savings Between Separated Spouses Law, (hereinafter: the Law) was published in order to determine arrangements regarding division of retirement savings between spouses that separated if the former spouse is entitled, according to a verdict, to part of the retirement savings of his or her previous spouse, inter alia in light of the need to arrange the division of pension rights between separated spouses in a manner that allows ending the connection between them and separating management of their affairs vis a vis the institutional entity. According to the Law the managing company must act to register the rights of the former spouse separately and imposes direct obligations towards the previous spouse. The Law allows the couple to determine that dividing the retirement pension will not be done according to the provisions of the Law, provided that it is not done through the paying entity. The Law will be begin in February 2015 and will also apply to verdicts given before that, subject to the terms of the Law. The Company and the institutional entities in the group are preparing for application of the Law's provisions.

37 3. Developments subsequent to publication of the periodic report (cont.) Amendment of the Supervision of Financial Services (Provident Funds) Bill, A proposal for amending the Supervision of Financial Services (Provident Fund) Law, (hereinafter: the Bill) was published in September 2014 suggesting to give the Commissioner the authority to instruct the managing company to submit a detailed report specifying the rates of management fees determined for new joiners in the manner, format and dates instructed by the Commissioner. The report will be done at the most once every six months. It is also proposed to determine that the managing company will collect management fees from a new joiner according to the rates reported as said, except in cases instructed by the Commissioner. The objective of the Bill is to increase transparency regarding management fees collected from new joiners in various retirement saving options so that the reports will serve as a platform for establishing a management fees computer that makes it possible for a customer joining the provident fund to compare between the management fees in various provident funds of different manufactures. The Company estimates that if the Bill will be accepted it will increase the competition between the institutional entities in the branch. The directive is that the managing company will charge management fees at rates reported by it from new joiners and will affect the rate of the maximum management fees that can be collected from new members and as a result can affect the discount arrangements given by management companies in the future. The group's estimation in regard to the Bill is considered forward looking information based on information held by the group on the date of the report. The actual results might differ from the estimated results due inter alia to the fact that it is a bill for amending a law that has yet to be formulated into a binding version and in light of deliberations with the Commissioner on the issue Draft of circular of investment tracks in provident funds Following the draft of the regulations and the draft of the circular published in January 2012 regarding adjusting the savings track to the member's characteristics published by the Commissioner, in November 2014 an additional circular regarding investment tracks in provident funds was published which, as stated therein, aims to change the customary situation that most of the funds in retirement savings products are managed by institutional entities in "general" tracks without considering the savers characteristics, including their age and therefore are exposed to investment risks in the saved retirement pension that is not compatible to the level of risk suitable for them according to their characteristics. The purpose of the circular is to determine rules for establishing default options adjusted to the age of members in provident funds. According to the draft, in each of the provident funds that are not study funds, the institutional entity will manage investment tracks for managing funds of new members that did not select another investment track, as part of an age linked investment model, in investment tracks designated for pension recipients and specializing investment tracks. Beginning in the planned date of application, a new member as defined in the draft, will join one of the default options suitable for the member's age or the pension receivers option, as applicable, unless the new member who does not receive a pension, asked to join a different option that is not a default option. A member who is not a new member will be entitled, by request, to

38 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Long term savings (cont.) Draft of circular of investment tracks in provident funds (cont.) join the default option. Additionally, the circular draft also refers to rules when an institutional entity can manage investment tracks in study funds and policies that are not insurance funds. In addition, according to the draft, in order to allow a member to make an educated decision regarding the investment track suitable for its needs and avoid misleading the member, if the member actively selects the investment track for directing his savings, the draft of the circular arranges standard rules for determining the names and policies of the investment in various options (specializing and nonspecializing) and prohibits the use of misleading names for the fund or option. According to the draft, the Commissioner will publish the list of investment tracks on the Commissioner's website as well as details of the rule based investment policy for all the various investment tracks and the appropriate option name for the investment policy as mentioned and the institutional entity must accordingly unless it received the Commissioner's approval to act otherwise. The Commissioner will be entitled, subject to the provisions of the circular, to inform the institutional entities of changes in the investment tracks list. The circular draft determines rules regarding changing the rule based investment policy in the investment track, subject to giving notice to members as mentioned in the draft and also allows the institutional entity, during the first year after setting up the option, to deviate from the rule based investment policy subject to the terms specified in the draft. The circular draft will apply to all the provident funds, except a yield guaranteeing provident fund and life insurance policies marketed before January 1, According to the draft the circular will apply as of January 1, The Company is studying the provisions of the draft Health insurance Insurance circular regarding "collective travel insurance to members of healthcare funds and customers of travel agencies" In November 2014 a circular regarding "collective travel insurance to members of healthcare funds and customers of travel agencies" was published and determined principles according to which the Commissioner will allow healthcare funds or travel agencies to serve as "policy holders" in collective travel insurance, according to the provisions of the Supervision of Financial Services (Insurance) (Collective Health Insurance) Regulations, (hereinafter: Regulations) as well as provisions on the manner of selling collective travel insurance policies that also apply to agreements signed or renewed before the Regulations entered into force (hereinafter: Old Agreements). As part of the circular it was determined that selling insurance will be done directly by the insurer without the policy holder being involved in the sales process. The arrangement stipulated in the circular might lead to changing the manner of selling collective travel insurance policies to members of healthcare funds entered by the group before the Regulations became valid The German Committee In June 2014 the recommendations of the advising committee for reinforcing the public health system established by the Minister of Health that was composed of a team of experts in various fields (hereinafter: German Committee or Committee) were published. The objective of the German Committee was to review various issues that the health system has to face, including amending legislations and operative measures. The German Committee also referred to medical insurances sold both as part of Additional Health Services Programs offered by healthcare funds as well as part of commercial insurances (hereinafter: Medical Insurances). As part of its recommendations for Medical Insurances, the Committee suggested creating a standard policy for healthcare funds and insurance companies that will include insurance coverage for surgeries and consultation concerning surgeries as well as other consultations and receiving a second opinion (hereinafter: Standard Policy). The Standard Policy will be a separate and independent layer in the other layers of the Additional Health Services or coverage that the insured will purchase as part of commercial insurance and its coverage will be defined together by the representatives of the Ministry of Health and representatives of the Capital Market Division (hereinafter: Ministries). The insurance

39 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Life insurance (cont.) The German Committee (cont.) companies and Additional Health Services will not be entitled to sell coverage for surgeries or consultation except for coverage defined in advance, without the joint approval of the Ministries. The Ministries can update the coverage from time to time and this will also apply to existing policyholders. According to the Committee's recommendations, the insurance tariffs in the Additional Health Services and commercial insurances will be checked from time to time and updated as necessary. At the end of the insurance period a procedure for notice of renewing the insurance will be determined and as part thereof, cases requiring that the policyholder agrees to renew the insurance will be defined inter alia if the price is increased in the renewal. The price of the Standard Policy will change according to defined age groups that will be determined in advance by the regulator in a similar manner and according to extensive age groups. In addition a mechanism for balancing underwriting risks will also be determined. The maximum rate of discount will also be standard and determined by the regulator. The tariff can be changed on dates determined for all the insureds in the plan and not in regard to a specific insured. The Standard Policy will include deductibles in standard rates and there will be a prohibition for selling insurance or a product to cover the deducible amount. Surgeries and consultations will be done with doctors that are part of the arrangement only and in general, a reimbursement of expenses will be prohibited. Additionally it is proposed that the Standard policy stipulate a reciprocal recourse obligation between the healthcare funds and the insurance companies and regarding existing policies, the aforementioned obligation will be determined subject to a legal review. It was also recommended that the supervision of insurance review the loss ratio of insurance companies and intervene if necessary. According to the Committee's recommendations, the supervision of insurance will act to remove barriers for the policyholders' transition from the existing individual policies in commercial insurances to new policies offered by the insurance companies. At this initial stage in light of the fact that these are recommendations of the Committee and it is not clear if and how they will be applied and before publishing directives and drafts thereof by the Commissioner in regard to applying the Committee's recommendations, it is not possible to estimate the implications of the suggested reform. Nonetheless, if the recommendations will be applied they might have an effect on the branch, which cannot be estimated at this stage. The information regarding the possible future implications of the German Committee's conclusions is considered forward looking information based on the group's evaluations and assumptions as of the date of the report. Actual application might differ than as foreseen. The implications of the German Committee's conclusions mainly depend on the final version of the binding directives to be determined following the Committee's recommendations, the reciprocal effects of these directives in regard to the arrangements determined between the insurance companies and the healthcare funds, arrangements determined in regard to the insurance companies, the healthcare funds' conduct, competition, distributors and the behavior of members and insureds Draft of Commissioner's position on the matter of defining an "insurance event in nursing insurance" The draft of the "Commissioner's position defining an insurance event in nursing insurance" was published in July The objective of the draft is to clarify the Commissioner's interpretation for the definition of a nursing insurance event as it appears in Insurance Circular on the issue of "preparing a plan for nursing insurance" (hereinafter: the Circular). If the draft will be published in a binding version and in light of the interpretation given to it as part of defining an insurance event in nursing insurance initially published in 2003, it can significantly affect and increase the costs of settling nursing claims filed by policyholders. Nonetheless, at this initial stage the final version of the draft has yet to be published and in light of the fact that the insurance companies are conducting deliberations with the Commissioner on the version and provisions of the draft, it is not possible to estimate its full affect, including in regard to claims for policies sold before its publication.

40 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Life insurance (cont.) Draft of Commissioner's position on the matter of defining an "insurance event in nursing insurance" (cont.) The group's estimation in regard to the draft of the Commissioner's position on the definition of an insurance event in nursing insurance, is considered future forward looking information based on information held by the group on the date of the report. At this stage and before publishing the final version of the position paper, its implications cannot be estimated Draft amending the Supervision of Financial Services (Insurance) (Collective Health Insurance) Regulations, A draft amending the Supervision of Financial Services (Insurance) (Collective Health Insurance) Regulations, (hereinafter: the Draft) was published in 2014, determining a number of changes that mainly concern the manner of adding policyholders, renewing collective insurances and policyholders leaving the relevant group, it was determined inter alia that the policyholder's consent to join collective insurance will only be done after the insurer presents the coverage included in the policy and the amount of premium for each coverage to the policyholder. Renewing collective insurance continuously in a manner that does not require receiving the policyholder's approval will only be done provided that one or more of the basic coverages in the policy were not cancelled. During the insurance period or the date of renewing the collective insurance, the premium cannot be increased at a rate of more than 20 percent, unless with the policyholder's explicit consent (hereinafter: Updating the Premium). As part of the Draft, arrangements were determined in case the policyholder's consent required as aforesaid is not received. It was also determined that notice of 30 days in advance must be given before ending the insurance without renewing it with the insurer or if the insurer is preparing a collective policy for policyholders that were previously insured by another insurer as well as ending the interest between the policyholder and the collective holder for which the policyholder stopped being insured. It was also determined that in case of ending the interest as said, the insurance will be cancelled in regard to that policyholder within 90 days from ending the interest. When validated as a binding version, the provisions of the Draft are expected to have operating implications that might increase the operating costs of health policies. Furthermore, continuing to give insurance coverage after the date of ending the interest between them and the collective holder, might lead to a difficulty in collecting the premium during this period. The need to receive consent for Updating the Premium according to the provisions of the policy or renewing it might affect the ability of Updating the Premium for policyholders and/or a number of policyholders that will choose to continue to purchase the coverage. The group's estimation in regard to the draft amending the Supervision of Financial Services (Insurance) (Collective Health Insurance) Regulations, is considered forward looking information based on information held by the group on the date of the report. The actual results might differ from the estimated results as a result inter alia of the final version of the Regulations if and when published and from the conduct of the insurers, the collective policy holders and the insureds Draft of the Supervision of Financial Services (Insurance) (Collective Nursing Insurance for Healthcare Fund Members) Regulations, and the draft of the Insurance Circular on Collective Nursing Insurance for Healthcare Fund Members The draft of the Supervision of Financial Services (Insurance) (Collective Nursing Insurance for Healthcare Fund Members) Regulations, and the draft of the Insurance Circular on Collective Nursing Insurance for Healthcare Fund Members (hereinafter: the Drafts) were published in October The Drafts stipulate standard terms for collective nursing insurances of healthcare funds. As part of the Drafts rules were determined for managing a fund originating from premiums paid and that will be used as insurance coverage in case the policyholders move from one healthcare fund to another and also determined that during the period of the agreement, the insurer will be the trustee of the fund and will manage it. It was also determined that during the insurance period, the insurance company will bear the insurance risk entailed in collective nursing insurance for healthcare fund members at a rate of not less than 20% of the insurance risk. The maximum period for an engagement between an healthcare fund and an insurer will not exceed 8 years

41 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Life insurance (cont.) Draft of the Supervision of Financial Services (Insurance) (Collective Nursing Insurance for Healthcare Fund Members) Regulations, and the draft of the Insurance Circular on Collective Nursing Insurance for Healthcare Fund Members (Cont.) and the reimbursements that the healthcare fund can receive from the insurer will not exceed 3% of the premiums actually collected. The proposed Drafts regulate transition between healthcare funds and determine that a member of a healthcare fund that was insured as part of its collective nursing insurance and left the fund for another healthcare fund, can join the collective nursing insurance of the receiving healthcare fund without medical underwriting during a predetermined period. In addition the Regulations determine that people above the age of 60 that were insured in collective nursing policies (not prepared as part of a healthcare fund) that ended in the four years before the Regulations became valid and are not insured as part of a collective nursing policy of the healthcare fund, will be entitled to join the collective nursing policy of the healthcare fund without underwriting, during a predetermined period and with different conditions than the rest of the insureds. The expected date of validating the Drafts if accepted and published in a binding version will be April 1, As part of the Drafts the Commissioner delayed the deadline date for extending the collective nursing policies (prepared not as part of a healthcare fund) by six months to June 30, At this stage the Company is learning the Drafts. In regard to the Company's existing engagements in a collective nursing insurance for healthcare fund members see section of the corporation's business description report for General insurance Second draft for the amendment of the Insurance Business Supervision Regulations (Terms of Insurance Contract for Homes and their Contents) (Amendment), The Commissioner published a second draft for the amendment of the Insurance Business Supervision Regulations (Terms of Insurance Contract for Homes and their Contents) (Amendment), (hereinafter: Regulations Draft) in May 2014 proposing to amend the version of the standard policy for home insurance (hereinafter: Standard Policy) by making amendments that mostly expand the existing coverage, which according to the current version will not be part of the minimum obligated terms for home insurance as part of the Standard Policy. The Regulations Draft suggests inter alia to amend the Standard Policy in terms for cancelling the policy by the policyholder so that the policyholder can voluntarily cancel the policy at any time and receive a relative refund of premiums without a cancellation penalty. The group estimates that if and when the Regulations Draft will be approved and become a binding version and due to the accumulated effect of a number of changes included therein, they foresee an increase in the scope of claims and average claim amounts. They also expect an increase in underwriting expenses and an exposure to an increase in payment of claims due to underinsurance in light of the proposed amendments as part of the Regulations Draft and which deny the insurer the right to the remedies stipulated as part of the Insurance Contract law, in regard to underinsurance. The ability to cancel the insurance coverage without penalties is expected to increase competition in the branch and expose insurance companies to an increase in voluntary policy cancelations that require relative refunds of premiums for the remaining insurance period without being able to participate in expenses spent on account of selling the policy and yet to be returned. At this stage, before publishing the final version of the Regulations, the group cannot estimate the scope of the aforementioned effect which depends inter alia on the market prices to be determined, the conduct of competitors in the market and customers and the market competition conditions that will focus on price, service and manner of removing claims. The group's estimation in regard to the Regulations Draft for a standard home insurance policy is considered forward looking information based on information held by the group on the date of the report. The actual results might differ from the estimated results as a result inter alia of the final version of the Regulations if and when adopted as a final version, the aggregate implications of the changes included in the Regulations Draft and the conduct of competitors and customers in the market.

42 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Nonlife insurance (cont.) Circular of renewing insurance contract In September 2014 a circular regarding renewing insurance contracts was published, determining that 30 days before the end of the insurance period, the insurer must give the policy holder notice that the insurance period is about to end and specifying: the premium and deductible in the ended policy, the need for the policy holder's consent as a condition for renewing the policy and the policy holder's responsibility to ensure insurance coverage. The circular also determined that an insurance company interested in renewing the policy must receive consent and document it inter alia by mail, , message or document and recorded call. The circular permits the insurance company to renew the policy without and before receiving the members consent to renew the policy for an additional period that will begin at the end of the insurance period but will not exceed 21 days, provided that it informed the policy holder in advance, in order to receive the policy holder's consent for renewing it during that period. The circular will apply to motor and home insurance as well as personal accidents for individual policies for which the insurance period does not exceed one year. In addition, the circular's provisions will apply to compulsory motor insurance in regard to delivering notice of ending the insurance period. The provisions of the circular regarding the obligation to give notice of ending the insurance period will not apply to policies that the insurance period does not exceed three months and will also not apply to collective insurances and insurance policies that include an advanced stipulation that at the end of the insurance period the insurance will be automatically extended. The application of the circular will begin on March 31, 2015 except the matter of the obligation to document the insured's consent that will become valid on March 31, According to the Company's estimates the provisions of the circular are expected to lead to a change in the engagement process with the policyholder in regard to renewing an insurance contract and as a result there will be a need for mechanized and operational preparations. In addition the provisions of the circular regarding advanced notice and the content thereof might encourage and increase competition and may expose the Company to new market segments and on the other hand effect the ability to retain existing customers Capitalized interest in National Insurance benefits On June 8, 2014 an interoffice committee was appointed, headed by Retired Judge Dr. Eliyahu Winograd in order to review the amendment of life expectancy tables and the rate of interest used in order to capitalize benefits for injury at work according to the National Insurance Regulations (Capitalization), (hereinafter: Capitalization Regulations and the Committee). The Committee's recommendations might affect the capitalized interest rate of benefits to individuals injured at work and accordingly, might affect the rates of insurance amounts that insurance companies will have to pay the National Insurance as part of recourse claims filed by the National Insurance Institute to insurers. At this preliminary stage, before the Committee formulated its recommendations and in light of ongoing deliberations, it is not possible to anticipate its effect which inter alia depends on the Committee's recommendations, the extent of application and scope thereof as well as the scope of deductions to actually be deducted by the Company and/or that the Company will be entitled to deduct from insurance benefits paid by it to insureds. The Company's estimation is considered forward looking information based on information held by the Company on the date of the report Position paper not initiating measures to ease the risk A position paper regarding not initiating measures to ease the risk (hereinafter: Position Paper) was published in November The Position Paper the determines inter alia that at the time of settling claims, an insurance company is required to apply the provisions of the legislative arrangement specified in sections 18 and 21 of the Insurance Contract Law, (hereinafter: the Law) in full and instructs insurance companies to review the insurance plans in property branches and update them so that they do not include a demand or exclusion which stipulate that having or activating standard protection measures of any sort, are a precondition for the insurance company's liability. Additionally insurance companies are required to review the compatibility of insurance tariffs and determine procedures that will allow applying the payment arrangements. The Position Paper the also determines that if a Company is required to submit an updated plan, including update of tariffs, it must do so until January 31, The Company estimates that the provisions of the Position Paper the

43 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Nonlife insurance (cont.) Position paper the not initiating measures to ease the risk (cont.) may lead to increasing benefit payments in claims and as a result might also effect the insurance tariffs structure and rates thereof. The group's estimation in regard to the Position Paper the is considered forward looking information based on information held by the group on the date of the report. At this stage it is not possible to estimate the full implications and they depend inter alia on the conduct of the insureds and competitors and the insurance tariffs to be determined Investments Direct expenses from management fees for members The Supervision of Financial Services (Provident Funds) (Direct Expenses on Account of Transactions Performed) Regulations, (hereinafter: Expenses Regulations) arrange the types of expense that a managing company can deduct from the assets of the provident funds managed by it, in addition to the management fees charged from members. In April 2014 an amendment to the Expenses Regulations (hereinafter: Amendment) was published and validated specifying a number of changes, the most material being applying an accumulated quantitative limit at a rate of 0.25% of the assets for the total amount of expenses that can be collected from members for some of the expense types included in the Expenses Regulations (hereinafter: Limit). In addition, as part of the Amendment the possibility of collecting expenses for internal rating procedures was negated in order to evaluate the risk of loans and transactions for infrastructure projects provided by institutional entities in the past and yet to be paid. As a supplementing step for publishing the Amendment, in April 2014 a draft of the amendment for the circular on the matter of direct expenses completing the Amendment of the aforementioned Expenses Regulations was published. As part of the draft it was determined inter alia that members can be charged a commission of not more than 0.1% for an investment in an exchange tracker fund that invests at least 75% of the exposure in assets issued in Israel, according to measures to be published by the Commissioner. The management fees as mentioned will be included as part of the Limit. The provisions of the amendment draft to the circular, if published, will apply from May 1, 2014 and yet in 2014 an institutional entity will be entitled to collect expenses from the provident fund assets of funds available in exchange for investment linked liabilities, as applicable, even for an investment in an exchange traded fund which follow certain measures included in the circular, provided that the funds were purchased before April 1, In August 2014 a draft of the Commissioner's position was published and determined that expenses connected with the investment structures of "a fund of funds" or similar structures, must be included as part of the accumulated expenses Limit of 0.25% in addition to expenses paid by the institutional investor, directly or indirectly, according to its share in each of the secondary funds held by the fund of funds. This draft is in deliberations before the Ministry of Finance and if the draft will be accepted, the Company will have to include the expense in the fund of funds as part of the aforementioned Limit. The group estimates that the Regulations will not have short term material effects considering the rate of expenses collected from the members assets and the insureds, in the period preceding publication of the Regulations. Nonetheless, the group cannot estimate the future effect of the Regulations which depends inter alia on the future composition of the investment portfolio as developed along the years and according to the varying needs.

44 3. Developments subsequent to publication of the periodic report (cont.) 3.3 Restrictions and supervision on corporation's businesses (cont.) Investments (cont.) Final report of the committee for reviewing institutional entities' manner of investing in adjusted loans In April 2014 the final report of recommendations of the committee for reviewing institutional entities manner of investing in adjusted loans was published. The committee's recommendations refer to arranging the matter of tailor made loans and bonds that comply with certain criteria determined by the committee (hereinafter: Adjusted Loans or Adjusted Credit). The committee's report refers inter alia to adjusting the structure and features of appropriate corporate governance in institutional entities that grant or organize Adjusted Loans, including determined functions for the board of directors, investment committees and credit committee of the institutional entity, approving the suitable HR infrastructure for the credit array, approving the separate investment policy for Adjusted Credit, approving the control and supervision mechanisms for Adjusted Credit, transforming the investment and credit committees into board committees and appointing agents that are experienced and specialize in the credit branch to these committees. The committee's report recommends arranging syndication or consortium transactions, including handling the fear of material conflict of interests of the organizer of the transaction, arranging the organizer's functions and the right to recognize the payment to the institutional entity, the organizer of the transaction, as a reimbursement of expenses from members' portfolios. At this stage before publishing binding provisions in regard to applying the recommendations of the committee, it is not possible to estimate its implications. Nonetheless, the group estimates that if the committee's recommendations will be accepted they will affect the structure and authorities of the group's investment and credit committees and the composition of the Board of Directors. Additionally the committee's recommendations might cause a change in the management of syndicate and consortium transactions that the group participates in and allow institutional entities to collect reimbursements for organizing the transaction. The group estimates regarding the implications of the committee's report are considered forward looking information. Actual application might differ from the foreseen and largely depends on the final version of the binding provisions that will be determined following the committee's recommendations.

45 4. Description of Business Environment 4.1 Developments and material changes in the macroeconomic environment The group's activity and results are greatly affected by the capital markets, the financial, political and security situation in Israel and the world, which affects its incomes from investments and sales in various branches, the scope of insurance claims and different costs entailed in its operations. The developments in the employment and wages field mainly have an effect on the activities in the long term savings sector. Following are references to central developments in the macroeconomic environment with an effect on the group's activity. The third quarter of 2014 was characterized by a neutral trend in the local bonds and shares markets. A positive trend was registered in most world capital markets. The overall effect of developments in the markets on the group's results is mainly expressed by a certain increase in the value of financial assets and on the other hand, an increase in insurance liabilities that result from the continuing decrease in interest used in capitalizing liabilities. In addition, the positive real rate of return in profit participating policies led to collecting variable management fees. After the report period, the international rating company FITCH published that it ratified the Israeli credit rating of (A), yet lowered the rating forecast from "positive" to "stable", mainly due to the costs of Operation Protective Edge and the increase in the deficit targets Developments in the financial state in Israel Development in the market and employment in Israel Growth The updated growth forecast of the Bank of Israel for the year 2014 amounts to approximately 2.3% and according to the forecast in 2015 the local market is expected to grow by approximately 3.0%. In the third quarter of 2014 the product decreased by 0.4% calculated annually after an increase of 2.2% in the second quarter of the year. The growth rates have an effect on the scope of premiums, mainly in the long term savings segment and might also affect the scope of claims. Employment details The unemployment rates in August increased to a level of approximately 6.4%. In the past years there has been an increase in the rate of participation in the labor force of 15 year olds and up, as in August 2014 this rate was approximately 64.2% compared to approximately 63.7% in the second quarter of The average salary for a hired worker in August 2014 was approximately NIS 9,471 which reflects an increase of 2.4% calculated annually. The growth rates, as well as rates of participation in the labor force, unemployment rates and salary levels have an effect on the scope of premiums, particularly in the long term savings segment and might also have an effect on the scope of claims Inflation data For information about the inflation data see Note 2 (c) of the Interim Reports. The inflation rate might affect the Company's business results mainly by affecting incomes from investments for index linked assets in the Nostro portfolio, adjusting the security and financial liabilities linked to the index, changes in financing expenses of the Company and the total variable management fees to be charged in profit participating policies due to the effect on the real return registered in these policies.

46 4. Description of Business Environment (cont.) 4.1 Developments and material changes in the macroeconomic environment (cont.) Developments in the financial state in Israel (cont.) Interest rates in Israel During the third quarter the Bank of Israel lowered the interest by 0.5% to 0.25% due to the moderate growth in the local market, the low inflation environment and the slow recovery in global economy. The riskfree interest curve linked to the index in most ranges for redemption during the quarter showed a descent, whereas a share for the descent was registered in the long ranges. The inflation expectations derived from the capital market decreased in the third quarter following the plunging tendency recorded from the beginning of the year. Under certain conditions, the descent in the interest curve can lead to increasing the Company's insurance liabilities due to adjusting the capitalized interest used to calculate certain funds and a due diligence for life insurance and nursing insurance funds. On the other hand, this decrease can lead to capital gains on assets. The combined effect depends on the structure of the assets and liabilities and the nature of changes in the curve. Low market interest might make it difficult to achieve a guaranteed return in return guaranteed products and achieving a return according to which other insurance products were priced and even a new review of actuarial estimations of the group's insurance liabilities. In regard to developments in the riskfree interest curve after the report date see Note 9 (o) Developments in the capital market in Israel An increase in the local shares and bonds market was registered in the third quarter of In the concern bonds channel there was a minor increase in returns without changes in margins in most industries compared to the end of the second quarter of the year. The following are details in the main indexes of shares and bonds in Israel in the first nine months and third quarter of 2014 compared to the first nine months and third quarter of 2013 as well as the entire year 2013: Share index Bonds index For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 In percent TA General TA Index linked Rest ( 1.9) Shekels General shares Concern

47 4. Description of Business Environment (cont.) 4.1 Developments and material changes in the macroeconomic environment (cont.) Developments in the financial state in Israel (cont.) During the Reporting Period there was an increase in the scope of fund raisings in public companies compared to last year as specified below: For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 In billion NIS Equity raised in the period Developments in the world's financial state In the third quarter of 2014 a neutral trend characterized the global share markets that the Company invests in, mainly due to positive macro data in the USA and estimations that the recent steps by the European Central Bank will support the future growth of the Euro bloc. The growth in the USA appears powerful, while the growth in Europe is minimal and inflation is so insignificant that there is fear of deflation. These details are greatly reflected in the indexes of acquisition administrations, in the USA the index is close to a record level in three years, while in Europe it is nearing a level of shrinking activity. The interest rate in the Euro bloc has decreased to an historic record low of 0.05% and is expected to remain so for a long time and be accompanied by a monetary expansion, yet in the USA the bond acquisitions ended in October Exchange rate For information about the development in the exchange rate of the NIS compared to the USD in 2013 and 2014, see Note 2 (c) of the Interim Reports Forecast of world growth Following are details of world growth forecasts in the international monetary fund for 2014 as published in October 2014: In percent For the year 2014 USA 2.2 Euro Bloc 0.8 Asia (developing countries) 6.5 Japan 0.9 China 7.4 Central and Eastern Europe 2.7

48 4. Description of Business Environment (cont.) Global share markets Following are the nominal returns in share indexes across the world for the period of nine and three months ended September 30, 2014 compared to the parallel periods last year and the entire year 2013: In terms of local currency In terms of NIS For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 In percent Dow Jones ( 0.8) 17.6 NASDAQ Tokyo Nikkei ( 0.7) CAC Paris ( 0.1) ( 0.1) 10.4 ( 1.1) London FTSE ( 1.9) 9.6 ( 1.8) Frankfurt DAX ( 0.8) 12.9 ( 3.6) ( 3.6) 9.5 ( 4.6) MSCI WORLD ( 2.6) The returns in the capital market as well as return on other assets (Such as real estate, investment funds and nonmarketable debt assets) has an effect on the group's profitability, both directly by affecting the incomes from investments as well as the fact that the incomes from management fees in insurance funds, pension funds and provident funds, depend inter alia on the real return achieved in the fund and/or the balance of accumulated assets.

49 4. Description of Business Environment (cont.) 4.2 Developments in Israeli insurance market Total scope of premiums in the Israeli insurance market Following are details of gross earned premiums as published by the Commissioner in the first half and second quarter of 2014 compared to the parallel period last year: For the period of six months ended June 30 For the period of three months ended June 30 For the year ended December In billion NIS Clal Market Clal Market Clal Market Clal Market Clal Market Long term savings Nonlife insurance Health insurance Total gross earned premiums in the Israeli insurance market

50 4. Description of Business Environment (cont.) 4.2 Developments in Israeli insurance market (cont.) Total scope of premiums in the Israeli insurance market (cont.) Total scope of benefits in the Israeli market Following are details of benefits as published by the Commissioner in the nine months and the third quarter of 2014 compared to the comparative period last year: For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December 31 In billion NIIS Clal Market Clal Market Clal Market Clal Market Clal Market New pension funds Provident and personal severance pay funds Study funds Main severance pay funds Total provident funds* Total benefits * Without provident funds for another objective Crime data in Israel Following are details about crime levels in Israel as published by the Central Bureau of Statistics in the nine months and the third quarter of 2014 compared to the parallel period last year: For the period of nine months ended September 30 Rate of change For the period of three months ended September 30 Rate of change In units % % Number of motor thefts 11,634 14,180 ( 18.0) 3,873 4,374 ( 11.5) Number of breakins into places of business 5,213 5,331 ( 2.2) 1,650 1, Number of breakins into apartments 16,581 19,646 ( 15.6) 5,149 6,035 ( 14.7)

51 4. Description of Business Environment (cont.) 4.2 Developments in Israeli insurance market (cont.) Long term savings assets Following are details of profit participating life insurance assets in personal provident and pension funds, study funds, central severance pay funds in the long term savings market as published by the Ministry of Finance for the third quarter of 2014 compared to the third quarter of 2013 and the end of 2013: As at September 30 Rate of change As at December 31 In billion NIS % 2013 Life insurance market Company Market Company Market Company Market Company Market Profit participating life insurance policies till December 31, Profit participating life insurance policies till January 1, Total profit participating life insurance assets New pension assets Provident and personal severance pay funds Study fund managed by the insurance groups Central severance pay funds Total provident fund assets Total profit participating life insurance assets, new pension, provident funds and life insurance *) without a provident fund for another objective..

52 Board of Directors Report as at September 30, 2014 Clal Insurance Enterprises Holdings Ltd 5. Exposure to market risks and their management Effect of market risks on the business results According to the Securities Regulations (Periodic and Immediate Reports), , reports regarding exposure to market risks and their management refer to the exposure of the Company and its consolidated subsidiaries, except insurers in Israel. There were no material changes in the Company's exposure to market risks during the Reporting Period nor to the manner of their management, compared to the annual financial statements. Linkage basis report as at September 30, 2014 In NIS thousands Intangible assets Deferred tax assets Deferred acquisition expenses Property, plant and equipment Investments in investees Property for investment in yieldlinked contacts Other investment real estate Reinsurance assets Current tax assets Accounts receivable and other receivables Outstanding premiums Financial investments for yieldlinked contracts Other financial investments Marketable debt assets Nonmarketable debt assets Shares Other Cash and cash equivalents for yieldlinked contracts Other cash and cash equivalents Assets held for sale Total assets Non Insurance Israeli currency Foreign currency Monetary Companies Notlinked Linked Dollar Euro GBP Other Items In Israel Total 56,970 1,342,321 1,399,291 8,421 25,450 33,871 1,700,058 1,700,058 22, , , , ,876 2,506,868 2,506,868 1,090,302 1,090,302 2,247,259 2,247,259 13, , ,822 15, ,786 3, , , ,107,448 1,107,879 46,902,292 46,902,292 65,612 7,108,693 7,174,305 58, , ,240,167 20,433, ,138,947 1,139,665 1,912,119 1,912,119 1,235,850 1,235, ,895 1, ,598 1,202, , ,839 3, ,689 90,332,137 91,035,532

53 Board of Directors Report as at September 30, 2014 Clal Insurance Enterprises Holdings Ltd 5. Exposure to market risks and thier management (cont.) Linkage basis report as at September 30, 2014 (cont.) Non Insurance Israeli currency Foreign currency Monetary Companies Notlinked In NIS thousands Liabilities Linked Dollar Euro GBP Other Items In Israel Total Liabilities for noninvestment linked insurance and investment contracts 29,804,403 29,804,403 Liabilities for investment linked insurance and investment contracts 50,393,630 50,393,630 Deferred tax liabilities 1, , ,353 Liabilities for employee benefits, net 27,065 78, ,543 Deferred liability notes 2,855,258 2,855,258 Bonds Accounts payable and other payables 44,948 3,000 2,062,736 2,110,684 Current tax liabilities Liabilities to banking corporations and others 386, , ,877 1,010,140 Liabilities held for sale Total liabilities 459, ,273 1,822 86,188,883 86,778,981 Total exposure ( 746) 18,566 3, ,867 4,143,254 4,256,551

54 6. Corporate governance aspects 6.1 Disclosure regarding the process of approving the Company's financial statements The Company's Board of Directors is the organ in charge of the overall supervision of the Company and approving its financial statements. The Company's Board of Directors appointed a Balance Sheet Committee (a committee for examining the financial statements). Balance Sheet Committee members the four following members serve on the Balance Sheet Committee: Yaakov Dior Chairman, Amos Eran, Shula Bandel and Yossi Yagil. Process of approving the financial statements the following were invited and were present in the meeting of the Balance Sheet Committee, as well as the meeting of Board of Directors in which the financial statements were discussed and approved: the Company's auditors, who are required to explain the main findings, if any, that came up in the audit or review, as applicable, as well as Mr. Izzy Cohen, CEO, Mrs. Ronit ZalmanMalach, CFO, Mr. Tal Cohen, Chief Comptroller, Mr. Ofer Brandt, Chief Life Insurance Actuary for Clal Insurance, Mr. Moshe Ernst, Director of HQ, Mrs. Hadar Brin Weiss, General Counsel, Mrs. Maya Barber, SOX Director in Clal Insurance, Mr. Eran Shahaf, Chief Internal Auditor as well as others. Through a detailed presentation by various officers and others in the Company and in Clal Insurance, including the CFO, Chief Comptroller, SOX Director and Chief Actuary, the Balance Sheet Committee examines material issues in the financial reporting, including transactions not in the regular course of business, if any, the material assessments and critical estimates applied in preparing the financial statements, the reasonableness of the data, the adopted accounting policy and the changes that occurred in the aforementioned policy and the accounting treatment applied to the Company's material issues, implementation of the principles of completeness and disclosure in the financial statements and in the accompanying information and internal control entailed in the financial reporting (including the effectiveness of internal control over the financial reporting and disclosure). The Balance Sheet Committee reviews various aspects of risk management and control, both aspects reflected in the financial statements and well as those affecting the reliability of the financial statements. If necessary, the Balance Sheet Committee requests comprehensive review of matters that have particularly significant influence. In order to formulate the Balance Sheet Committee's recommendations to the Board of Directors, a draft of the financial statements is submitted to members of the Committee a few days before the meeting for their discussion. The Committee meeting is held prior to the Board meeting, which discusses and approves the financial statements. The recommendations of the Committee are forwarded to the Board shortly after the Committee's meeting. Approving the financial statements entailed a number of meetings as follows: a. A meeting of the Balance Sheet Committee was held on November 20, 2014 in order to discuss the results of the Interim Reports, including reviewing various aspects as aforesaid, with participation of the following members of the Balance Sheet Committee: Mr. Yaakov Dior (Chairman), Mr. Amos Eran (who is also Chairman of the Balance Sheet Committee in Clal Insurance), Prof. Yossi Yagil (who is also a member of the Balance Sheet Committee in Clal Insurance) and Attorney Shula Bandel as well as the following additional participants: Dani Naveh, Chairman of the Board and a member of the Balance Sheet Committee in Clal Insurance, Mr. Amnon Sadeh, a member of the Board and member of the Balance Sheet Committee in Clal Insurance, Mr. Ron London, a member of the Balance Sheet Committee in Clal Insurance, Mr. Osama Hassan, member of the Balance Sheet Committee in Clal Insurance, Mrs. Liora Katzenstein, a member of the Board in Clal Insurance, Mr. Izzy Cohen, CEO, Mrs. Ronit ZalmanMalach, CFO, Mr. Tal Cohen, Chief Comptroller, Mr. Ofer Brandt, Chief Life Insurance Actuary for Clal Insurance, Mr. Yaakkov Mauzer, Chief Nonlife insurance Actuary for Clal Insurance, Mr. Moshe Ernst, Director of HQ, Mrs. Hadar Brin Weiss, General Counsel, Mrs. Maya Barber, SOX Director in Clal Insurance, Mr. Eran Shahaf, Chief Internal Auditor, Mrs. Adi BarkanStern, Company Secretary as well as the Company's auditors. Following this meeting and based on the presentations and discussions held therein, the recommendations of the Balance Sheet Committee concerning the approval of the financial statements and relevant material reporting issues were forward to the Company's directors on November 20, b. A meeting of the Board of Directors was held on November 23, 2014 and discussed the results of the Interim Reports, received the recommendations of the Balance Sheet Committee that were forwarded to the directors as mentioned and approved the financial statements. Additionally, it was approved that according to the Company's Board of Directors, the recommendations of the Balance Sheet Committee were forward within reasonable time before the Board meeting in light of their scope and complexity. The following directors participated in the meeting: Mr. Danny Naveh (Chairman of the Board), Prof. Yossi Yagil, Mr. Amos Eran, Attorney Shula Bandel, Mr. Yaakov Dior and Mr. Amnon Sadeh.

55 6. Corporate governance aspects (cont.) 6.2 Transactions with controlling shareholders Following the aforementioned in section 13 of Chapter D "Additional data about the Corporation" of the Company's financial statements as at December 31, 2013, about a temporary procedure formulated by the Company according to the amendment of section 117 (2a) of the Companies Law in the matter of approving transactions with controlling shareholders, the Company's Audit Committee approved a detailed procedure according to the aforementioned amendment on November 16, 2014, stating in regard to any transaction with a controlling shareholder or that a controlling shareholder has a personal interest in and does not constitute an extraordinary transactions and even if it is a negligible transaction, that before engaging in the transaction a competitive procedure in the outline determined by the Committee will be applied or another designated procedure determined by the Audit Committee containing an objective external indication to the market conditions of the transaction (such as a tender, request for offers on an equal basis etc). The procedure will be supervised by a supervisor appointed by the Committee. The aforementioned will not apply if the transaction only awards the Company or refers to an engagement of not more than the accumulated sum of NIS 50,000 in one calendar year. 6.3 Negligible transactions a. On November 16, 2014 and November 23, 2014 the Company's Audit Committee and the Board of Directors decided to update guidelines and rules for classifying a transaction by the Company or a consolidated subsidiary with an interested party as a negligible transaction as stipulated in regulation 41 (a) (6) (a) of the Securities Regulations (Annual Financial Statements) Regulations, (hereinafter: Financial Statements Regulations). These guidelines and rules will also be used for reviewing the scope of disclosure in the periodic report and prospectus (including the shelf prospectus reports) regarding a transaction between the Company, a corporation controlled by it and a related company with a controlling shareholder or that with its approval, the controlling shareholder has a personal interest in as stipulated in regulation 22 of the Securities Regulations (Periodic and Immediate Reports), (hereinafter: Periodic Reports Regulations) and regulation 54 of the Securities Regulations (Details, Structure and Form of Prospectus and Draft Prospectus), (hereinafter: Details of Prospectus Regulations) for examining the need of providing an immediate report for a transaction as mentioned by the Company, as stipulated in regulation 37 a' (6) of the Periodic Reports Regulations (types of transactions specified in the Financial Statements Regulations, the Periodic Reports Regulations and the Details of Prospectus Regulations mentioned above hereinafter: Interested Party Transactions). Note that the guidelines and rules as mentioned are also used in order to classify transactions according to the provisions of section 117 (2a') of the Companies Law. b. During their regular course of business, the Company and its consolidated and related companies perform or might perform Interested Party Transactions and also have or might have liabilities to perform transactions as said, including transactions of types and characteristics as specified below: 1. Transactions for purchasing services and/or products and/or investments: (a) Transactions with banking corporations and financial institutions, including deposits and related banking services, credit agreement and credit lines; (b) transactions for buying products and services (such as: communication and telephone products and services, food products, newspaper subscriptions, office equipment and furniture, paper products, clothes, hygiene and cleaning as well as kitchen products); (c) purchasing and/or subsidizing the purchase of gift cards; (d) transactions for buying and/or renting and/or operational lease of motor vehicles; (e) transactions for buying transportation and tourism services; (f) archive services; (g) waste removal and shredding services; (h) alternative backup site services; (i) data storage services; (j) event production services; (k) yielding property asset management; (l) financial investments as part of a concern and/or buying securities in public offerings and/or private offerings to institutional entities; (m) investing in funds and/or buying rights in funds; (n) computer and organizational consultation; (o) issue and underwriting rating services; (p) brokerage in insurance deals by insurance agencies; (q) managing and renting properties; (r) buying and selling assets together with interested parties; (s) investment/credit management services, including credit rating; (t) purchasing financial and/or economic services, including management and concentration of issues, portfolio management, marketing investments, economic and business consultation, stock exchange member services, index products, trust funds, underwriting services, investment banking and trust services; (u) computerization and software services; (v) garage services and (w) electricity backup services.

56 6. Corporate governance aspects (cont.) 6.3 Negligible transactions (cont.) 2. Transactions for selling services and/or products (a) Selling insurance policies issued by insurers in the Clal Holdings group in all insurance branches for the Company's interested parties and/or others, whereas the interested parties have a personal interest in the engagement and/or employees thereof, including policies that are shared by the Company and/or IDB and other companies in the group and/or in the IDB group (including employee loyalty insurance, property and liability insurance, directors insurance, professional liability insurance etc); (b) brokerage services in insurance deals by insurance agencies; (c) provident fund and/or pension fund management services for corporations and/or their employees; (d) banking, financial and/or economic services, including management and concentration of issues and offers for acquisition/sale, portfolio management, investment marketing, economic and business consultation, hedge funds, index products, trust finds, stock exchange member services, investment banking services, trust services, factoring, financing and mortgages and (e) renting assets. c. Examining the issue of the negligibility of a transaction will be done based on relevant criteria as specified above. Examining the materiality of the transaction will be done according to criteria specified in the Company's materiality procedure. d. In case of a transaction with a controlling shareholder or that a controlling shareholder in the group has a personal interest in the issue of negligibility will be examined regarding the activities and results of Clal Holdings. e. Each case will be separately examined and a quantitative and qualitative review will be performed for the relevant event based on all the information, details, facts of the case and estimations according to all the relevant circumstances in the Company. Without derogating from the generality of the aforesaid, the quantitative and qualitative review will be done as follows: 1. Quantitative review a. Insurance transaction In the absence of any special quantitative considerations from the circumstances of the case, the aforementioned transaction performed under market conditions during the regular course of business that does not have a material effect on the Company will be considered a negligible transaction if its scope is less than NIS 15 million. For the avoidance of doubt, it is clarified that the scope of the transaction will be examined based on the total income from the transaction. b. Acquisition of products and/or services In the absence of any special quantitative considerations from the circumstances of the case, the aforementioned transaction performed under market conditions during the regular course of business that does not have a material effect on the Company will be considered a negligible transaction if its scope is less than NIS 10 million and it does not entail receiving services from a controlling shareholder (management agreement) according to section 270 (4) of the Companies Law. c. Investment/purchasing or selling a fixed asset (noncurrent asset) transaction/receiving a financial liability In the absence of any special quantitative considerations from the circumstances of the case, the aforementioned transaction performed under market conditions during the regular course of business that does not have a material effect on the Company will be considered a negligible transaction if all the covenants specified below are at a rate of less than one tenth of one percent (0.1%). Note that the details to be examined will be based on the Company's consolidated, reviewed or audited statements (the last ones published before executing the transaction).

57 6. Corporate governance aspects (cont.) 6.3 Negligible transactions (cont.) Investment/purchasing or selling a fixed asset (noncurrent asset) Two accumulated tests: The scope of assets in the transaction divided by all the assets in the Company s consolidated balance sheet and if it is a transaction from members funds in regard to the investment of the member's funds, the scope of assets in the transaction divided by all the member's assets managed by the group. The annual profit/loss assigned to the Company's shareholders, net after tax, in terms or profit and loss or comprehensive profit, actual or foreseen, assigned to the transaction, whichever is more strict, divided by the profit or loss assigned to the shareholders of the Company, net after tax, in terms of the average profit and loss or annual comprehensive profit of the Company (meaning into four quarters) in the past three years calculated based on the last 12 quarters preceding the transactions and for which reviewed or audited financial statements were published. It is clarified that the profit/loss in each quarter are calculated at absolute value. Receiving a financial monetary liability Scope of liabilities discussed in the transaction divided by all the assets in the Company's consolidated balance sheet. If it is a transaction that concerns a subsidiary or investee of the Company (hereinafter: Investee) the effect of the transaction on the Company's relative part must be reviewed, meaning regarding the Company's rate of holdings in the Investee, by applying the negligibility tests mentioned above. 2. Qualitative review Examining the qualitative considerations of an Interested Party Transaction might lead to the transaction being defined as nonnegligible even if according to the quantitative review in section (1) above it was determined as a negligible transaction. For example and for purpose of demonstration only, usually a transaction will not be considered negligible unless perceived as a significant event by the Company's management and used as a basis for making administrative decisions or if the transaction entails significant chances or risks and exposure or if as part of transaction the company enters a new and considerable area of activity or exists one. Separate transactions that are dependent on each other so that in fact they are part of the same engagement (for example concentrated negotiations for all transactions) will be reviewed as one transaction. A transaction that must be classified as a negligible transaction by an Investee will also be considered as a negligible transaction for the holding company. A transaction by an Investee that must be classified as a nonnegligible transaction in an Investee, might be classified as a negligible transaction according to relevant covenants in the holding company.

58 7. Disclosure regarding the corporation's financial reporting 7.1 Report concerning critical accounting estimates Regarding use of estimates and discretion in preparing the Interim Reports, see Note 2 (b) of the Interim Reports. 7.2 Contingent liabilities The auditors' report to the Company's shareholders includes reference to the aforementioned in Note 7 of the Interim reports regarding exposure to contingent liabilities. 7. Disclosure regarding the corporation's financial reporting (cont.) 7.3 Internal control over financial reporting and disclosure Securities Regulations In December 2009 the Securities Regulations (Periodic and Immediate Reports), (Amendment No. 3), 2009 were published, dealing with the internal control over financial reporting and disclosure in a corporation, aimed at improving the quality of financial reporting and disclosure in reporting corporations. In the amendment from July 7, 2011 the review of the quarterly report regarding the internal control by an auditor was cancelled. Additionally it was determined that a corporation that consolidates or relatively consolidates a banking corporation or financial entity, is entitled to choose to apply, in regard to the internal control in a banking corporation or institutional entity only, the format of estimating the effectiveness of the internal control stipulated in the other laws that applies to them in this matter, if there is a format regarding the quarterly report. Accordingly in addition to the directors statement and the report regarding the effectiveness of the internal control given as part of a periodic report, disclosures and directors statements regarding the internal control in consolidated institutional entities that the Commissioner's instructions apply to, were included. In addition and according thereto, the consolidated institutional entities to which the Commissioner's instructions apply, implemented the provisions of the Commissioner's circulars regarding the internal control over financial reporting and disclosure.

59 7. Disclosure regarding the corporation's financial reporting (cont.) The Commissioner's instructions regarding internal control over financial reporting and disclosure In recent years, the Commissioner published a number of circulars (hereinafter: Commissioner's Circulars) intended to apply the requirements of sections 302 and 404 of the SOX Act in insurance companies, companies managing pension funds and provident funds, pension funds and provident funds (hereinafter: Institutional Entities). Accordingly, Clal Insurance and the consolidated Institutional entities included the information subject to the provisions of the law and reporting and on the dates determined in such provisions Sections 302 and 404 of the SOX ACT management's liability for internal control over financial reporting and disclosure According to the Commissioner's Circulars based on sections 302 and 404 of the SOX Act and as specified in the previous Board of Directors reports of Clal Insurance, Clal Insurance acted and continually acts in order to apply the procedure required according to the aforementioned provisions which included reviewing the work procedures and internal controls performed, according to the stages and the dates determined in the circulars. Accordingly, Clal Insurance adopted the internal control model of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) which constitutes a defined and recognized framework for evaluating the internal control. The aforementioned model (COSO 1992) was updated and will become valid (COSO 2013) as of December 15, The Company reviews the updates performed in the model and their effect, if any and the need to update controls. The management of Clal Insurance (the Institutional Entity) together with the CEO and Deputy CEO and CFO of Clal Insurance, evaluated the effectiveness of the controls and procedures regarding disclosure applied by Clal Insurance until the end of the period covered by this report. Based on this evaluation, the CEO of Clal Insurance, Deputy CEO and Finance Division Manager concluded that for the end of this period, the controls and procedures of disclosure of Clal Insurance are effective in order to register, process, summarize and report the information that Clal Insurance is required to disclose in the quarterly statement according to the provisions of the law and the provisions of reporting determined by the Commissioner on the dates stipulated in the provisions. During the quarter ending on September 30, 2014 there was no change in the internal control of Clal Insurance in the financial reporting which materially affected or is reasonably expected to materially affect the internal control of Clal Insurance and its financial reporting. Note that the Company is in the process of reinforcing its organizational control array by reviewing the central work procedures, as well as in the process of developing, upgrading and/or replacing a number of information systems inter alia in order to improve and increase the efficiency of performing various procedures and/or the internal control and/or customer services.

60 7. Disclosure regarding the corporation's financial reporting (cont.) 7.3 Internal control over financial reporting and disclosure (cont.) Sections 302 and 404 of the SOX ACT management's lialbity for the internal control of financial reporting and disclosure (cont.) Executive certifications, with reference to the relevant processes, in accordance with the attached Commissioner's Circulars regarding the effectiveness of internal control over financial reporting and disclosure. The Board of Directors would like to express its appreciation to the employees, directors and agents of the Group companies and their contribution to the Group's achievements. Signature Danny Naveh Chairman of the Board Signature Izzy Cohen CEO Tel Aviv, November 23, 2014

61 Concise Consolidated Interim Financial Statements As At September 30, 2014 (Unaudited)

62 Concise Consolidated Interim Financial Statements as at September 30, 2014 Unaudited Table of Contents Page Auditor's report 21 Statement of consolidated interim financial position 22 Statement of consolidated interim profit and loss 24 Statement of consolidated interim comprehensive income 25 Statement of consolidated interim changes in shareholders' equity 26 Statement of consolidated interim cash flows 211 Notes to consolidated interim financial statements 213 Note 1 General 213 Note 2 Basis for preparing interim statement 220 Note 3 Principles of accounting policy 222 Note 4 Segmental reporting 225 Note 5 Financial instruments 235 Note 6 Management and equity requirements 245 Note 7 Contingent liabilities and claims 255 Note 8 Assets and liabilities held for sale and discontinued operations 289 Note 9 Material events during and after the reporting period 293 Appendix to consolidated interim financial statements Details of assets for investment linked contracts and other financial investments of the consolidated insurance companies registered in Israel 2100

63 טלפון פקס קוסט פורר גבאי את קסירר רח' עמינדב 3, תלאביב טל פקס ey.com סומך חייקין מגדל המילניום KPMG רחוב הארבעה 17, תא דואר 609 תל אביב Auditor's Review Report to the Shareholders of Clal Insurance Enterprises Holdings Ltd Introduction: We have reviewed the accompanying concise financial information of Clal Insurance Enterprises Holdings Ltd and its subsidiaries (hereinafter: The Group), which includes the consolidated interim statement of financial position as at September 30, 2014 and the consolidated interim statements of profit and loss, comprehensive income, changes in shareholders' equity and cash flows for the periods of nine and three months ended on that date. The Board of Directors and Management are responsible for preparing and presenting the financial information for these interim periods according to International Accounting Standard IAS 34 'Interim Financial Reporting' and according to the disclosure requirements determined by the Commissioner of Capital Market, Insurance and Savings based on the Supervision of Financial Services (Insurance) Law, and are also responsible for preparing the financial information for these interim periods according to Chapter D' of the Securities Regulations (Periodic and Immediate Reports), as far as these regulations apply to a corporation that consolidates insurance companies. Our responsibility is to express a conclusion on the financial information for these interim periods based on our review. We did not review the concise financial information for interim periods of investees treated under the equity method, the investment therein being approx. NIS 29 million as at September 30, 2014 and the Group's share in their profits is approx. NIS 1.7 million and approx. NIS1.4 million for the periods of nine and three months ended on that date, respectively. The concise financial information for the interim periods of these companies was reviewed by other accountants whose report was presented to us and our conclusion, as far as it refers to the financial information regarding these companies, is based on the report of the aforementioned other accountants. Scope of review We conducted our review according to Audit Standard 1 prescribed by the Institute of Certified Public Accountants in Israel " Review of Financial Information for Interim Periods Performed by the Auditor of the Entity ". Reviewing the financial information for interim periods consists of inquiries, mainly with people responsible for financial and accounting matters and applying analytical and other review procedures. This review is significantly limited in scope as compared to an audit in accordance with generally accepted auditing standards in Israel and therefore, does not enable us to obtain assurance that we would become aware of all significant matters which would have been identified in an audit. Accordingly, we do not express an audit opinion. 2 1

64 טלפון פקס קוסט פורר גבאי את קסירר רח' עמינדב 3, תלאביב טל פקס ey.com סומך חייקין מגדל המילניום KPMG רחוב הארבעה 17, תא דואר 609 תל אביב Conclusion Based on our review and the review reports prepared by other accountants, we have not become aware of any matter which would have caused us to believe that the aforesaid financial information is not prepared according to International Accounting Standard IAS 34 in all material aspects and according to the disclosure requirements determined by the Commissioner based on the Supervision of Financial Services (Insurance) Law, In addition to that mentioned in the previous paragraph, based on our review and the review reports prepared by other accountants, nothing has come to our attention that causes us to believe that the aforesaid financial information does not comply with the disclosure provisions of Chapter D' of the Securities Regulations (Periodic and Immediate Reports), in all material aspects, as far as these regulations apply to a corporation that consolidates insurance companies. Without qualifying our above conclusion, we draw attention to that mentioned in Note 7' of the financial statements regarding exposure to contingent liabilities. Tel Aviv November 23, 2014 Kost Forer Gabay & Somekh Chaikin, Kasirer, CPA CPA Joint Auditors 2 2

65 Statement of consolidated interim financial position Clal Insurance Enterprises Holdings Ltd As at As at As at September 30 September 30 December NIS in thousands Note Unaudited Audited Assets Intangible assets 1,399,291 1,277,682 1,339,394 Deferred tax assets 33,871 43,422 42,275 Deferred acquisition costs 1,700,058 1,668,225 1,678,850 Property, plant and equipment 255, , ,745 Investments in equity accounted investees 181, , ,057 Investment property for investmentlinked contracts 2,506,868 1,557,317 1,716,564 Other investment property 1,090, , ,332 Reinsurance assets 2,247,259 2,192,162 2,341,235 Current tax assets 120,822 12,314 16,867 Accounts receivable and other receivables 391, , ,783 Outstanding premiums 1,107,879 1,198, ,495 Financial investments for investment linked contracts 5 (a) 46,902,292 40,534,160 42,549,387 Other financial investments: Marketable debt assets 5 (b) 7,174,305 Nonmarketable debt assets 5 (b) 20,433,985 Shares 5 (b) 1,139,665 Other 5 (b) 1,912,119 Total other financial investments 30,660,074 Cash and cash equivalents for investment linked contracts 1,235,850 Other cash and cash equivalents 1,202,112 Assets held for sale 8 Total assets 91,035,532 Total assets for investment linked contracts 5 (a) 51,141,887 7,631,483 7,250,893 19,670,132 19,597, , ,553 1,399,081 1,536,548 29,567,024 29,322,306 2,796,786 2,311,069 1,291,723 1,580, , ,460 84,347,880 86,049,771 45,398,939 46,994,227 The accompanying notes form an integral part of these consolidated interim financial statements. 2 2

66 Statement of consolidated interim financial position Clal Insurance Enterprises Holdings Ltd As at September 30 As at December 31 As at September NIS in thousands Note Unaudited Audited Equity Share capital 143,158 Premium on shares 968,433 Capital reserves 707,344 Retained earnings 2,403,775 Total capital attributed to company shareholders 4,222,710 Noncontrolling interests 33,841 Total equity 4,256, , , , , , ,380 2,069,226 2,251,895 3,717,057 3,898,031 28,305 29,201 3,745,362 3,927,232 Liabilities Liabilities for noninvestment linked insurance contracts and investment contracts 2 (b) 29,804,403 Liabilities for investment linked insurance contracts and investment contracts 50,393,630 Deferred tax liabilities 498,353 Liabilities for employee benefits, net 9 (a) 105,543 Deferred liability notes 6 (c) (7) 2,855,258 Bonds 8 Accounts payable and other payables 2,110,684 Current tax liabilities 970 Liabilities to banking corporations and others 5 (ג) 1,010,140 Liabilities held for sale 8 Total liabilities 86,778,981 Total equity and liabilities 91,035,532 29,206,924 29,280,519 44,761,221 46,423, , , , ,311 2,434,792 2,433, ,694 2,123,264 2,296,784 6,544 10,244 1,092, , , ,679 80,602,518 82,122,539 84,347,880 86,049,771 The accompanying notes form an integral part of these consolidated interim financial statements. November 23, 2014 Approval date of financial statements Danny Naveh Izzy Cohen Ronit Zalman Malach Chairman of the Board CEO CFO 2 3

67 Statement of consolidated interim profit and loss Clal Insurance Enterprises Holdings Ltd For the period of three months ended on September 30 For the year ended on December 31 For the period of nine months ended on September *) NIS in thousands Unaudited Audited Gross earned premiums 6,780,186 6,993,489 2,270,600 2,364,316 9,288,511 Premiums earned by reinsurers 855, , , ,583 1,155,825 Premiums earned in retention 5,924,887 6,126,753 1,995,524 2,078,733 8,132,686 Net profit from investments and financing income 3,741,324 4,859,066 *) 1,368,739 2,340,853 *) 6,728,205 Income from management fees 842, ,655 **) 283, ,180 **) 1,136,364 Income from commissions 187, ,463 54,942 54, ,343 Other income 29,763 7,234 **) 3,842 4,349 **) 9,287 Total income 10,725,720 11,942,171 3,706,666 4,777,081 16,202,885 Payments and changes in liabilities for insurance contracts and investment contracts, gross 8,812,777 9,899,725 3,137,516 3,934,323 13,410,272 Share of reinsurers in payments and changes in liabilities for insurance contracts ( 437,417) ( 695,617) ( 151,092) ( 144,224) ( 1,009,898) Payments and changes in liabilities for insurance contracts and investment contracts in retention 8,375,360 9,204,108 2,986,424 3,790,099 12,400,374 Commissions, marketing and other acquisition expenses General and administrative expenses 1,385, ,186 1,378, , , , , ,634 1,869, ,156 Impairment (revaluation) of intangible assets Other expenses 6,508 27,976 7,424 26,492 2,270 11,962 ( 157) 4,364 18,263 30,234 Financing expenses 165, ,365 84,265 89, ,607 Total expenses 10,482,510 11,335,897 3,719,488 4,533,771 15,267,820 Share in the results of investees, net 19,252 1,870 ( 321) 2,174 4,930 Profit (loss) before income tax 262, ,144 ( 13,143) 245, ,995 Income tax 115, ,042 1,272 92, ,351 Profit (loss) for period from continuing activities 146, ,102 ( 14,415) 153, ,644 Net loss from discontinued operations *) ( 6,973) ( 14,246) ( 22,320) Profit (loss) for period 146, ,129 ( 14,415) 139, ,324 Attributed to: Company shareholders 143, ,889 ( 15,426) 137, ,845 Noncontrolling interests 3,567 4,240 1,011 1,241 5,479 Profit (loss) for period 146, ,129 ( 14,415) 139, ,324 Earnings (loss) per share attributed to Company shareholders: Basic and diluted earnings (loss) per share from continued activities (in NIS) 2.58 Basic and diluted loss per share from discontinued operations (in NIS) ( 0.13) Basic and diluted earnings (loss) per share (in NIS) 2.58 Number of shares used to calculate earnings per share: Basic 55,355 55,352 Diluted 55, ( 0.28) ( 0.26) (0.40) 6.61 ( 0.28) ,352 *) Regarding discontinued operations, see Note 2 (d) **) Reclassified The accompanying notes form an integral part of these consolidated interim financial statements. 55,355 55,352 55,353 55,424 55,352 55,

68 Statement of consolidated interim comprehensive income Clal Insurance Enterprises Holdings Ltd For the year For the period of nine months For the period of three months ended on ended on September 30 ended on September 30 December NIS in thousands Unaudited Audited Profit (loss) for period 146, ,129 ( 14,415) 139, ,324 Other comprehensive income : Items of other comprehensive income after initial recognition as part of comprehensive income that was or will be transferred to income statement : Foreign currency translation differences for foreign activities applied to capital reserves 16,605 ( 6,844) 15, ( 6,551) Change, net, in fair value of availableforsale financial assets charged to capital reserve 429, , , , ,313 Change, net, in fair value of availableforsale financial assets transferred to income statement ( 217,513) ( 148,669) ( 101,584) ( 66,914) ( 310,800) Impairment loss in respect of availableforsale financial assets transferred to the income statement 18,978 16,961 13, ,570 Other comprehensive income for period that was or will be transferred to the income statement, before tax 247,598 69, ,867 43,538 51,532 Tax for other comprehensive income items that were or will be transferred to the income statement 92,012 39,580 49,859 22,058 32,377 Other comprehensive income that after initial recognition as part of comprehensive income was or will be transferred to the income statement, net of tax 155,586 29,578 86,008 21,480 19,155 Other comprehensive income items that will not be transferred to the income statement: Profit on revaluation of property, plant and equipment classified as investment property 33,402 Actuarial profits (losses) from defined benefit plan ( 4,782) Other comprehensive income (loss) for period, before tax 28,620 Tax (tax benefit) for other comprehensive income items not to be transferred to the income statement 6,508 Other comprehensive income (loss) not to be transferred to the income statement, net of tax 22,112 Other comprehensive income for period 177,698 Total comprehensive income for period 324,498 Attributed to: Company shareholders 320,619 Noncontrolling interests 3,879 18,358 ( 417) 6,273 13,615 18,358 ( 417) 6,273 13,615 5,998 ( 24) 2,146 4,492 12,360 ( 393) 4,127 9,123 41,938 85,615 25,607 28, ,067 71, , , ,645 70, , ,811 4,422 1,170 1,367 5,791 Total comprehensive income for period 324, ,067 71, , ,602 The accompanying notes form an integral part of these consolidated interim financial statements. 2 5

69 Statement of consolidated interim changes in shareholders' equity Clal Insurance Enterprises Holdings Ltd NIS in thousands Share capital Premium on shares Translation reserve Attributed to Company Shareholders Capital reserve for availablefor sale assets Other capital reserves Capital reserves from transactions with holders of noncontrolling interest Retained earnings Total Noncontrolling interest Total equity For a period of nine months ended on September30, 2014 (unaudited) As at January 1, 2014 (audited) Profit for the period Other comprehensive income (loss) items: Foreign currency translation differences for foreign activities applied to capital reserves Change, net, in fair value of availableforsale financial assets charged to capital reserve Change, net, in fair value of availableforsale financial assets transferred to the income statement Impairment loss in respect of availableforsale financial assets transferred to the income statement Actuarial losses from defined benefit plan Profit on revaluation of property, plant and equipment classified as investment property Tax benefits (tax) for comprehensive income (loss) items Other comprehensive income (loss) for period, net of tax Total comprehensive income for period Transactions with shareholders directly attributed to equity: Exercise and expiration of warrants to executives Share based payments Purchasing shares of holders of noncontrolling interest As at September 30, , , ,598 ( 4,823) 16, , ,557 ( 218,069) 18,973 33,402 ( 4,434) ( 87,390) ( 8,350) ,433 12,171 12,171 7, , , , ,277 ( 30,979) 25,052 25,052 2,251, ,233 3,898, ,233 16,605 ( 218,069) 29,201 3, ,557 ( 29) 3,927, ,800 16, , ( 217,513) 18, ,978 ( 4,750) ( 4,750) ( 32) ( 4,782) ( 8,330) 180,329 ( 39,309) ( 2,908) 140,325 ( 835) 12,390 33,402 33,402 1,842 ( 98,332) ( 188) ( 98,520) 177, ,619 12,390 ( 8,330) 2,403,775 4,222, , , ,498 12, ( 7,569) 33,841 4,256,551 The accompanying notes form an integral part of these consolidated interim financial statements. 2 6

70 Statement of consolidated interim changes in shareholders' equity (continued) Clal Insurance Enterprises Holdings Ltd NIS in thousands For a period of nine months ended on September30, 2013 (unaudited) As at January 1, 2013 (audited) Profit for the period Other comprehensive income (loss) items: Foreign currency translation differences for foreign activities applied to capital reserves Change, net, in fair value of availableforsale financial assets charged to capital reserve Change, net, in fair value of availableforsale financial assets transferred to the income statement Impairment loss in respect of availableforsale financial assets transferred to the income statement Actuarial profits from defined benefit plan Tax for comprehensive income (loss) items Other comprehensive income (loss) for period, net of tax Total comprehensive income (loss) for period Transactions with shareholders directly attributed to equity: Exercise and expiration of warrants to executives Share based payments Transactions with holders of noncontrolling interest Dividend to company shareholders Share capital 143,157 Premium on shares 948,995 Translation reserve 1,728 ( 6,844) ( 6,844) ( 6,844) Attributed to Company Shareholders Capital reserve for availablefor sale assets 390, ,446 ( 148,618) 16,957 ( 39,484) 36,301 36,301 Dividend to noncontrolling shareholders As at September 30, , ,745 ( 5,116) 426,747 The accompanying notes form an integral part of these consolidated interim financial statements. 9,750 Other capital reserves Capital reserves from transactions with holders of noncontrolling interest 155,277 ( 32,327) Retained earnings 1,807, ,889 Total 3,414, ,889 ( 6,844) 207,446 Noncontrolling interest 26,458 4, Total equity 3,440, ,129 ( 6,844) 207,710 ( 148,618) ( 51) ( 148,669) 18,262 16,957 18, ,961 18,358 ( 5,963) ( 45,447) ( 131) ( 45,578) 12, , ( 9,750) ,277 ( 30,979) 13,689 41, , , ( 680) 13,689 ( 120,000) ( 120,000) 2,069, ( 668) 41, ,067 13,804 ( 120,000) ( 1,342) ( 1,342) 3,717,057 28,305 3,745,

71 Statement of consolidated interim changes in shareholders' equity (continued) Clal Insurance Enterprises Holdings Ltd NIS in thousands Share capital Premium on shares Translation reserve Attributed to Company Shareholders Capital reserve for availablefor sale assets Other capital reserves Capital reserves from transactions with holders of noncontrolling interest Retained earnings Total Noncontrolling interest Total equity For a period of three months ended on September30, 2014 (unaudited) As at July 1, , ,433 ( 3,747) 484, ,329 ( 39,309) 2,416,221 4,149,315 32,671 4,181,986 Profit (loss) for the period ( 15,426) ( 15,426) 1,011 ( 14,415) Other comprehensive income (loss) items: Foreign currency translation differences for foreign activities applied to capital reserves Change, net, in fair value of availableforsale financial assets charged to capital reserve Change, net, in fair value of availableforsale financial assets transferred to the income statement Impairment loss in respect of availableforsale financial assets transferred to the income statement Actuarial losses from defined benefit plan Tax benefits (tax) for comprehensive income (loss) items Other comprehensive income (loss) for period, net of tax 15, ,447 ( 101,846) 13,474 ( 4,434) ( 45,329) 11,095 74,746 15,529 ( 101,846) 208,447 ( 3) 13,474 15, , ( 101,584) 4 13,478 ( 409) ( 409) ( 8) ( 417) ( 385) 24 ( 49,739) ( 96) ( 49,835) 85, ,615 Total comprehensive income (loss) for period Transactions with shareholders directly attributed to equity Share based payments As at September 30, , ,433 11,095 7,348 74, , ,329 ( 39,309) ( 15,811) 3,365 2,403,775 70,030 3,365 4,222,710 1,170 33,841 71,200 3,365 4,256,551 The accompanying notes form an integral part of these consolidated interim financial statements. 2 8

72 Statement of consolidated interim changes in shareholders' equity (continued) Clal Insurance Enterprises Holdings Ltd NIS in thousands For a period of three months ended on September30, 2013 (unaudited) As at July 1, 2013 Profit for the period Other comprehensive income (loss) items Foreign currency translation differences for foreign activities applied to capital reserves Change, net, in fair value of availableforsale financial assets charged to capital reserve Change, net, in fair value of availableforsale financial assets transferred to the income statement Impairment loss in respect of availableforsale financial assets transferred to the income statement Actuarial profits from defined benefit plan Tax for comprehensive income (loss) items Other comprehensive income for period, net of tax Total comprehensive income for period Transactions with shareholders directly attributed to equity: Exercise and expiration of warrants to executives Share based payments Transactions with holders of noncontrolling interest Dividend to noncontrolling shareholder As at September 30, 2013 Share capital 143, ,157 Premium on shares Translation reserve 955,325 ( 5,981) 3, Attributed to Company Shareholders Capital reserve for availablefor sale assets 406, ,732 ( 66,897) ,745 ( 5,116) 672 ( 21,986) 20,521 20, ,747 Other capital reserves Capital reserves from transactions with holders of noncontrolling interest 155,277 ( 31,647) Retained earnings 1,924, ,986 Total 3,546, , ,732 Noncontrolling interest 27,901 1, Total equity 3,574, , ,915 ( 66,897) ( 17) ( 66,914) 6, , ,273 ( 2,127) ( 24,113) ( 91) ( 24,204) 4, ,081 ( 3,420) ,277 ( 30,979) 6,122 2,069,226 25, ,467 6, , ( 668) 25, ,834 6,122 ( 295) ( 295) 3,717,057 28,305 3,745,362 The accompanying notes form an integral part of these consolidated interim financial statements. 2 9

73 Statement of consolidated interim changes in shareholders' equity (continued) Clal Insurance Enterprises Holdings Ltd NIS in thousands For the year ended on December 31, 2013 (audited) As at January 1, 2013 Profit for period Other comprehensive income (loss) items: Foreign currency translation differences for foreign activities applied to capital reserves Change, net, in fair value of availableforsale financial assets charged to capital reserve Change, net, in fair value of availableforsale financial assets transferred to the income statement Impairment loss in respect of availableforsale financial assets transferred to the income statement Actuarial profits from defined benefit plan Tax for comprehensive income (loss) items Other comprehensive income (loss) for period, net of tax Total comprehensive income (loss) for period Transactions with shareholders directly attributed to equity: Exercise and expiration of warrants to executives Share based payments Transactions with holders of noncontrolling interest Dividend to company shareholders Share capital 143,157 1 Premium on shares 948,995 Translation reserve 1,728 ( 6,551) 18,603 ( 6,551) ( 6,551) Attributed to Company Shareholders Capital reserve for availablefor sale assets 390, ,818 ( 310,717) 17,566 ( 32,208) 25,459 25,459 Dividend to noncontrolling shareholder As at December 31, , ,598 ( 4,823) 415,905 The accompanying notes form an integral part of these consolidated interim financial statements. Other capital reserves Capital reserves from transactions with holders of noncontrolling interest 155,277 ( 32,327) Retained earnings 1,807, ,845 Total 3,414, ,845 ( 6,551) 350,818 Noncontrolling interest 26,458 5, Total equity 3,440, ,324 ( 6,551) 351,313 ( 310,717) ( 83) ( 310,800) 13,512 17,566 13, ,570 13,615 ( 4,454) ( 36,662) ( 207) ( 36,869) 9, , ( 18,604) 19, ,277 ( 30,979) 27, ,811 ( 120,000) ( 120,000) 2,251, , ( 680) 19,497 ( 160) 668 ( 668) 28, ,602 19,337 ( 120,000) ( 1,540) ( 1,540) 3,898,031 29,201 3,927,

74 Statement of consolidated interim cash flows Clal Insurance Enterprises Holdings Ltd Appendix For the period of nine months ended on September 30 For the period of three months ended on September 30 For the year ended on December NIS in thousands Unaudited Audited Cash flows from current activities Before income tax (a) ( 1,311,525) 1,500,698 ( 1,421,865) ( 456,353) 1,994,522 Income tax paid ( 162,465) ( 53,964) ( 59,176) ( 72,088) ( 169,915) Net cash from (used in) current activities ( 1,473,990) 1,446,734 ( 1,481,041) ( 528,441) 1,824,607 Cash flows from investments Consideration from realization of property, plant and equipment 56,726 5,950 6,191 5,769 5,964 Consideration from realizing investments in equity accounted investees and other companies 32, ,833 Consideration from realization of investments in financial availablefor sale assets by companies that are not insurance and finance companies 118, ,477 63,808 90, ,477 Investments in financial availablefor sale assets by companies that are not insurance and finance companies ( 108,333) ( 104,368) ( 30,647) ( 30,354) ( 104,368) Investment in shares and loans to investees ( 35,284) ( 4,430) ( 25,677) ( 9,201) Exercising subsidiary shares (b) 197, ,519 Investment in property, plant and equipment ( 125,239) ( 10,972) ( 5,371) ( 3,711) ( 82,659) Investment in intangible assets ( 179,103) ( 137,548) ( 70,779) ( 60,685) ( 243,991) Net cash from (used in) investments ( 272,760) 125,389 ( 62,475) 1,818 54,574 Cash flows from financing activities Repayment of loans to holders of noncontrolling interest ( 2,380) ( 49) ( 49) Receipt of liabilities from banks and others 54,150 54,270 Repaying liabilities to banks and others ( 221,532) ( 472,782) *) ( 34,077) ( 289,553) *) ( 646,157) Purchasing noncontrolling interest ( 7,569) ( 8,103) Repayment of principal for bond paid ( 267,567) **) ( 35,099) ( 231,977) **) ( 35,099) Costs of issue of deferred liability notes ( 4,812) ( 739) ( 4,812) ( 739) Consideration from issue of deferred liability notes 518, ,023 Repayment of deferred liability notes ( 95,316) ( 103,529) ( 36,986) ( 36,627) ( 103,529) Interest paid on bonds and deferred liability notes ( 119,182) ( 138,372) ( 46,756) ( 48,614) ( 142,217) Dividends paid including to holders of noncontrolling interest with a put option, presented in liabilities ( 126,342) ( 295) ( 135,220) Net cash provided by (used in) financing activities ( 200,335) ( 822,762) 163,415 ( 375,089) ( 1,016,843) The impact of exchange rate fluctuations on cash and cash equivalents balances 36,342 ( 32,894) 26,116 ( 4,701) ( 30,864) Net increase (decrease) in cash and cash equivalents ( 1,910,743) 716,467 ( 1,353,985) ( 906,413) 831,474 Cash and cash equivalents for beginning of period (c) 4,348,705 3,517,231 3,791,947 5,140,111 3,517,231 Cash and cash equivalents for end of period (d) 2,437,962 4,233,698 2,437,962 4,233,698 4,348,705 Cash presented as part of assets held for sale ( 145,189) ( 145,189) ( 456,684) Cash in statement of financial position 2,437,962 4,088,509 2,437,962 4,088,509 3,892,021 *) Reclassified **) Regarding early payment of bonds in Clal Finances, see Note 8 (a) (2) The accompanying notes form an integral part of these consolidated interim financial statements. 2 11

75 Statement of consolidated interim cash flows (continued) Clal Insurance Enterprises Holdings Ltd (a) For the period of nine months ended on September 30 For the period of three months ended on September 30 For the year ended on December NIS in thousands Unaudited Audited Cash flows provided by current activities before income taxes 1)2) Profit (loss) for the period 146, ,129 ( 14,415) 139, ,324 Adjustment: Company's share in the (profits) losses of investees which are treated using the equity method 19,252) ( ( 1,870) 321 ( 2,174) ( 4,930) Dividend received from investees treated according to the equity method 15,152 1, ,930 Changes in liabilities for noninvestment linked insurance and investment contracts 523,884 ( 396,235) 235,968 ( 1,224,579) ( 322,640) Changes in liabilities for investment linked insurance and investment contracts 3,970,020 6,034,249 1,539,583 3,637,084 7,696,638 Changes in deferred acquisition expenses ( 21,208) ( 67,302) ( 7,093) ( 7,911) ( 77,927) Change in reinsurance assets 93,976 ( 90,032) ( 13,338) 87,192 ( 239,105) Depreciation of property, plant and equipment 38,836 41,035 9,169 14,068 56,997 Decrease in intangible assets 112, ,022 40,941 29, ,336 Impairment of assets 6,508 10,076 2, ,497 Loss (profit) from realizing property, plant and equipment ( 23,942) ( 3,175) 350 ( 3,189) ( 3,215) Profit from realizing investments in equity accounted investees and other companies ( 10,692) Profits from realizing shares in consolidated subsidiaries ( 28,832) ( 30,395) Interest and linkage differentials accrued in respect of deferred liability notes 96, ,650 38,159 53, ,378 Accrued interest and revaluation of liabilities to banking corporations and others 387,621 (* 100, ,101 (* 84,953 23,334 Changes in fair value of investment property in investment linked contracts ( 37,063) ( 1,927) ( 29,511) ( 9,492) ( 32,970) Changes in fair value of other investment property ( 5,727) 3,379 ( 1,791) ( 1,739) ( 16,703) Share based payment transactions 12,390 13,804 3,365 6,122 19,337 Updating liabilities in respect of put options for external shareholders 7,213 7,011 9,532 Net profits from financial investments for investment linked insurance and investment contracts ( 1,514,436) ( 2,352,757) ( 547,966) ( 1,374,053) ( 3,300,408) Income tax 115, ,586 1,272 91, ,526 Adjustment of consideration for discontinued operations ( 9,632) 1, Net profits from other financial investments: Marketable debt assets ( 4,288) ( 108,982) ( 14,478) ( 93,949) ( 156,889) Nonmarketable debt assets ( 312,649) ( 694,099) ( 226,658) ( 404,466) ( 555,058) Shares ( 81,307) ( 71,952) ( 43,034) ( 19,666) ( 131,083) Others 31,234 ( 29,502) 46,517 3,414 ( 63,242) Financial investments and investment property in investment linked contracts: Acquisition of investment property ( 716,968) ( 175,525) ( 506,997) ( 142,691) ( 303,702) Consideration from selling investment property 40,500 40,500 40,500 Net acquisition of financial investments ( 2,838,469) ( 2,155,470) ( 1,835,523) ( 2,217,627) ( 3,223,046) Receipts from (investment in) the sale of availableforsale financial assets and investment property in the insurance business: Marketable debt assets 112,735 1,483, ,698 1,143,047 1,911,461 Nonmarketable debt assets ( 581,969) ( 451,500) ( 232,165) 24,903 ( 661,052) Shares ( 8,989) , ( 46,093) Others ( 327,813) ( 423,495) ( 218,343) ( 346,051) ( 519,920) Acquisition of investment property ( 273,005) ( 50,997) ( 206,741) ( 36,850) ( 126,174) Consideration from selling investment property 46,354 *) Reclassified 1) Cash flows provided by current activities includes cash flows in respect of acquisitions and net sales of financial investments and investment property resulting from activities concerning insurance contracts and investment contracts. 2) Cash flows provided by current activities includes cash flows in respect of dividend received and interest as specified in Appendix E'. The accompanying notes form an integral part of these consolidated interim financial statements. 2 12

76 Statement of consolidated interim cash flows (continued) Clal Insurance Enterprises Holdings Ltd (a) (b) (c) (d) (e) For the period of nine months ended on September 30 For the period of three months ended on September 30 For the year ended on December NIS in thousands Unaudited Audited Cash flows from current activities before income tax (continued) Changes in other items in the statement of financial position, net Securities held for trade by consolidated subsidiaries that are not insurance companies 136, ,708 36,174 6, ,871 Accounts receivable and other receivables 51, ,207 25, , ,585 Outstanding premium ( 135,384) ( 261,932) ( 116,601) ( 108,515) ( 135,538) Accounts payable and other payables ( 122,186) ( 105,828) 5,757 ( 17,544) ( 1,206) Liabilities in respect of employee benefits, net ( 138,550) ( 8,411) 1,699 6,142 ( 8,395) Total cash flows provided by current activities before income tax ( 1,311,525) Realization of shares in consolidated subsidiary 1) Intangible assets 1,500,698 ( 1,421,865) ( 456,353) 1,994, , ,179 Deferred tax assets ( 240) ( 240) Outstanding premium 99,710 Accounts receivable and other receivables ( 1,958) 73,473 Liabilities in respect of employee benefits, net Liabilities to shareholders of consolidated subsidiaries for payment on account of shares and put options ( 2,000) Accounts payable and other payables ( 6,326) ( 21,105) Deferred tax liabilities 4,434 4,434 Liabilities to banking corporations and others ( 79,595) Profit from realizing shares of consolidated subsidiary 28,832 30,395 Realizing capital reserves from sales of a consolidated subsidiary ( 4,434) ( 4,434) Total realization of shares in consolidated subsidiary 197, ,519 Cash and cash equivalents for beginning of period: Cash and cash equivalents for investment linked contracts 2,311,069 1,553,924 2,238,748 2,890,981 1,553,924 Other cash and cash equivalents 2,037,636 1,963,307 1,553,199 2,249,130 1,963,307 Balance of cash and cash equivalents for beginning of period 4,348,705 3,517,231 3,791,947 5,140,111 3,517,231 Cash presented as part of assets held for sale ( 23,809) ( 23,809) Cash and cash equivalents in statement of financial position 4,348,705 3,493,422 3,791,947 5,140,111 3,493,422 Cash and cash equivalents for end of period: Cash and cash equivalents for investment linked contracts 1,235,850 2,796,786 1,235,850 2,796,786 2,311,069 Other cash and cash equivalents 1,202,112 1,436,912 1,202,112 1,436,912 2,037,636 Balance of cash and cash equivalents for end of period 2,437,962 4,233,698 2,437,962 4,233,698 4,348,705 Cash presented as part of assets held for sale ( 145,189) ( 145,189) ( 456,684) Cash and cash equivalents in statement of financial position 2,437,962 4,088,509 2,437,962 4,088,509 3,892,021 Cash flows for interest and dividend received included in current activities: Interest received 1,561,231 1,540, , ,830 2,248,668 Dividend received 164, ,664 76,337 77, ,555 The accompanying notes form an integral part of these consolidated interim financial statements. 2 13

77 Notes to the consolidated interim financial statements as at September 30, 2014 Note 1 General a. The reporting entity Clal Insurance Enterprises Holdings Ltd (hereinafter: The Company) is an Israeli resident company, incorporated in Israel and its official address is 36 Raoul Wallenberg Street, Tel Aviv. The Company's securities are listed for trade on the Tel Aviv Stock Exchange. The concise consolidated interim financial statements as at September 30, 2014 (hereinafter: Interim Statements) include the Company's statements as well as those of its subsidiaries (hereinafter: The Group) as well as the Group's rights in joint ventures and investees. As the Company was informed by IDB Development Corporation Ltd (hereinafter: IDB Development) and according to its public reporting, IDB Development directly and through a trustee holds approx. 55% of the voting rights in the Company (approx. 53.2% fully diluted). As of December 31, 2013: (a) IDB Development was fully owned by IDB Holdings Corporation Ltd (hereinafter: IDB Holdings); (b) the controlling nucleus of IDB Holdings was composed of Ganden Holdings Ltd (hereinafter: Ganden), Manor Holdings B.A Ltd (hereinafter: Manor) and Avraham Livnat Ltd, who were interconnected through a voting agreement and (c) Mr. Nochi Dankner was the ultimate controlling shareholder in IDB Holdings through Ganden. As part of completing a creditors arrangement for IDB Holdings in May 2014 (which was approved in January 2014), control of IDB Holdings was taken from the previous controlling parties as mentioned and as of May 8, 2014 control (indirectly) of IDB Development was transferred to Mr. Eduardo Elsztain and Mr. Mordechai Ben Moshe as specified below. To the best of the Company's knowledge as of the date of publishing the report, IDB Development is a public company indirectly controlled by Mr. Eduardo Elsztain (through Dolphin Netherlands B.V (hereinafter: Dolphin) a company incorporated in the Netherlands and indirectly controlled by Mr. Eduardo Elsztain and Mr. Mordechai Ben Moshe (through H.A.A Extra Holdings Ltd, a company fully owned by him (hereinafter: H.A.A)). H.A.A and Dolphin are parties to a shareholders agreement concerning holdings and control of IDB Development. As of the date of the report, H.A.A and Dolphin each hold approx. 31.3% of the issued and paid capital and voting rights of IDB Development. Regarding the appointment of a trustee in respect of 51% of the Company's shares held by IDB Development, see section b (2) below. In the matter of the expiry of the transaction signed in respect of selling holdings of IDB Development in the Company to JT Capital Fund Pte. Ltd (hereinafter: JT) and the establishment of a committee by IDB Development to review, inter alia, alternatives for selling IDB Development's holdings in the Company, see section b (3) below. Regarding cancellation of the previous control permit in the Group's institutional bodies, submission of a request for a new control permit by the controlling shareholders in IDB Development and the position of the Commissioner of Capital Markets, Insurance and Savings (hereinafter: Commissioner) regarding the request for a new control permit as mentioned that was delivered to the controlling shareholders in IDB Development in September 2014, see Note 6 (c) (4) below. 2 14

78 Notes to the consolidated interim financial statements as at September 30, 2014 Note 1 General (continued) b. Developments during the reporting period regarding the Company's controlling shareholders (1) Going concern reference in IDB Development Beginning with the first quarter of 2013, IDB Development's financial statements and auditors review report included notes and references, respectively, to significant doubts regarding the continued existence of IDB Development as a going concern. In the financial statements of IDB Development as of June 30, 2014 it was mentioned that a Note and references were included in the statements due to the financial position of IDB Development, including its capital deficit attributed to the shareholders of IDB Development and the cash needed by IDB Development in order to repay its liabilities due to the need for arranging the covenants that apply to IDB Development by virtue of agreements with lenders and classifying IDB Development's debts to its lending parties as part of its current liabilities as of the date of the statement of the financial position (June 30, 2014). Nonetheless, the Board of Directors of IDB Development determined that IDB Development is solvent and can serve its liabilities as required and on time and does intend to do so. (2) Appointment of a trustee for holdings of the Company's controlling shareholders On August 21, 2013 as required by the Commissioner, IDB Development granted an irrevocable power of attorney to Mr. Moshe Terry (hereinafter: Mr. Terry or the Trustee) appointed by the Commissioner as a trustee in respect of 51% of the Company's issued capital and voting rights held by IDB Development (hereinafter: Means of Control) and also transferred the shares into a trust account in the Trustee's name in order to exercise the powers granted by virtue of the Means of Control according to the trust deed and aiming to disconnect the Company and the Group's institutional bodies from any possible effect of struggles for control in the IDB Group. According to the trust deed, Mr. Terry will exercise the powers granted to him by virtue of the Means of Control in favor of IDB Development and according to the Commissioner's instructions, as provided from time to time, in order to guarantee the proper management of Clal Insurance Co. Ltd (hereinafter: Clal Insurance), Clal Credit Insurance Ltd and Clal Pension and Provident Funds Ltd (hereinafter: Clal Bodies) and preserving the interests of the insurees and savers, including in the matter of raising capital in favor of the Clal Bodies in any manner that seems appropriate. Transferring the Means of Control to the Trustee will not undermine IDB Development's right to receive dividends from the Company, if a distribution is decided on. If and when dividends will be distributed for Means of Control, they will be the property of IDB Development and transferred by the Trustee to IDB Development. In any case of sale, transfer or pledge of the Means of Control, the Trustee will act according to the instructions of IDB Development, provided that they are approved in advance and in writing by the Commissioner. The trust will end on the date of actually transferring all Means of Control from the Trustee or when approved by the Commissioner. On November 27, 2013 a letter was received from the Commissioner addressed to the expert and observer appointed for IDB Development by the court, emphasizing that control, indirectly or indirectly, of an insurer or a managing company requires receiving a control permit from the Commissioner, that the trust arrangement is a temporary solution and cannot be a permanent solution and that the Commissioner will not consider transferring Means of Control in IDB Holdings or IDB Development as part of the debt arrangement in IDB Holdings as mentioned, as a transfer that contradicts the provisions of the law if certain terms and restrictions are fulfilled, including: 2 15

79 Notes to the consolidated interim financial statements as at September 30, 2014 Note 1 General (cont.) b. Developments during the reporting period regarding the Company's controlling shareholders (cont.) (2) Appointment of a trustee for holdings of the Company's controlling shareholders (cont.) 1. The bidder (and if it is a group of bidders all parties of the group) whose offer will be presented for the approval of the court (hereinafter: Winning Bidder) will confirm in advance that it knows that transfer of Means of Control in IDB Development or IDB Holdings is not a confirmation from the Commissioner for transferring the Means of Control in the Company and is not a permit to control/hold the Means of Control in the Group. 2. The Winning Bidder will confirm that it agrees to the appointment of a trustee to be selected by the Commissioner, whether the current trustee (as aforesaid) or a different trustee (hereinafter in this section: the Trustee) and is aware of the powers granted to the Trustee according to the irrevocable trust deed attached to the letter. Additionally, as long as the transaction for selling Company shares to JT (see section b (3) below regarding expiration of the aforementioned transaction) is not completed, the Winning Bidder will confirm it agrees that certain provisions specified in the Commissioner's letter will irrevocably apply thereto, including: (a) The Trustee will continue to serve as long as the Commissioner did not grant a control permit to the controlling shareholder in the Group or alternatively the mechanism of a noncontrolling insurer (as mentioned in the Bill for Promotion of Competition and Reduction of Concentration, (following which the Law for Promotion of Competition and Reduction of Concentration, was published)) (hereinafter: Concentration Bill) will be applied. (b) During the period of the Trustee's service, the Winning Bidder will waive exercising voting rights attached to the Means of Control in the Company and the Group's institutional bodies and will irrevocably agree to avoid any act with the voting rights, directly or indirectly, as well as directing their actions, including by way of serving as an officer therein (and if the Winning Bidder serves as an officer therein, on the eve of approving its offer by the court, the Winning Bidder will resign from the position immediately); (c) During the period of the Trustee's service, appointing directors in the Company and the Group's institutional bodies will be done according to the mechanism stipulated in the Concentration Bill (and if this will not be possible by the committee appointed by the Minister of Finance or the Commissioner) (below see clarifications received from the Commissioner on this matter); (d) Within 30 days from the date of a "terminating event", as defined below, in regard to the transaction of selling Company shares to JT, as specified in section b (3) below, the Winning Bidder will be entitled to submit a request for a control permit in the Group or to inform that it wishes to sell the Means of Control in the Group to third parties. The Winning Bidder's possibility of receiving a control permit will be available until December 31, 2014 and if the Winning Bidder did not receive the control permit until that date, the Trustee will proceed to exercise the Means of Control in the Company according to his sole discretion and subject to the Commissioner's instructions, including by selling the shares on the Stock Exchange, whereas the consideration from the sale will be transferred to IDB Development (hereinafter: Exercising Through the Trustee). If the Winning Bidder chooses the option of selling the Means of Control in the Group, the Winning Bidder will have to submit an agreement for sale of Means of 2 16

80 Notes to the consolidated interim financial statements as at September 30, 2014 Note 1 General (cont.) b. Developments during the reporting period regarding the Company's controlling shareholders (cont.) (2) Appointment of a trustee for holdings of the Company's controlling shareholders (cont.) 2. (cont.) Control in the Group to the Commissioner until December 31, 2014 and if the Winning Bidder does not present the sale agreement as mentioned until that time, the Trustee will proceed to exercise the Means of Control in the Company by Exercising Through the Trustee, including by selling shares on the Stock Exchange. If the Winning Bidder submits a sale agreement as mentioned until December 31, 2014, the buyer of the Means of Control will be given the option of completing the contingent terms for receiving the control permit in the Group until June 30, 2015 and if the aforementioned buyer does not receive a control permit for the Group until that date, the Trustee will proceed to exercise the Means of Control in the Company by Exercising Through the Trustee. In regard to cancellation of the previous control permit in the Group's institutional bodies, submission of a request for a new control permit by the controlling shareholders of IDB Development and the Commissioner's position concerning the request for a new control permit as mentioned, was delivered to the controlling shareholders of IDB Development in September 2014, see Note 6 (c) (4) below. Regarding establishing a committee by IDB Development to inter alia review alternatives for selling IDB Development's holdings in the Company see Note b (3) below. For purpose of this section "terminating event" is the earlier of: (1) September 30, 2014, (2) notice by one of the parties to the transaction stating that any of the contingent terms required according to the transaction were not fulfilled, (3) the Commissioner informed the requesters of the control permit in the aforementioned transaction that he rejects their request for a permit. For purpose of the date of a "terminating event" see Note b (3) below. (e) As a condition for the Commissioner's consent as aforesaid, the Winning Bidder will be required to give its advance approval to the aforementioned terms and will have to act in order to receive a court decision stating that these terms constitute part of the conditions of its offer to arrange the debt in IDB Development. The Commissioner's letter also clarified that receiving the court's approval for the terms in the aforementioned letter is a contingent term for him agreeing to the aforesaid. On November 28, 2013 the parties in the ElsztainExtra group, informed the Commissioner of their consent and undertaking as required by the Commissioner and expert. Additionally, as of January 2014, no director serving in the Company also serves as an officer in the other corporations of the IDB Group. On May 8, 2014 a clarification letter was received from the Commissioner regarding control of the Company, addressed to Dolphin and H.A.A's representative stating, inter alia that regardless of the Commissioner's instruction as aforesaid of stating that directors in the Company and the Group's institutional bodies will be appointed according to the mechanism stipulated in the Concentration Bill (and if this will not be possible by the committee appointed by the Minister of Finance or the Commissioner), the Commissioner 2 17

81 Notes to the consolidated interim financial statements as at September 30, 2014 Note 1 General (cont.) b. Developments during the reporting period regarding the Company's controlling shareholders (cont.) (2) Appointment of a trustee for holdings of the Company's controlling shareholders (cont.) will be willing to consider not applying these provision in case of renewing the tenure of an external director in the Company and in Clal Insurance. Furthermore, the Commissioner will be willing to consider not applying the aforementioned provision for appointing directors in other institutional bodies in the Group: Clal Pension and Provident Funds, Clal Credit Insurance, Atudot and Clal Agency Holdings Ltd in regard to appointing representatives of Clal Insurance and the Company to the Board and provided that directors that were employed in companies directly or indirectly controlling the Company in the three years preceding their appointment or that are or were associated with controlling shareholders in IDB Development, will not serve in these bodies, all according to the terms specified in the letter. IDB Development was required to sign an amended appointment letter for the Trustee regarding its holdings in the Company. In September 2014 and in connection with the general meeting convened by the Company that included renewing the tenure of serving directors on its agenda, the Commissioner made it clear to the Company and to Clal Insurance, that according to the trust letter and irrevocable authorization signed by IDB Development on May 20, 2014 (hereinafter: Trust Letter), the annual tenure of directors serving in the Company and in Clal Insurance can be extended by vote in the general meeting of each of the aforementioned companies, whereas the Trustee, Mr. Moshe Terry, will be entitled to vote in the general meeting of Clal Insurance Enterprises by virtue of the Trust Letter. (3) Expiry of the agreement for selling Company shares held by IDB Development and establishing a committee to review alternatives for selling IDB Development's holdings in the Company On August 20, 2013 an agreement was signed (hereinafter: Agreement) between IDB Development and JT, a corporation incorporated in Hong Kong and wholly owned, indirectly, by Li Haifeng, according to which IDB Development is to sell 32% of the Company's share capital (according to a Company value of NIS 4.6 billion) to JT in consideration for a total of NIS billion (linked to the index until completion of the transaction). An amendment to the agreement from May 6, 2014 stipulated that the consideration for selling approx. 32% of the Company shares as part of completing the transaction will be NIS billion (meaning according to a Company value of NIS 4.8 billion instead of NIS 4.6 billion, index linked, according to the original agreement). Note that at the end of the day on May 29, 2014 and considering that the regulatory certificates required for completing the transaction were not received by then, the aforementioned agreement expired. In its financial statements for the second quarter of 2014, IDB Development reported that on the approval date of its financial statements, meaning August 31, 2014, the Board of IDB Development decided to establish a committee to review, inter alia, alternatives for selling IDB Development's holdings in the Company, including scopes and timing of the sale. IDB Development reported that as it was informed these correspond with continuing the process for receiving the control permit in the Company by the controlling shareholders in IDB Development, as specified in Note 6 (c) (4) below. 2 18

82 Notes to the consolidated interim financial statements as at September 30, 2014 Note 1 General (cont.) b. Developments during the reporting period regarding the Company's controlling shareholders (cont.) (4) Canceling the control permit and submitting a request for a new control permit In regard to cancellation of the previous control permit in the Group's institutional bodies, submission of a request for a new control permit by the controlling shareholders of IDB Development and the Commissioner's position concerning the request for a new control permit as mentioned, which was delivered to the controlling shareholders of IDB Development in September 2014, see Note 6 (c) (4) below. (5) Implications As of the date of this report, the Company is unable to estimate the full effect of the results of these events (including the results of the request for a new control permit) which may lead to additional changes in the holdings and control of the Company as well as selling the nucleus control shares in the Stock Exchange (including the result of applying the mechanism of a noncontrolling insurer in the Company) and this might have implications, inter alia, on the goodwill and rating of the Company and its Group companies. Additionally, transferring control shares in the Company from the Trustee might affect the cause for immediate repayment of loans the Company took from the banking system (see Note 29 of the annual statements as well as Note 9 (e) below regarding repayment of loans) and sections in certain agreements between Group companies and third parties (including reinsurers) and if certain circumstances of change in control will occur, this might require negotiations with these third parties to continue the validity of the agreements. Banking corporations that provide credit for the Company confirmed that they will not initiate proceedings against the Company on account of appointing the Trustee and his actions based on the Commissioner's instructions. Additionally, the Company contacted certain reinsurers and received their consent to continue validity of reinsurance agreements between them, despite appointment of the Trustee as mentioned. As to the provisions of the Law for Promotion of Competition and Reduction of Concentration, (hereinafter: Concentration Law) which was published in December 2013 and the provisions of the document regarding the control policy in institutional bodies published by the Commissioner in February 2014, there might be implications on the Company's holdings and control. In this matter note that due to the creditors arrangement in IDB Holdings and the changes in control of IDB Development on that date, IDB Development is considered a "first layer company" (and not a "second layer company"), the Company is considered a "second layer company" (and not a "third layer company") and Clalbit Finance Ltd, a subsidiary of Clal Insurance is considered an "additional layer company" as the terms are defined in the Concentration Law. For details regarding early redemption of all Clal Finance bonds (Series A) on September 28, 2014 which resulted in Clal Finances no longer constituting a "layer company", see Note 8 below. Regarding application of the provisions of the Concentration Law on the Company see section in Part A' of the Periodic Report for As the Company was informed by IDB Development on August 4, 2014 the Board of IDB Development decided to appoint a consulting committee to review various alternatives for IDB Development handling the implications of the Concentration Law and complying with the restrictions stipulated therein concerning control of companies in the pyramidal structure, with the intention of allowing IDB Development and/or Discount Investment Corporation Ltd (hereinafter: DIC) to continue controlling "additional layer companies" (currently directly held 2 19

83 Notes to the consolidated interim financial statements as at September 30, 2014 Note 1 General (cont.) b. Developments during the reporting period regarding the Company's controlling shareholders (cont.) (5) Implications (cont.) by DIC) even after December As of this date, the alternatives that IDB Development intends to review inter alia include: (a) turning IDB Development or DIC into a private company that is not a reporting corporation (and as a result also not a "layer company"); and (b) merging IDB Development with DIC. The Board of Directors of DIC appointed a consulting committee with a similar function. Also, IDB Development made it clear that as of this date they are only reviewing the aforementioned alternatives and have not made any concrete decisions on these issues, there is no certainty that any of the aforementioned structural changes will be made and that executing the alternative that will be adopted, might take a number of years. As part of its financial statements for the second quarter of 2014 which were published on August 31, 2014, IDB Development reported that based on its analysis, IDB Development and DIC estimate that as of the aforementioned date it is more reasonable than not that completing one of the alternatives discussed by the consulting committee will succeed and allow IDB Development to continue controlling Supersol Ltd and Cellcom Israel Ltd after the month of December According to the provisions of the Concentration Law, after that date a significant real corporation or the party controlling that corporation will not control a significant financial body and will not hold more than 10% of a certain type of means of control in that body. According to the provisions of the Concentration Law, the Company is considered a significant financial corporation and therefore, continuing IDB Development's control in real corporations might effects its ability to maintain control of the Company after December Furthermore, as long as the Company is considered a "second layer company" the amplified rules of corporate governance applying to pyramidal companies concerning the composition of the Board of Directors, will not apply to the Company. The Concentration Law is not expected to have a material effect on the Group's financial statements. Regarding early redemption of Clal Finances bonds according to a court decision given based on the mechanism determined in the Concentration Law, see Note 8 below. Note 2 Basis for preparation of the interim statements a. Statement of compliance with International Financial Reporting Standards The interim statements were prepared according to IAS 34 Interim Financial Reporting and according to the disclosure requirements determined by the Commissioner of the Capital Market, Insurance and Savings in accordance with the Supervision of Financial Services (Insurance) Law, and do not include all information required in complete annual financial statements. These statements must be read together with the consolidated financial statements as of and in respect of the year ended on December 31, 2013 (hereinafter: Annual Statements). Additionally, these statements were prepared according to the provisions of Chapter D' of the Securities Regulations (Periodic and Immediate Reports), as far as these regulations apply to a corporation that consolidates insurance companies. The interim statements were approved for publication by the Board of Directors on November 23,

84 Notes to the consolidated interim financial statements as at September 30, 2014 Note 2 Basis for preparation of the interim statements (cont.) b. Using estimates and judgment In preparing interim statements according to IFRS and according to the Supervision Law and the regulations introduced accordingly, as well as the Commissioner's directives and the provisions of Chapter D' of the Securities Regulations (Periodic and Immediate Reports), as far as these are relevant, the Company's management is required to exercise judgment in evaluations, estimates and assumptions which effect application of the policy and the amounts of assets and liabilities, incomes and expenses. It is clarified that the actual results might differ from these estimates. Except as specified below, management's judgment when applying the Group's accounting policy and the main assumptions used in evaluations that entail uncertainty, are consistent with those used in the Annual Statements. (1) General insurance Considering the decrease in the rate of return inherent in asset portfolios that are congruent with liabilities in nonlife insurance (hereinafter: the Portfolio) and in light of the continued decline in market returns relevant to the Portfolio, the capitalization interest used in calculating insurance liabilities in the compulsory motor vehicle and liability sectors was decreased on March 31, 2014 from an annual real rate of 1.75% to an annual real rate of 1.25%. As a result of the change in this estimate, the insurance liabilities in the compulsory motor vehicle and liability sectors in retention as of March 31, 2014, increased by a total of approx. NIS 41 million (increase in retention contingent claims of approx. NIS 52 million offset by reduction in accumulation) and the profit before income tax was reduced by the same amount for the period of three months ended on March 31, The profit after tax for the period of three months ended on March 31, 2014 decreased by a total of approx. NIS 26 million. (2) Reinforcing insurance reserves in the low interest rate environment and its effect on capitalization rates in life and nursing insurance Following the aforementioned in Note 42 (e) (e1) of the Annual Statements regarding the actuarial methods for calculating insurance liabilities, the capitalization rates used to calculate liabilities for supplementing payable pension and benefit funds can change as a result of material changes in the market's long term interest rate. Additionally, following the aforementioned in Note 3 (d) (1) (f) of the Annual Statements, every period Clal Insurance performs a liability adequacy test (LAT) regarding life and nursing insurance contracts which is intended to check that the liability amount is sufficient to cover the capitalized value of the expected future flow from the policies: claims, commissions and expenses net of premiums. Capitalizing the flow is done with a risk free real interest plus nonliquidity premium. If the test shows that the amount of liabilities in the books is lower than the capitalized value of the aforementioned flow, net of the difference between the book value and the fair value of the nonmarketable debt assets in the Portfolio, a provision in respect of the deficiency is registered. In light of the decrease in the risk free interest curve according to the relevant average duration, the subsidiary's actuary updated the interest rates used for capitalizing liabilities for supplementing payable pension and benefit funds and performed a liability adequacy test for the funds. As a result, the provision for the aforesaid funds, during the periods of nine and three months ended on September 30, 2014 was updated in the sum of approx. NIS 274 million and approx. NIS 101 million. 2 21

85 Notes to the consolidated interim financial statements as at September 30, 2014 Note 2 Basis for preparation of the interim statements (cont.) b. Using estimates and judgment (cont.) (2) Reinforcing insurance funds in the low interest rate environment and its effect on capitalization rates in life and nursing insurance (cont.) respectively and the profit before income tax was reduced by the same amount for the periods of nine and three months ended on September 30, 2014, respectively. The profit after tax for the periods of nine and three months ended on September 30, 2014 was reduced by a sum of approx. NIS 171 million and approx. NIS 63 million, respectively. c. Details on rates of changes in the Consumer Price Index and the Representative Exchange Rates of the USD and GBP: For the period of nine months ended on Index for the month Representative Representative Known index rate of USD rate of GBP % % % September 30, 2014 (0.3) September 30, (5.3) (5.5) For the period of three months ended on September 30, 2014 (0.3) September 30, (2.2) 3.4 For the year ended on December 31, (7.0) (4.9) Representative rate of USD Representative rate of GBP As at September 30, As at September 30, As at December 31, d. Restatement for discontinued operations During the reporting period, a restatement was implemented in the statement of profit and loss for the three and nine month periods ended on September 30, 2013 to present the activities of the member of the stock exchange in the finances sector as discontinued operations. In addition, during the reporting period there was a restatement in the statement of profit and loss for the year ended on December 31, 2013 for the activities of the finance sector's HQ as continuing operations. For additional details see Note 8. Note 3 Principles of accounting policy a. The Group's accounting policy applied in the interim statements is unchanged from the accounting policy applied in the Annual Statements. b. Disclosure for new IFRS before their application Revisions to IAS 16 and IAS 38 regarding acceptable depreciation and amortization methods In May 2014, the IASB published revisions for IAS 16 and IAS 38 (hereinafter: Revisions) discussing the use of depreciation and amortization methods based on incomes. 2 22

86 Notes to the consolidated interim financial statements as at September 30, 2014 Note 3 Principles of accounting policy (cont.) b. Disclosure for new IFRS before their application (cont.) Revisions to IAS 16 and IAS 38 regarding acceptable depreciation and amortization methods (cont.) The Revisions stipulate that income based amortization resulting from using an asset is inappropriate since these incomes often also reflect other factors beyond consuming economic benefits from the asset. In terms of intangible assets, the income based amortization method can only be applied in certain circumstances, for example when it is possible to prove that there is a high correlation between incomes and consuming economic benefits from the intangible asset. The Revisions will be applied on a prospective basis starting from the financial statements in respect of the annual periods beginning on January 1, 2016 or thereafter. Early adoption is possible. The Group began reviewing the implications of applying the Revision on the financial statements. IFRS 15 recognition of income from contracts with customers In May 2014 the IASB published International Financial Reporting Standard 15 regarding recognition of income from contracts with customers (hereinafter: the Standard). The Standard replaces IAS 18 Income, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programs, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC 31 Income Barter Transactions Involving Advertising Services. The Standard presents a five step model that will apply to income resulting from contracts with customers: Step 1 Step 2 Step 3 Step 4 Step 5 Identify the contract with the customer, including reference for collecting contracts and handling contract modifications. Identify a number of distinct performance obligations in the contract Determine the transaction price, including reference to varying consideration, significant financing components, noncash considerations and consideration paid to the customer. Allocating the price of the transaction for each distinct performance obligation based on the distinct relative sale price while using foreseeable prices if available or estimates and evaluations. Recognize the income when fulfilling the performance obligation, while distinguishing between fulfilling obligations on a certain date and fulfilling long term obligations. In addition, the Standard stipulates the accounting of incremental costs entailed in obtaining the contracts and costs directly associated with fulfilling the contract. The Standard will be retrospectively applied starting with the financial statements for the annual periods beginning on January 1, 2017 or thereafter. Early adoption is possible. The Standard allow to choose partial retrospective application with certain easements whereby the Standard will be applied to contracts that exist as of the initial application period and thereafter and the comparison number will not have to be restated as long as the comparative disclosures determined in the Standard are included. The Group began reviewing the implications of applying the Standard on the financial statements. 2 23

87 Notes to the consolidated interim financial statements as at September 30, 2014 Note 3 Principles of accounting policy (cont.) b. Disclosure for new IFRS before their application (cont.) IFRS 9 (2014) financial instruments In July 2014 the IASB published a final version of IFRS 9 (2014) regarding financial instruments (hereinafter: the Standard) which includes updated provisions for classifying and measuring financial instruments as well as a new model for measuring the impairment of financial assets. These provisions are added to the chapter on Hedge Accounting General, published in Classification and measurement According to the Standard, there are three main categories for measuring financial assets: amortized cost, fair value through profit and loss and fair value through other comprehensive income. The basis for classifying debt instruments is based on the business model of the entity managing financial assets and features of contractual cash flows of a financial asset. Investing in capital instruments will be measured at fair value through profit and loss (unless the Company chose, upon initial recognition, to present changes in fair value through other comprehensive income ). The Standard demands that changes in the fair value of financial obligations designated for fair value through profit and loss attributed to changes in selfcredit risk, will mainly be recognized as other comprehensive income. Hedging accounting general According to the Standard, additional hedging strategies which were used for risk management might be suitable for hedging accounting. The Standard replaces the current 80%125% test for determining the effectivity of hedging, with a demand for an economic connection between the hedged item and the hedging instrument without determining a quantitative threshold. Additionally, the Standard presents new models constituting alternatives for hedging accounting in terms of exposures to credit and certain contracts to which the Standard does not apply and determines new principles for handling hedged instruments. Furthermore, the Standard determines new disclosure requirements. Impairment of financial assets The Standard presents a new model for recognizing expected credit loss. For most assets the new model presents a dual measurement approach for impairment: if the credit risk attributed to a financial asset did not increase significantly since the initial recognition, a provision will be registered for the loss according to the rate of the expected credit loss due to possible failures in the twelve months after the report date. If the credit risk increases significantly, in most cases the provision for the impairment will grow and will be registered in the rate of expected credit loss for the duration of the financial asset. The Standard will be applied in respect of the annual periods beginning on January 1, 2018 with the possibility of early adoption. The Standard will be applied retrospectively except a number of easements. The Group began reviewing the implications of applying the Standard on the financial statements. 2 24

88 Notes to the consolidated interim financial statements as at September 30, 2014 Note 3 Principles of accounting policy (cont.) c. Reviewing the existence of a deep market of high quality concern bonds in Israel On September 1, 2014 the Israeli Securities Authority published a draft regarding the staff position on the existence of a deep market of high quality concern bonds in Israel in order to determine the capitalization rate, as specified in Note 3 (l) of the Annual Statements, of the obligation for the defined benefit in Shekels according to IAS 19 Employee Benefits. According to the draft the manner of properly applying the transition from using the rate of return of government bonds to the rate of return in respect of high quality concern bonds, is on a prospective basis. The Group reviewed the possible implications of changing the aforementioned capitalization rate if the draft is accepted. The expected effect is not material to the financial statements. Note 4 Segmental Reporting a. General The Group operates in the following activity segments: 1. Long term savings The long term savings segment includes life insurance, accompanying coverage (appendixes) and managing pension and provident funds. The segment includes long term savings (in various insurance policies, pension and provident funds, as well as study funds) and insurance coverage in respect of various risks such as: death, disability, loss of working capacity, health insurances sold as an appendix to life insurance and more. According to the Commissioner's instructions, the long term savings segment is specified according to the following branches: provident funds, pension and life insurance. 2. Health insurance The health insurance segment includes the Group's activity in various health insurance branches. The segment includes nursing insurance, medical expenses, surgeries, transplants, personal accidents (long term medical), overseas travel, dental insurance, foreign workers and more. 3. Nonlife insurance The nonlife insurance segment includes liability and property, credit insurance, personal accidents and others. According to the Commissioner's instructions, the nonlife insurance segment is classified according to the following divisions: compulsory motor vehicle, motor property insurance, property and other insurance, and other liabilities as follows: o o Compulsory motor vehicle division The compulsory motor vehicle division focuses on cover whose purchase by the motor vehicle owner or driver is compulsory according to the law and offers coverage in respect of bodily injury (for the car's driver, passengers and pedestrians) as a result of using a motor vehicle. Motor property insurance division The motor property insurance branch focuses on property damages to the insured motor vehicle and property damages that the insured motor vehicle causes to a third party. 2 25

89 Notes to the consolidated interim financial statements as at September 30, 2014 Note 4 Segmental Reporting (cont.) a. General (cont.) 3. Nonlife insurance (cont.) o o Property and other insurance divisions The remaining property divisions, except for motor vehicle and liability, as well as other insurance branches such as guarantees, credit and personal accidents (short term medical branch). Other liability branches The liability branches are intended for covering the insured's liabilities in respect of damage caused to a third party. These branches include: third party liability, employer's liability, professional liability and product liability. 4. Other Includes operating segments that do not comply with the quantitative threshold for reporting and include the remaining finance operations, credit activities and financing as well as insurance agencies. 5. Activities not allotted to segments This includes the Group's HQ that is mainly equity, liabilities not in the insurance business and assets held against them in Clal Insurance as well as the separate balances and results of the Company. b. Additional information about the basis for segmental reporting 1. The basis of segmental division and basis for measuring results of segments are as specified in Note 5 of the Annual Statements. 2. Profit (loss) from discontinued operations includes the results of the financial segment sold and nonlife insurance activity in Europe through the Broadgate company. For additional details see Note 27 of the Annual Statements. Regarding the restatement of discontinued operations see Note 2 (d) above and Note 8 below. c. Seasonality 1. Long term savings segment Generally, income from life insurance premiums and income from management fees from pension and provident funds are not characterized by seasonality and there is also no seasonality in regard to claims. Nonetheless, due to the timing of the end of a tax year, there is a certain seasonality in the deposit of premiums/benefits for pension savings in December since considerable amounts of money are deposited in December by employees and selfemployed individuals, who voluntarily make deposits not as part of their wages in order to exhaust tax benefits as well as by employers supplementing debts in respect of the tax year or making one time deposits, usually for debts regarding seniority and severance pay. In addition, there are certain months which vary from year to year, in which the scope of premiums/benefits might be higher, mainly considering one time payments made by employers to employees for which benefits are allocated. 2 26

90 Notes to the consolidated interim financial statements as at September 30, 2014 Note 4 Segmental Reporting (cont.) c. Seasonality (cont.) 2. Nonlife insurance segment Generally, income from premiums in the nonlife insurance segment are not characterized by clear seasonality. Nonetheless, premiums in the first quarter of the year are higher than premiums in other quarters mainly due to renewing insurance agreements by business insurees and large motor vehicle fleets at the beginning of a calendar year which represent a certain seasonality. The effect of this seasonality on the reported profit is neutralized by a provision for premiums yet to be earned. There is no clear seasonality in the components of other expenses such as claims and other incomes for example income from investments. Nonetheless, it is worth noting that occasionally during the winter, in the first or fourth quarter of the year or both, there is an increase in claims mainly in the property branches and as a result, the profit reported for that period decreases. 2 27

91 Notes to the consolidated interim financial statements as at September 30, 2014 Note 4 Segmental Reporting (cont.) d. Report of activities segments For the period of nine months ended on September 30 Long term savings Provident fund Pension fund Life insurance 1) Total For the For the year ended year For the year For the period of nine on For the period of nine ended on For the period of nine ended on months ended on December months ended on December months ended on December 31 September September September NIS in thousands Unaudited Audited Unaudited Audited Unaudited Audited Unaudited Audited For the year ended on December 31 Gross earned premiums 3,549,510 3,691,881 4,874,750 3,549,510 3,691,881 4,874,750 Premiums earned by reinsurers 143, , , , , ,839 Premiums earned in retention 3,405,555 3,554,456 4,693,911 3,405,555 3,554,456 4,693,911 Net profits from investments and financing income 99, , , ,799 3,655 3,150,936 4,036,912 5,587,814 3,250,899 4,178,883 5,760,688 Income from management fees 186,984 (* 192, , , , , , , , , ,084 1,135,541 Income from commissions 43,225 30,603 38,461 43,225 30,603 38,461 Other income ( 2) *) ( 2) Total incomes 286, , , , , ,294 7,066,310 8,071,930 10,980,264 7,541,566 8,564,026 11,628,601 Payments and changes in liabilities for insurance and investment contracts, gross 95, , ,278 6,479,064 7,138,813 9,667,195 6,574,282 7,274,630 9,831,473 Reinsurer's share in repayment and changes in liabilities for insurance contracts ( 73,592) ( 93,103) ( 125,123) ( 73,592) ( 93,103) ( 125,123) Payments and changes in liabilities for insurance and investment contracts in retention 95, , ,278 6,405,472 7,045,710 9,542,072 6,500,690 7,181,527 9,706,350 Commissions, marketing and other acquisition expenses 53,857 52,906 *) 65,236 82,381 79,361 *) 96, , , , , , ,201 General and administrative expenses 71,756 70,903 *) 101,273 68,509 53,181 *) 76, , , , , , ,831 Impairment of intangible assets 2,100 2,100 2,100 2,100 Other expenses 7,281 5,986 8, ,350 3,539 4,666 10,713 9,525 12,686 Financing expenses (incomes) 2 ( 9) ( 12) 7 (* 4,630 10,389 13,094 4,639 10,380 13,082 Total expenses 228, , , , , ,418 7,173,551 7,775,588 10,551,037 7,552,644 8,175,833 11,064,250 Share in the results of investees, net ( 190) ( 390) ( 643) ( 1,634) ( 1,824) 227 ( 26) Profit (loss) before income tax from continuing activities 58,047 65,856 87,248 37,926 25,605 47,233 ( 108,875) 296, ,844 ( 12,902) 388, ,325 Other comprehensive income before income tax 1, ,641 20,041 20, ,320 20,971 22,005 Total comprehensive income before income tax 58,047 65,856 88,270 38,605 26,535 48,180 67, , , , , ,330 Liabilities for noninvestment linked insurance and investment contracts 20,569,684 19,799,602 19,888,263 Liabilities for investment linked insurance and investment contracts 47,542,669 42,550,686 44,087,931 1) Total premiums (including pure saving premiums (investment contracts) directly attributed to reserves). 3,910,305 4,094,503 5,406,359 3,910,305 4,094,503 5,406,359 *) Reclassified

92 Notes to the consolidated interim financial statements as at September 30, 2014 Note 4 Segmental Reporting (cont.) d. Report of activities segments (cont.) NIS in thousands Long term savings Provident fund Pension fund Life insurance 1) Total For the period of three For the period of three For the period of three For the period of three months ended on months ended on months ended on months ended on September 30 September 30 September 30 September Unaudited Gross earned premiums Premiums earned by reinsurers 1,178,809 40,058 1,211,818 1,178,809 47,159 40,058 1,211,818 47,159 Premiums earned in retention 1,138,751 1,164,659 1,138,751 1,164,659 Net profits from investments and financing income 39,220 Income from management fees 61,004 Income from commissions Other income ( 2) 61,116 (* 63,409 (* ,916 1,255 53, ,183, ,419 9,709 1,956,237 1,223, , ,339 10,543 9,709 ( 2) 2,018, ,941 10,543 1 Total incomes 100, ,525 69,421 54,879 2,485,564 3,312,348 2,655,207 3,491,752 Payments and changes in liabilities for insurance and investment contracts, gross Reinsurer's share in repayment and changes in liabilities for insurance contracts 38,082 59,846 2,305,588 2,965,212 2,343,670 3,025,058 ( 25,740) ( 24,910) ( 25,740) ( 24,910) Payments and changes in liabilities for insurance and investment contracts in retention 38,082 Commissions, marketing and other acquisition expenses 18,670 General and administrative expenses 23,616 Other expenses 3,765 Financing expenses (incomes) ( 2) 59,846 (* 20,020 28,379 (* 21,236 21, ( 291) 7 12 (* 30,067 (* 17,042 (* 2,279, ,522 79,848 1,129 1,833 2,940,302 2,317, , ,571 65, ,143 1,129 4,603 5,312 1,843 3,000, , ,000 1,796 5,319 Total expenses Share in the results of investees, net Profit (loss) before income tax from continuing operations Other comprehensive income (loss) before income tax Total comprehensive income before income tax 84,131 16,091 16, ,776 49,779 47,109 2,529,180 ( 101) ( 145) ( 1,634) 22,749 19,541 7,625 ( 45,250) 276 ( 299) 75,394 22,749 19,817 7,326 30,144 3,177,555 2,663, ( 1,735) 135,031 ( 9,618) 1,762 75, ,793 66,052 3,326, ,405 1, ,868 1) Total premiums (including pure saving premiums (investment contracts) directly attributed to reserves). 1,303,835 1,317,684 1,303,835 1,317,684 *) Reclassified 2 29

93 Notes to the consolidated interim financial statements as at September 30, 2014 Note 4 Segmental Reporting (cont.) d. Report of activities segments (cont.) Health General Other For the period of nine For the year For the period of nine For the year For the period of nine For the year months ended on September ended on months ended on ended on months ended on ended on 30 December 31 September 30 December 31 September 30 December NIS in thousands Unaudited Audited Unaudited Audited Unaudited Audited Gross earned premiums 1,213,502 1,206,211 1,613,149 2,020,245 2,109,894 2,818,001 Premiums earned by reinsurers 147, , , , , ,039 Premiums earned in retention 1,065,886 1,055,902 1,412,202 1,456,517 1,530,892 2,043,962 Net profits from investments and financing income 207, , , , , ,591 9,171 84, ,711 Income from management fees 4,481 5,153 6,667 Income from commissions 1,944 1,897 2, ,708 83, ,111 87,812 92, ,593 Other income ,788 4,444 6,554 Total incomes 1,275,593 1,242,723 1,711,274 1,725,325 1,837,482 2,456, , , ,525 Payments and changes in liabilities for insurance and investment contracts, gross 1,013, ,902 1,296,899 1,229,429 1,699,886 2,303,775 Reinsurer's share in repayment and changes in liabilities for insurance contracts ( 137,665) ( 110,471) ( 149,020) ( 226,160) ( 492,043) ( 735,755) Payments and changes in liabilities for insurance and investment contracts in retention 875, ,431 1,147,879 1,003,269 1,207,843 1,568,020 Commissions, marketing and other acquisition expenses 249, , , , , ,776 64,601 71,766 96,208 General and administrative expenses 41,612 33,735 46,530 47,438 48,904 62,842 20,331 59,950 74,228 Impairment in value of intangible assets 2,769 3,339 3,739 5,324 12,824 Other expenses ,043 3,994 3,898 Financing expenses (incomes) 6,190 11,997 13,629 15,329 ( 9,433) ( 13,121) 30,605 47,378 53,895 Total expenses 1,175,358 1,144,764 1,566,997 1,519,864 1,703,022 2,254, , , ,053 Share in the results of investees, net ( 236) Profit (loss) before income tax from continuing activities 99,999 97, , , , ,646 ( 16,884) ( 1,744) ( 4,110) Loss from discontinued operations before tax ( 13,061) ( 20,840) Other comprehensive income (loss) before income tax 19,503 8,182 8,499 19,039 19,188 14,781 ( 2,167) 1,680 2,574 Total comprehensive income before income tax 119, , , , , ,427 ( 19,051) ( 13,125) ( 22,376) Liabilities for noninvestment linked insurance and investment contracts 1,719,335 1,716,870 1,733,359 7,520,596 7,729,002 7,695,986 Liabilities for investment linked insurance and investment contracts 2,871,991 2,315,548 2,436,

94 Notes to the consolidated interim financial statements as at September 30, 2014 Note 4 Segmental Reporting (cont.) d. Report of activities segments (cont.) Not allotted to segments Adjustments and offsets Total For the year ended For the year on ended on December For the period of nine months December For the period of nine months 31 ended on September ended on September 30 For the period of nine months ended on September 30 For the year ended on December NIS in thousands Unaudited Audited Unaudited Audited Unaudited Audited Gross earned premiums Premiums earned by reinsurers Premiums earned in retention Net profits from investments and financing income Income from management fees Income from commissions Other income Total incomes Payments and changes in liabilities for insurance and investment contracts, gross Reinsurer's share in repayment and changes in liabilities for insurance contracts Payments and changes in liabilities for insurance and investment contracts in retention Commissions, marketing and other acquisition expenses General and administrative expenses Impairment in value of intangible assets Other expenses Financing expenses (incomes) 110,959 25, ,041 33,642 12, , ,550 3, ,566 33,770 11, ,913 ( 3,071) ( 14,497) ( 17,389) ( 3,071) ( 14,497) ( 17,389) 278,032 ( 3,512) ( 6,631) *) ( 8,331) ( 3,852) ( 4,582) ( 5,844) ( 48,461) ( 59,927) ( 79,380) 3,016 ( 161) ( 292) ( 356) 281,048 ( 59,057) ( 85,929) ( 111,300) ( 4,187) ( 16,693) ( 21,875) ( 4,187) ( 16,693) ( 21,875) ( 47,680) ( 59,497) ( 78,936) 49,534 7,511 3,622 ( 5,809) 12, ,079 ( 707) ( 1,870) *) ( 1,957) 6,780, ,299 5,924,887 3,741, , ,228 29,763 10,725,720 8,812,777 6,993, ,736 6,126,753 4,859, , ,463 7,234 11,942,171 9,899,725 9,288,511 1,155,825 8,132,686 6,728,205 1,136, ,343 9,287 16,202,885 13,410,272 ( 437,417) ( 695,617) ( 1,009,898) 8,375,360 1,385, ,186 6,508 27, ,764 9,204,108 1,378, ,113 7,424 26, ,365 12,400,374 1,869, ,156 18,263 30, ,607 Total expenses Share in the results of investees, net Profit (loss) before income tax from continuing activities Loss from discontinued operations before tax Other comprehensive income (loss) before income tax Total comprehensive income before income tax Liabilities for noninvestment linked insurance and investment contracts Liabilities for investment linked insurance and investment contracts *) Reclassified **) See Note 9 (j) 155,998 21,129 1,172 27,369 28, ,304 1, ,284 32, ,006 ( 44,673) ( 74,438) ( 108,577) 4,538 35,580 ( 14,384) ( 11,491) ( 2,723) 9,632 ( 305) 13,921 35,154 **) 5,211 3,367 49,501 20,770 3, ( 5,212) ( 38,550) ( 37,089) ( 21,030) ( 105,013) ( 101,256) 10,482,510 11,335,897 15,267,820 19,252 1,870 4, , , ,995 ( 3,429) ( 21,145) 276,218 87,516 65, , , ,997 29,804,403 29,206,924 29,280,519 50,393,630 44,761,221 46,423,

95 Notes to the consolidated interim financial statements as at September 30, 2014 Note 4 Segmental Reporting (cont.) d. Report of activities segments (cont.) NIS in thousands Health General Other Not allotted to segments Adjustments and offsets Total For the period of three For the period of three For the period of three For the period of For the period of three For the period of three months ended on months ended on months ended on three months ended months ended on months ended on September 30 September 30 September 30 on September 30 September 30 September Unaudited Gross earned premiums Premiums earned by reinsurers 417,459 45, ,674 50, , , , ,553 ( 998) 2,605 2,270,600 2,364, , ,583 Premiums earned in retention 371, , , ,666 ( 998) 2,605 1,995,524 2,078,733 Net profits from investments and financing income Income from management fees Income from commissions Other income 85, ,182 1,028 49,419 32, ,711 31, ,097 1,574 27,520 4,102 25,925 5,640 1,541 30,363 1,365 ( 99) 66,160 ( 1,229) 3,267 *) ( 1,294) ( 1,302) ( 15,302) ( 18,768) 3,076 ( 174) ( 105) 1,368,739 2,340, , ,180 54,942 54,966 3,842 4,349 Total incomes 457, , , ,189 Payments and changes in liabilities for insurance and investment contracts, gross 341, , , ,398 Reinsurer's share in repayment and changes in liabilities for insurance contracts ( 41,793) ( 39,763) ( 83,559) ( 79,551) Payments and changes in liabilities for insurance and investment contracts in retention 300, , , ,847 Commissions, marketing and other acquisition expenses 90, , , ,402 General and administrative expenses 15,747 12,738 16,018 16,286 Impairment in value of intangible assets 1,270 Other expenses Financing expenses (incomes) 3,020 5,633 16,238 ( 2,535) 39,293 59,194 22,052 24,062 4,995 10,706 1,000 ( 157) 1,329 2,058 21,297 16,094 5,541 11,752 5,768 42,183 69,236 ( 18,997) ( 14,303) ( 1,965) ( 6,543) ( 1,965) ( 6,543) ( 15,170) ( 18,563) 15,269 1,474 13, ,143 ( 316) 5,077 *) 3,706,666 4,777,081 3,137,516 3,934,323 ( 151,092) ( 144,224) 2,986,424 3,790, , , , ,634 2,270 ( 157) 11,962 4,364 84,265 89,731 Total expenses 410, ,119 Share in the results of investees, net ( 236) Profit (loss) before income tax from continuing activities 46,309 69,894 Loss from discontinued operations before tax Other comprehensive income (loss) before income tax 6,956 ( 24,073) Total comprehensive income (loss) before income tax 53,265 45,821 *) Reclassified 550,778 17,340 18,995 36, ,407 50,673 52,763 59,703 75,436 ( 15,715) ( 6,394) 3,719,488 4,533, ,620 1,797 ( 321) 2,174 15,782 ( 11,350) 6,715 ( 52,542) ( 4,403) ( 3,282) ( 7,909) ( 13,143) 245,484 ( 12,820) ( 1,902) ( 14,722) 21,340 ( 135) ,504 49,086 ( 540) 1, ,450 49,811 37,122 ( 11,485) ( 5,354) ( 18,038) 44,683 ( 3,822) ( 8,567) 122, ,

96 Notes to the consolidated interim financial statements as at September 30, 2014 Note 4 Segmental Reporting (cont.) e. Additional details regarding main insurance divisions included in the nonlife insurance segment Compulsory motor vehicle Motor property Property and other divisions 1) Liability and other divisions 2) Total For the year ended For the year For the year For the year For the period of nine on For the period of nine ended on For the period of nine ended on For the period of nine ended on months ended on December months ended on December months ended on December months ended on December 31 September September September September 30 For the period of nine months ended on September NIS in thousands Unaudited Audited Unaudited Audited Unaudited Audited Unaudited Audited Unaudited Audited Gross premiums Reinsurance premiums 431,263 15, ,629 15,643 Premiums in retention 416, ,986 Changes in premium balanced yet to be earned, in retention ( 19,835) ( 25,938) Premium earned in retention Profits from investments, net and financing income Income (expenses) from commissions Other income Total incomes Payments and changes in liabilities for insurance and investment contracts, gross Reinsurer's share in repayment and changes in liabilities for insurance contracts Payments and changes in liabilities for insurance and investment contracts in retention Commissions, marketing and other acquisition expenses General and administrative expenses Impairment in value of intangible assets Other expenses Total expenses Profit (loss) before income tax Other comprehensive income before income tax Total comprehensive income (loss) before income tax Liabilities for insurance contracts Gross Reinsurer Retention 396,270 79, , , , , , , ,124 21, , ,642 4, , ,326 4, ,674 6,515 ( 32,761) ( 34,500) 551, , ,058 12,543 ( 28) 713, , , , ,174 12, , , ,075 6, , , , , , , ,261 2,755 ( 18,847) ( 24,834) 746,673 18, , , ,270 26,208 93, , , ,427 21,779 72, , ,983 1,115, , , ,060 76, , , , ,854 3,119 ( 5,431) ( 16,611) 496,736 29,094 96, , , ,919 47,513 9, , , ,243 68,125 11, , , , , ,022 2,057, ,351 1,533,391 2,226, ,115 1,632,775 1,247 ( 76,874) ( 101,883) 249,269 91,395 15, , ,672 1,456, , , ,725,325 1,229,429 1,530, ,933 83, ,837,482 1,699,886 For the year ended on December 31 6,810 ( 10,353) ( 14,878) ( 1,670) ( 7,894) ( 7,414) ( 152,114) ( 406,617) ( 544,790) ( 79,186) ( 67,179) ( 168,673) ( 226,160) ( 492,043) ( 735,755) 265,353 52,548 8, , ,785 9, ,909 2,966, ,312 2,837, ,038 47,693 8, , ,051 8, ,121 3,136, ,153 2,992, ,699 69,247 10, , ,844 5, ,656 3,070, ,248 2,926, , ,918 11, ,857 15,716 1,035 16, ,330 1, , , ,917 10, , ,617 13,741 ( 568) ( 854) 558,013 12,106 2,089 14, ,267 3, , ,469 4,496 1,273 5, ,398 2, , , ,507 22, , ,347 23, , ,218 31, ,100 ( 8,450) ( 11,675) 412,531 35,498 3,494 38,992 1,338, , , ,011 44,630 4,230 48,860 1,410, , , ,966 32,780 4,265 37,045 1,451, , , ,120 65,855 5, ,774 70,770 5, ,999 99,694 7, ( 415) ( 592) 228, , ,339 4,462 ( 47,327) ( 24,474) 5,386 4,799 3,431 9,848 ( 42,528) ( 21,043) 2,664, ,662 1,755,422 1) Property and other divisions mainly include results of commercial and residential property insurance. These activities form approx. 58% of the total premiums in these branches 2) Liability and other divisions mainly include results from third party liability insurance and employer's liability insurance for which activities form approx. 65% of the total premiums in these branches. 2,598, ,388 1,829,510 2,647, ,975 1,783,824 1,003, ,828 47,438 1,207, ,727 48, ,826, ,319 2,030,326 13,636 2,043, , , ,456,737 2,303,775 1,568, ,776 62, ,329 ( 9,433) ( 13,121) 1,519, ,461 19, ,500 7,520,596 1,704,630 5,815,966 1,703, ,460 19, ,648 7,729,002 1,669,141 6,059,861 2,254, ,646 14, ,427 7,695,986 1,813,174 5,882,

97 Notes to the consolidated interim financial statements as at September 30, 2014 Note 4 Segmental Reporting (cont.) e. Additional details regarding main insurance divisions included in the nonlife insurance segment (cont.) NIS in thousands Gross premiums Reinsurance premiums Premiums in retention Changes in premium balanced yet to be earned, in retention Premium earned in retention Profits from investments, net and financing income Income (expenses) from commissions Other income Compulsory motor vehicle Motor property Property and other divisions 1) Liability and other divisions 2) Total For the period of three months ended on September 30 For the period of three months ended on September 30 For the period of three months ended on September 30 For the period of three months ended on September 30 For the period of three months ended on September Unaudited 134,636 4, ,733 1, ,441 20, ,667 5, ,418 29, ,639 60, ,598 1, ,090 9, ,920 3,281 ( 2) 174,108 1, , , , , , , ,864 81,314 21,763 59,551 17,776 ( 40,622) ( 44,581) ( 2,639) 190,537 7, ,995 12,949 29, ,283 10,297 26, ,912 12,339 3,159 85,065 25,337 59, , , ,991 2,479 ( 31,723) Total incomes 152, , , , , ,611 72,410 94, , ,189 Payments and changes in liabilities for insurance and investment contracts, gross 130, , , , , ,064 72, , , ,398 Reinsurer's share in repayment and changes in liabilities for insurance contracts ( 6,490) ( 1,677) ( 204) ( 1,305) ( 51,307) ( 46,813) ( 25,558) ( 29,756) ( 83,559) ( 79,551) Payments and changes in liabilities for insurance and investment contracts in retention 124, , , ,900 58,920 63,251 46, , , ,847 Commissions, marketing and other acquisition expenses 17,918 19,689 45,398 45,850 62,829 64,430 22,124 25, , ,402 General and administrative expenses 2,736 2,779 3,677 3,626 7,951 8,093 1,654 1,788 16,018 16,286 Other expenses Financing income (expenses) 116 ( 99) 15,845 ( 2,357) 277 ( 79) 16,238 ( 2,535) Total expenses Profit (loss) before income tax Other comprehensive income before income tax 144,905 7,386 9, ,867 27, ,816 2, ,277 13, ,545 5, ,824 26,787 70,512 62,207 26,717 5, ,439 1,898 ( 51,754) Total comprehensive income (loss) before income tax 16,554 37,456 3,814 15,062 8,599 30,363 7,368 ( 45,759) 1) Property and other branches mainly include results from commercial, residential and personal accidents insurance for which activities form approx. 74% of the total premiums in these branches. 2) Liability and other branches mainly include third party and employer's liability insurance for which activities form approx. 74% of the total premiums in these branches. 9,840 1,431 1,929 2,926 3,576 5,470 5, ,268 49,419 32, ,778 17,340 18,995 36, , , ,771 4, , ,711 31, ,407 15,782 21,340 37,

98 Notes to the consolidated interim financial statements as at September 30, 2014 Note 5 Financial instruments a. Assets for investment linked contracts 1. Composition: As of September 30 As of December NIS in thousands Unaudited Audited Investment property 1) 2,506,868 1,557,317 1,716,564 Financial investments Marketable debt assets 19,176,364 17,132,446 18,430,956 Nonmarketable debt assets 6,835,393 6,406,537 6,303,293 Shares 8,685,914 7,749,651 *) 8,011,881 Other financial investments 12,204,621 Total financial investments (1) 46,902,292 Cash and cash equivalents 1,235,850 Other 496,877 Total assets for investment linked contracts 51,141,887 *) Reclassified 1) Measured at fair value through profit and loss. 2. Additional information regarding fair value (a) Fair value of financial assets divided into levels 9,245,526 *) 9,803,257 40,534,160 42,549,387 2,796,786 2,311, , ,207 45,398,939 46,994,227 The following table presents an analysis of the financial assets measured at fair value based on time, while using an evaluation method according to the various hierarchal levels. For details on the hierarchal levels see Note 4 (b) in the Annual Statements. As at September 30, 2014 Level 1 Level 2 Level 3 Total NIS in thousands Unaudited Financial investments: Marketable debt assets 17,649,652 1,526,712 19,176,364 Nonmarketable debt assets 6,646, ,514 6,835,393 Shares 8,560, ,485 8,685,914 Other financial investments *) 9,877, ,972 1,969,479 12,204,621 Total financial investments 36,087,251 8,531,563 2,283,478 46,902,292 From this for derivatives *) 159, ,234 1, ,707

99 Notes to the consolidated interim financial statements as at September 30, 2014 Note 5 Financial instruments (cont.) a. Assets for investment linked contracts (cont.) 2. Additional information regarding fair value (cont.) a) Fair value of financial assets divided into levels (cont.) As at September 30, 2013 Level 1 Level 2 Level 3 Total NIS in thousands Unaudited Financial investments: Marketable debt assets 16,376, ,263 17,132,446 Nonmarketable debt assets 6,185,284 **) 221,253 **) 6,406,537 Shares 7,633, ,952 **) 7,749,651 Other financial investments *) 7,474,816 77,381 **) 1,693,329 **) 9,245,526 Total financial investments 31,484,293 7,019,333 2,030,534 40,534,160 From this for derivatives *) 35,996 78,579 3, ,998 **) Reclassified including classification of investments in equity accounted investees overseas, from other financial investments for shares at level 3 (divided into levels of fair value) as well as classification of structured products and balances of loans to consolidated subsidiaries overseas from level 2 to level 3 (divided into levels of fair value). NIS in thousands As at December 31, 2013 Level 1 Level 2 Level 3 Total Audited Financial investments: Marketable debt assets 17,549, ,106 18,430,956 Nonmarketable debt assets 6,113, ,109 6,303,293 Shares 7,936, ,894 8,011,881 Other financial investments *) 7,975, ,496 1,581,974 9,803,257 Total financial investments 33,462,219 7,240,191 1,846,977 42,549,387 From this for derivatives *) 31, ,421 3, ,210 (a) Financial assets measured at fair value level 3 NIS in thousands Nonmarketable debt assets Other financial Shares investments Unaudited Balance as of January 1, ,109 74,894 1,581,974 1,846,977 Total profits recognized in profit and loss 33,220 23, , ,831 Acquisitions 22,902 32, , ,316 Sales ( 242) ( 3,587) ( 268,940) (272,769) Redemptions ( 40,102) ( 5,900) (46,002) Interest and dividend receipts ( 10,025) ( 2,502) (12,527) Transfers from level 3 ( 7,348) *) (7,348) Balance as of September 30, , ,485 1,969,479 2,283,478 Total profits for period not realized and recognized in profit and loss for financial assets held as of September 30, ,501 23, , ,562 *) During the period of nine months ended on September 30, 2014 certain nonmarketable concern bonds began to be traded in the active market and therefore, were transferred to level 1 in the fair value hierarchy. Total 2 36

100 Notes to the consolidated interim financial statements as at September 30, 2014 Note 5 Financial instruments (cont.) a. Assets for investment linked contracts (cont.) 2. Additional information regarding fair value (cont.) (b) Financial assets measured at fair value level 3 (cont.) Nonmarketable debt assets Shares Other financial investments Total NIS in thousands Unaudited Balance as of January 1, ,951 *) 134,395 *) 1,672,852 *) 1,999,198 Total profits (losses) recognized in profit and loss ( 30,775) *) 1,024 *) 96,933 *) 67,182 Acquisitions 7, ,400 *) 305,614 Sales ( 18,809) ( 357,152) ( 375,961) Redemptions ( 4,670) *) ( 16,704) *) ( 21,374) Interest and dividend receipts ( 8,496) *) ( 1,239) ( 9,735) Transfers to level 3 65,610 65,610 Balance as of September 30, , ,952 1,693,329 2,030,534 Total profits (losses) for period not realized and recognized in profit and loss for financial assets held as of September 30, 2013 ( 30,775) *) 984 *) 179,086 *) 149,295 *) Reclassified NIS in thousands Nonmarketable debt assets Other financial Shares investments Unaudited Total Balance as of July 1, , ,661 1,738,354 2,037,000 Total profits (losses) recognized in profit and loss 23,779 ( 2,177) 138, ,422 Acquisitions 19,448 19, , ,989 Sales ( 242) ( 68,151) (68,393) Redemptions ( 39,300) ( 1,803) (41,103) Interest and dividend receipts ( 4,196) ( 1,241) (5,437) Balance as of September 30, , ,485 1,969,479 2,283,478 Total profits (losses) for period not realized and recognized in profit and loss for financial assets held as of September 30, ,060 ( 2,177) 141, ,

101 Notes to the consolidated interim financial statements as at September 30, 2014 Note 5 Financial instruments (cont.) a. Assets for investment linked contracts (cont.) 2. Additional information regarding fair value (cont.) (b) Financial assets measured at fair value level 3 (cont.) Nonmarketable debt assets Shares Other financial investments Total NIS in thousands Unaudited Balance as of July 1, ,076 *) 112,271 *) 1,635,335 *) 1,924,682 Total profits (losses) recognized in profit and loss ( 25,464) *) 3,356 *) 7,403 *) ( 14,705) Acquisitions 7, ,718 *) 156,676 Sales ( 93,935) ( 93,935) Redemptions ( 978) *) ( 4,192) *) ( 5,170) Interest and dividend receipts ( 2,624) *) ( 2,624) Transfers to level 3 65,610 65,610 Balance as of September 30, , ,952 1,693,329 2,030,534 Total profits (losses) for period not realized and recognized in profit and loss for financial assets held as of September 30, 2013 (*( 25,464) (* 3,356 (* 89,597 67,489 *) Reclassified *) Reclassified Nonmarketable debt assets Other financial investments Audited Shares Total NIS in thousands Balance as of January 1, , ,395 1,672,852 *) 1,999,198 Total profits (losses) recognized in profit and loss 43,248 ( 10,526) 101,695 *) 134,417 Acquisitions 8,605 3, , ,070 Sales ( 1,108) ( 50,875) ( 428,006) ( 479,989) Redemptions *) ( 19,804) ( 19,804) Interest and dividend receipts ( 52,587) *) ( 1,328) ( 53,915) Balance as of December 31, ,109 74,894 1,581,974 1,846,977 Total profits (losses) for period not realized and recognized in profit and loss for financial assets held as of December 31, ,642 ( 12,127) 83, ,

102 Notes to the consolidated interim financial statements as at September 30, 2014 Note 5 Financial instruments (cont.) b. Other financial investments 1. Nonmarketable debt assets composition and fair value: As at September 30, 2014 Book value Fair value NIS in thousands Unaudited Government bonds Hetz bonds and treasury deposits 14,403,954 20,920,914 Other nonconvertible debt assets 4,929,572 5,480,721 Bank deposits 1,100,459 1,277,599 Total nonmarketable debt assets 20,433,985 27,679,234 Impairments attributed to income statement (accrued) 35,765 As at September 30, 2013 Book value Fair value NIS in thousands Unaudited Government bonds Hetz bonds and treasury deposits 13,963,402 18,280,024 Other nonconvertible debt assets 4,911,101 *) 5,421,927 *) Bank deposits 795,629 *) 924,768 *) Total nonmarketable debt assets 19,670,132 24,626,719 Impairments attributed to income statement (accrued) 43,243 *) Reclassified As at December 31, 2013 Book value Fair value NIS in thousands Audited Government bonds Hetz bonds and treasury deposits 13,890,316 18,682,511 Other nonconvertible debt assets 4,781,499 5,238,659 Bank deposits 925,497 1,042,560 Total nonmarketable debt assets 19,597,312 24,963,730 Impairments attributed to income statement (accrued) 44,

103 Notes to the consolidated interim financial statements as at September 30, 2014 Note 5 Financial instruments (cont.) b. Other financial investments (cont.) 2. Additional information on fair value (a) Fair value of financial assets when divided into levels The following table presents an analysis of financial assets measured at fair value based on time, while using an evaluation method according to the various hierarchy levels. For a specification of the hierarchy levels see Note 4 (b) of the Annual Statements. As at September 30, 2014 Level 1 Level 2 Level 3 Total NIS in thousands Unaudited Financial investments: Marketable debt assets 6,788, ,004 7,174,305 Nonmarketable debt assets 73,478 73,478 Shares 995, ,761 **) 1,139,665 Other financial investments *) 1,137,039 72, ,326 1,912,119 Total financial investments 8,921, , ,087 10,299,567 From this for derivatives *) 6,895 23,550 1,054 31,499 **) See Note 9 (k) As at September 30, 2013 Level 1 Level 2 Level 3 Total NIS in thousands Unaudited Financial investments: Marketable debt assets 7,305, ,931 7,631,483 Nonmarketable debt assets 88,260 88,260 Shares 823, , ,328 Other financial investments *) 784,390 33, ,376 1,399,081 Total financial investments 8,913, , ,853 9,985,152 From this for derivatives *) 2,304 8, ,996 As at December 31, 2013 Level 1 Level 2 Level 3 Total NIS in thousands Audited Financial investments: Marketable debt assets 6,877, ,439 7,250,893 Nonmarketable debt assets 20,116 20,116 Shares 895, , ,553 Other financial investments *) 910,488 53, ,682 1,536,548 Total financial investments 8,683, , ,192 9,745,110 From this for derivatives *) , ,

104 Notes to the consolidated interim financial statements as at September 30, 2014 Note 5 Financial instruments (cont.) b. Other financial investments (cont.) 2. Additional information on fair value (cont.) (b) Financial assets measured at fair value level 3 Shares Other financial investment Total NIS in thousands Unaudited Balance as of January 1, , , ,192 Total profits recognized: In income statement 55,883 1,389 57,273 In other comprehensive income 108,549*) 43, ,662 Acquisitions 4, , ,372 Sales ( 61,982) ( 81,380) (143,362) Redemptions ( 2,527) (2,527) Dividend received ( 4,523) (4,523) Balance as at September 30, ,761 Total profits for period not realized and recognized in income statement for financial assets held as of September 30, ,126 *) See Note 9 (k) 702, , ,906 NIS in thousands Shares Other financial investment Unaudited Total Balance as of January 1, , , ,754 Total profits (losses) recognized: In income statement 17,625 4,748 22,373 In other comprehensive income ( 55) 14,149 14,094 Acquisitions 90 38,558 38,648 Sales ( 11,631) ( 80,468) ( 92,099) Redemptions ( 5,569) ( 5,569) Transfers from level 3 ( 2,348) ( 2,348) Balance as at September 30, , , ,853 Total profits for period not realized and recognized in income statement for financial assets held as of September 30, ,520 1,621 13,

105 Notes to the consolidated interim financial statements as at September 30, 2014 Note 5 Financial instruments (cont.) b. Other financial investments (cont.) 2. Additional information on fair value (cont.) (b) Financial assets measured at fair value level 3 (cont.) Shares Other financial investment Total NIS in thousands Unaudited Balance as of July 1, , , ,455 Total profits (losses) recognized: In income statement 52,420 ( 2,813) 49,608 In other comprehensive income 33,730*) 27,799 61,528 Acquisitions 4,324 95,561 99,885 Sales ( 61,982) ( 39,594) (101,576) Redemptions ( 813) (813) Balance as at September 30, , , ,087 Total profits (losses) for period not realized and recognized in income statement for financial assets held as of September 30, 2014 ( 1,337) 3,860 2,523 *) See Note 9 (k) Shares Other financial investment Total NIS in thousands Unaudited Balance as of July 1, , , ,138 Total profits recognized: In income statement 18,904 2,427 21,331 In other comprehensive income 209 1,826 2,035 Acquisitions 90 12,177 12,267 Sales ( 11,631) ( 23,700) ( 35,331) Redemptions ( 1,239) ( 1,239) Transfers from level 3 ( 2,348) ( 2,348) Balance as at September 30, , , ,853 Total profits for period not realized and recognized in income statement for financial assets held as of September 30, ,537 2,238 14,775 Shares Other financial investment Total NIS in thousands Audited Balance as of January 1, , , ,754 Total profits recognized: In income statement 6,106 13,911 20,017 In other comprehensive income 10,454 16,180 26,634 Acquisitions 90 55,584 55,674 Sales ( 11,721) ( 115,576) ( 127,297) Redemptions ( 7,375) ( 7,375) Transfers from level 3 ( 2,215) ( 2,215) Balance as at December 31, , , ,192 Total profits for period not realized and recognized in income statement for financial assets held as of December 31, 2013 ( 5,649) ( 5,649) 2 42

106 Notes to the consolidated interim financial statements as at September 30, 2014 Note 5 Financial instruments (cont.) c. Financial liabilities 1. Composition and fair value As at September 30 As at December Book Book value Fair value value Fair value Book value Fair value NIS in thousands Unaudited Audited Liabilities to banking corporations and others: Financial liabilities presented at amortized cost: Loans from banking corporations: The Company 386,990 Clal Credit and Finances 54, ,127 Short term credit from banking corporations 72,135 Liabilities for discontinued operations 1) Other liabilities Total liabilities presented at amortized cost 513,262 Financial liabilities presented at fair value through profit and loss: Liabilities in respect of put options for external shareholders Liabilities for derivative financial instruments and short sale *) 496,878 Total liabilities to banking corporations and others 1,010,140 Deferred liability notes 2) 2,855,258 Bonds 3) For investment linked liabilities *) 426, ,403 54, ,863 72, , ,878 1,034,876 3,228, , , , , , , , , , , , , , , ,746 21,297 21,297 71,626 71,626 81,562 81,562 10,348 10,348 2,490 2, , , , ,737 9,953 9, , ,309 85,177 85,177 1,092,655 1,111, , ,914 2,434,792 2,767,595 2,433,736 2,789, , , , ,591 76,912 76,912 Liabilities presented as part of liabilities held for sale Bonds 251, ,660 Liabilities to banking corporations and others 70,694 70,694 2,048 2,048 Total liabilities presented as part of liabilities held for sale 70,694 70, , ,708 1) See Note 9 (d) 2) See Note 6 (c) (7) 3) See Note 8 (a) (2) 2 43

107 Notes to the consolidated interim financial statements as at September 30, 2014 Note 5 Financial instruments (cont.) c. Financial liabilities (cont.) 2. Fair value of financial liabilities divided into levels The following table presents an analysis of financial liabilities measured at fair value based on time, while using an evaluation method according to the various hierarchy levels. For a specification of the hierarchy levels see Note 4 (b) of the Annual Statements. As at September 30, 2014 Level 1 Level 2 Level 3 Total NIS in thousand Unaudited Derivatives 13, , ,878 Total financial liabilities 13, , ,878 As at September 30, 2013 Level 1 Level 2 Level 3 Total Unaudited Derivatives 5, , ,309 Total financial liabilities 5, , ,309 As at December 31, 2013 Level 1 Level 2 Level 3 Total Audited Derivatives 4,958 80,219 85,177 Total financial liabilities 4,958 80,219 85,177 d. Evaluation techniques and evaluation procedures applied in the Company (1) For information about the evaluation techniques and evaluation procedures applied in the Company, see notes 3 (f) (2) and 14 (e) (3) of the Annual Statements. (2) Following that mentioned in Note 14 (e) (4) (a) (1) of the Annual Statements, according to a letter published by the Ministry of Finance, in September 2014 the Tenders Committee decided to announce that Mirvah Hogen Ltd (hereinafter: Mirvah Hogen) is the winner in the tender. In addition, the letter also noted that the schedule for assimilating Mirvah Hogen's updated model will be announced by separate notice. At this stage, the Company is unable to evaluate the effect of the expected change in the methodology on the fair value of nonmarketable debt assets and whether there will be any effect as mentioned. 2 44

108 Notes to the consolidated interim financial statements as at September 30, 2014 Note 6 Management and equity requirements a. Group's management and equity requirements For details about managing the Company's equity requirements see sections c' (3) and (4) below. As of the end of the reporting period, Clal Insurance complied with its equity objective as determined by the Board of Directors of Clal Insurance. Additionally, as of the end of the reporting period, the managing companies controlled by Clal Insurance had a capital surplus considering the minimal equity required according to the equity regulations. b. For details regarding the notice to the Israeli Securities Authority concerning the Authority's decision to extend the period for offering securities according to the Company's shelf prospectus from May 31, 2012 see Note 9 (h) below. c. Equity requirements in the Group's insurance companies (1) For further information on equity requirements of the Group's insurance companies see Note 16 (e) of the Annual Statements. (2) Details of equity requirements The following are details of the equity requirements according to the Supervision of Insurance Business (Minimum Equity Required of an Insurer) Regulations, , including their amendments (hereinafter: Equity Regulations) and the Commissioner's directives that apply to consolidated subsidiaries that are insurance companies: 2 45

109 Notes to the consolidated interim financial statements as at September 30, 2014 Note 6 Management and equity requirements (cont.) c. Equity requirements in the Group's insurance companies (cont.) (2) Details of equity requirements (cont.) Consolidated insurance companies As at September 30, 2014 Clal Insurance Clal Credit Insurance NIS in thousands Unaudited Minimum equity: Amount required according to amended Equity Regulations *) 4,476,635 34,464 Existing amount calculated according to Equity Regulations Tier 1 core equity 4,105, ,484 Tier 2 subordinated equity 446,505 Tier 2 hybrid equity 2,082,420 Total Tier 2 equity 2,528,925 Total current equity, calculated according to Equity Regulations 6,634, ,484 Surplus 2,157, ,020 Equity activities after the report date: Decreasing Tier 2 subordinated equity ( 14,020) Surplus considering activities after the report date 2,143, ,020 Amount of investments against retained earnings according to the Commissioner's instructions or actually held against retained earnings and therefore constituting surplus that cannot be distributed 25,782 Amount needed including equity requirements for *): Nonlife insurance activities/required Tier 1 equity 640,447 30,121 Nursing insurance activities 102,780 Extraordinary life insurance risks 408,410 Deferred acquisition expenses in life insurance, illness and hospitalization insurance 1,212,358 Requirements for yield guaranteeing plans 5,288 Unrecognized assets as defined in the Equity Regulations 43, Investment in insurance companies and consolidated managing companies (including purchased management activity) 550,019 Required equity for investments 1,008,484 1,839 Catastrophe risks in nonlife insurance 126,602 Operational risks 282,485 1,967 Guarantees 96,107 Total required equity 4,476,635 34,464 Decreasing equity required for original difference 208,739 Tax Reserve in respect of purchasing provident funds 70,

110 Notes to the consolidated interim financial statements as at September 30, 2014 Note 6 Management and equity requirements (cont.) c. Equity requirements in the Group's insurance companies (cont.) (2) Details of equity requirements (cont.) As at December 31, 2013 NIS in thousands Consolidated insurance companies Clal Clal Credit Insurance Insurance Audited Minimum equity: Amount required according to amended Equity Regulations *) 4,477,192 34,229 Existing amount calculated according to Equity Regulations Tier 1 core equity 3,765, ,279 Tier 2 subordinated equity 620,569 Tier 2 hybrid equity 1,566,475 Total Tier 2 equity 2,187,044 Total current equity, calculated according to Equity Regulations 5,952, ,279 Surplus 1,475, ,050 Equity activities after the report date: Decreasing Tier 2 subordinated equity ( 29,148) Surplus considering activities after the report date 1,446, ,050 Amount of investments against retained earnings according to the Commissioner's instructions or actually held against retained earnings and therefore constituting surplus that cannot be distributed 26,644 Amount needed including equity requirements for *): Nonlife insurance activities/required Tier 1 equity 654,742 30,091 Nursing insurance activities 101,314 Extraordinary life insurance risks 399,920 Deferred acquisition expenses in life insurance, illness and hospitalization insurance 1,233,287 Requirements for yield guaranteeing plans 9,508 Unrecognized assets as defined in the Equity Regulations 64, Investment in insurance companies and consolidated managing companies (including purchased management activity) 547,916 Required equity for investments 963,547 1,931 Catastrophe risks in nonlife insurance 114,843 Operational risks 286,953 1,980 Guarantees 100,947 Total required equity 4,477,192 34,229 Decreasing equity required for original difference 211,010 Tax Reserve in respect of purchasing provident funds 61,

111 Notes to the consolidated interim financial statements as at September 30, 2014 Note 6 Management and equity requirements (cont.) c. Equity requirements in the Group's insurance companies (cont.) (3) Clal Insurance besides general requirements and the Companies Law, distributing dividend from retained earnings in insurance companies is also subject to liquidity requirements, complying with the investment regulations and other provisions occasionally published by the Commissioner. Following that mentioned in Note 16 (e) (3) (d) of the Annual Statements, the regulatory equity requirements from the Group's insurance companies will be determined as of the date of applying the Israeli solvency regime based on the principles of the Solvency II directive, according to the determined application rules. Following the aforesaid, on November 11, 2014 a letter was received from the Commissioner outlining various actions in respect of applying the new solvency regime in Israel based on developments in Europe, prior to applying the Solvency II directive at the beginning of 2016 (hereinafter: Outline). According to the Outline, insurance companies are required to comply with the new solvency standards starting from the financial statements of 2016 (hereinafter: Commencement Date). Furthermore, during a period to be determined, the companies will be required to comply both with a new solvency rate according to a risk based economic measurement and with the solvency rate according to the instructions that exist according to accounting measurement based on the Equity Regulations. Until the Commencement Date the companies will be required to perform a number of quantitative effect exercises intended to review the quantitative effects of the model on insurance companies, as well as to calibrate and adjust the model. Since calibration and adjustment of the model to the local market have not been determined yet, Clal Insurance cannot evaluate the expected effect at this time. The Company the distributable balance of profits as of the report date according to the Companies Law and the equity requirements from the control permit in institutional bodies held by the Company (which was cancelled on May 8, 2014 as specified in section 4 below) is approx. NIS 1.3 billion. Dividend distribution in the Company will have to consider the effects of applying Solvency II on institutional bodies as described above and is effected by the ability to distribute dividends of investees in light of the equity requirements and their liquidity requirements and was also subject to the restrictions from the agreement for selling Company shares by IDB Development which expired as specified in Note 1 (b) (3) above. (4) Permit given by the Commissioner to the previous controlling shareholders in IDB Holdings to hold control in consolidated insurance companies As the Company was informed by IDB Holdings, according to the permit given by the Commissioner to the controlling shareholders in IDB Holdings (which was cancelled on May 8, 2014 as specified below) for control of inter alia Clal Insurance and Clal Credit Insurance (each one of them: the Insurer and together the Insurers), IDB Holdings undertook to supplement (or to ensure that companies directly or indirectly controlled by it will supplement) the equity required from the Insureds according to the Equity Regulations or any other rule or law to replace it, subject to the limit of obligation not exceeding 50% of the equity required from an Insured and also that the obligation will only be realized when the Insured's equity is negative and at the rate of negative equity, provided that the supplementation amount will not exceed the limit of the obligation. In addition IDB Holdings undertook to supplement (or to ensure that companies directly or 2 48

112 Notes to the consolidated interim financial statements as at September 30, 2014 Note 6 Management and equity requirements (cont.) c. Equity requirements in the Group's insurance companies (cont.) (4) Permit given by the Commissioner to the previous controlling shareholders in IDB Holdings to hold control in consolidated insurance companies (cont.) indirectly controlled by it will supplement) the equity of Clal Pension and Provident Funds to the amount specified in the Provident Fund Regulations as in effect from time to time or any other rule or law replacing them. The aforementioned obligation (in regard to institutional bodies) will be valid as long as IDB Holdings will be the controlling shareholder in the institutional bodies. For details about the financial position of IDB Holdings and the holdings and control in the Company see Note 1 above. It was further informed that the permit included terms and restrictions regarding holdings and pledges in the chain of control of the Group's institutional bodies and the previous controlling shareholders were required to preserve the Company's equity requirements as long as there are pledges on their holdings of Means of Control in IDB Holdings so that the Company's equity will not be less than the product of multiplying the rate of the Company's holdings in Clal Insurance by 140% of the minimum equity required from Clal Insurance every time according to the Equity Regulations on September 30, 2005 as will be at the time, linked to the index for the month of September As of the end of the reporting period, the minimum equity required of the Company as specified above totaled approx. NIS 2.9 billion. At the end of the reporting period the Company's equity is higher than this requirement. The equity requirement is actually reviewed according to the Company's reviewed or audited financial statements. In regard to managing the equity, the need for maintaining an additional lossabsorbing cushion considering the negative developments that might affect the equity and the equity requirements was also reviewed. The Company was informed that the permit was updated in August 2012 as follows: as of the amendment date until March 1, 2015, the rate of holding constituting the control nucleus in the Company which IDB Development was required to hold (and was also required that it be free of pledges) was decreased from 50.01% to 45%, provisions regarding the Commissioner's authorities in case of an event that can lead to negating the control of (previous) controlling shareholders in the Group's Insurers were added to the permit, including a provision regarding transferring Means of Control in the Company or Clal Insurance based on the Commissioner's decision in case of an event as mentioned, to a trustee whose identity will be approved by the Commissioner and will operate the Means of Control deposited in favor of IDB Development or the Company, as applicable (hereinafter: Transferring Corporation) and according to the Commissioner's instructions, who will be entitled to give instructions in order to guarantee proper management of the aforementioned Insurees and preserving the interests of the insurees or the savers, including in the matter of raising capital. In regard to appointing a trustee for the controlling shareholders' holdings of Company shares see Note 1 (b) (2) above. As of the date of the report, the Company did not deliver a similar power of attorney regarding the shares of Clal Insurance to the Commissioner. On May 8, 2014 the representatives of the previous controlling shareholders in IDB Development (Ganden, Manor and Livnat groups) received a notice from the Commissioner that following the creditors arrangement in IDB Holdings and since they no longer control the Group's institutional bodies, the control permits in the aforementioned institutional bodies that were awarded to them were cancelled. IDB Development informed the Company that the Commissioner's representatives noted that clarifications regarding this notice will be given at a later stage. 2 49

113 Notes to the consolidated interim financial statements as at September 30, 2014 Note 6 Management and equity requirements (cont.) c. Equity requirements in the Group's insurance companies (cont.) (4) Permit given by the Commissioner to the previous controlling shareholders in IDB Holdings to hold control in consolidated insurance companies (cont.) For details regarding the appointment of Mr. Moshe Terry as the trustee for the majority of IDB Development's holdings in the Company and the Commissioner's letter from November 27, 2013 and May 8, 2014 on the issue of control in the Company as well as obligations given to the Commissioner by the ElsztainExtra group regarding control in the Company considering the debt arrangement in IDB Holdings as of the date of completing it and until a new control permit is given in respect of the institutional bodies, see Note 1 (b) (2) above. For details about the debt arrangement in IDB Holdings and the matter of transferring control in IDB Development (indirectly) to Mr. Eduardo Elsztain and Mr. Mordechai Ben Moshe, see Note 1 (a) above. On June 29, 2014 the controlling shareholders in IDB Development, Dolphin and H.A.A (controlled by Mr. Eduardo Elsztain and Mr. Ben Moshe, respectively) informed IDB Development that they had submitted a request for a control permit in the Group to the Commissioner. On September 29, 2014 IDB Development reported that it was informed by Mr. Eduardo Elsztain and Mr. Mordechai Ben Moshe as follows: the Commissioner's office informed Mr. Elsztain and Mr. Ben Moshe of its position as of that date stating that there are material differences between the structure and control details presented to the Commissioner and the requirements from the controlling shareholder, as specified in the Supervision of Financial Services (Insurance) Law, as well as the document regarding the control policy in institutional bodies published by the Commissioner in February 2014 (hereinafter: Control Policy) and that until that date they had received less than half of the information and documents needed in order to review the request. The Commissioner's office also stated that in light of the material differences (claimed as aforesaid) they believe that even after receiving all the necessary information they will not be able to approve Mr. Elsztain and Mr. Ben Moshe's request for a joint control permit in the Company's Group. The Commissioner's office also stated that Mr. Elsztain and Mr. Ben Moshe must submit the remaining necessary documents and information according to the Control Policy and the Commissioner's demands, until October 30, 2014, and also that in light of the significant differences (claimed as aforesaid) Mr. Elsztain and Mr. Ben Moshe, together and severally, will have to present details and considerable alternatives to compensate for these differences. These will be reviewed by the Commissioner's office which will be entitled not to accept them. The Commissioner's office also informed its intention to respect the dates stipulated in its letter from November 27, 2013 in regard to the Means of Control in the Company's Group and not to extend them (see Note 1 (b) (2) above, including in regard to the last date for receiving a control permit December 31, 2014). IDB Development also reported that Mr. Elsztain and Mr. Ben Moshe stated that they informed the Commissioner of their intention to continue with the request and supplement the necessary information and documents. Mr. Elsztain and Mr. Ben Moshe 2 50

114 Notes to the consolidated interim financial statements as at September 30, 2014 Note 6 Management and equity requirements (cont.) c. Equity requirements in the Group's insurance companies (cont.) (4) Permit given by the Commissioner to the previous controlling shareholders in IDB Holdings to hold control in consolidated insurance companies (cont.) also informed IDB Development that the Commissioner's position specified above (which was delivered as specified therein, when the Commissioner had less than half of the information and documents necessary for reviewing the request) does not change their intention to proceed to receiving the permit requested in the request. On October 30, 2014 IDB Development reported that it was informed by Mr. Eduardo Elsztain and Mr. Mordechai Ben Moshe, each individually, that to the best of their understanding, the documents and information that were submitted and will be submitted by each one of them on that day, are sufficient in order to fulfill the Commissioner's requirements regarding providing documents and information in order to review the request and that they cannot evaluate the prospects of the request for a control permit in the Company's Group. (5) For information about Clal Insurance's obligation to supplement the equity required from Clal Credit Insurance and Clal Pension and Provident Fund, see Note 16 (e) (5) and (6) of the Annual Statements. (6) Following that mentioned in Note 16 (f) (2) of the Annual Statements regarding conversion of the updated credit line provided by Clal Insurance to Clal Pension and Provident Funds for the nonnegotiable perpetual capital note on February 5, 2014, which can be converted into shares, on April 22, 2014 Clal Insurance converted the capital note whereas the amount specified in the capital note of NIS million will be considered as another investment in premium on shares in Clal Pension and Provident Fund's books, without allotting additional shares of Clal Pension and Provident Fund for the conversion. Following that mentioned in Note 16 (f) (1) of the Annual Statements regarding the provisions of the Control of Financial Services (Provident Funds) (Minimum Equity Required from a Provident Fund or Pension Fund Managing Company) Regulations, which expanded the equity required from a company managing provident funds and pension funds and also determined rules regarding the manner of investing the minimum equity required, inter alia, regarding the minimum rate of holdings of equity in liquid assets, on October 26, 2014 the Board of Directors of Clal Insurance approved transferring NIS 80 million in order to fund current activities and investments of Clal Pension and Provident Funds and maintain future liquidity, in exchange for allotting shares of Clal Pension and Provident Fund to Clal Insurance according to their value. (7) Following that mentioned in Note 25 (e) of the Annual Statements, regarding Clalbit Finance's intention to publish a shelf prospectus, on May 29, 2014, Clalbit Finance published a shelf prospectus to the Israeli Securities Authority (hereinafter: Shelf Prospectus). The Shelf Prospectus allows Clalbit Finance to inter alia issue bonds and warrants in respect of bonds whose consideration will be deposited in Clal Insurance, which will be liable towards the holders of the bonds for payment thereof and will be recognized by Clal Insurance as Tier 2 hybrid equity and/or tertiary equity, as applicable, as the terms are defined in the Shelf Prospectus. 2 51

115 Notes to the consolidated interim financial statements as at September 30, 2014 Note 6 Management and equity requirements (cont.) c. Equity requirements in the Group's insurance companies (cont.) (7) (Cont.) On July 16, 2014 Clalbit Finance issued two new bond Series to the public, bonds (Series G) and bonds (Series H) by virtue of the Shelf Prospectus (hereinafter together: Bonds). As part of the issue Clalbit Finance raised: a. The sum of NIS 163,902 thousand nominal value Bonds (Series G). The principal will be paid in one payment on December The principal and interest are linked to the CPI for the month of June The interest for the Bonds (Series G) is paid every year in two semiannual payments starting from December 31, 2014, on September and December 31 of each calendar year between The annual nominal interest is 2.32% and the annual effective interest is 2.45%; b. The sum of NIS 354,121 thousand nominal value Bonds (Series H). The principal will be paid in one payment on December The principal and interest are not index linked. The interest for the Bonds (Series H') is paid every year in two semiannual payments starting from December 31, 2014, on September and December 31 of each calendar year between The annual nominal interest is 4.14% and the annual effective interest is 4.31%. The issue costs amounted to approx. NIS 4,812 thousand. As stated in the Shelf Prospectus, the total consideration (gross) received in Clalbit Finance due to issue of the new Bonds as part of the aforementioned issue, was deposited in Clal Insurance in a deferred deposit with payment and interest terms that are identical to the Bond's terms. The Bonds are recognized as Tier 2 hybrid equity in Clal Insurance as mentioned in section c (2) above. Regarding the status of the Bonds see Note 8 below. For information about rating the issue see Note 9 (f) below. Additional terms of Bonds a. Right of early redemption Clalbit Finance will be entitled, without giving an option of choice to holders of the Bonds and/or a trustee, to redeem the Bonds by early redemption, complete or partial, provided that the following terms are fulfilled: The first date that Clalbit Finance will be entitled to perform an early redemption, complete or partial, of the Bonds (Series G) will be December 31, The first date that Clalbit Finance will be entitled to perform an early redemption, complete or partial, of the Bonds (Series H) will be December 31, 2022 (hereinafter in regard to each Series: First Date for Early Redemption). After the First Date for Early Redemption, the Company will be entitled to perform an early redemption, complete or 2 52

116 Notes to the consolidated interim financial statements as at September 30, 2014 Note 6 Management and equity requirements (cont.) c. Equity requirements in the Group's insurance companies (cont.) (7) (Cont.) partial, of the bonds on the date of every interest payment in regard to each Bond from the relevant Series. As long as the right of early redemption is not exercised on the First Date for Early Redemption, additional interest that the Bonds will bear at that time, will be paid to the holders of the relevant Bonds for the balance of the period (from the First Date of Early Redemption as mentioned until the actual date of payment) which will be in the rate of 50% of the original risk margin determined in the issue in regard to Bonds from the relevant Series. The original risk margin is 1.35% for the Bonds (Series G) and 1.05% for the Bonds (Series H). The minimal amount for performing an early redemption in regard to each of the Series of Bonds will be NIS 25 million nominal value of the Bonds from the relevant Series. One of the following occurs: (1) Concurrently with the early redemption, the Company issues an equity instrument of identical or preferable quality; (2) The Commissioner's approval was received in advance and terms to be determined. In general, as of the date of the Shelf Prospectus, according to the Commissioner's instructions, early redemption will be permitted if Clal Insurance's equity after the early redemption exceeds 120% of the minimum equity required of it according to the Supervision of Insurance Services (Insurance) (Minimum Equity Required of an Insurer) Regulations, (hereinafter: Equity Regulations). It is emphasized that the Commissioner's provisions as mentioned might change from time to time. b. Postponing the dates for payment of principal and/or interest in case of certain delaying circumstances If one of the delaying circumstances specified below occurs, the payment of the principal and/or interest payments for the Bonds, as applicable, will be postponed: Postponing interest payments only lack of distributable profits, as defined in the Companies Law, of Clal Insurance, according to the last financial statements (annual or quarterly) published before the relevant date for paying interest. Postponing payment of principal and/or interest payments: the recognized equity amount of Clal Insurance is lower than the minimum equity required according to the Equity Regulations according to the last financial statements (annual or quarterly) published before the date of paying the 2 53

117 Notes to the consolidated interim financial statements as at September 30, 2014 Note 6 Management and equity requirements (cont.) c. Equity requirements in the Group's insurance companies (cont.) (7) (Cont.) interest and/or relevant principal and Clal Insurance did not supplement equity as of the date of publishing the report (as the term is defined in the Commissioner's directive regarding "Composition of Recognized Equity of an Insurer" from August 2011). The Board of Directors of Clal Insurance instructed that payment of the principal and/or interest be postponed if it determined that there is a real and immediate fear of Clal Insurance's ability to comply with the minimum equity required from it (according to the Equity Regulations) or to pay liabilities whose rank of priority is higher than the Bonds on time, provided that the Commissioner's approval was received in advance. The Commissioner instructed that the payment of the principal and/or interest be postponed if he saw a significant impairment in the recognized equity of Clal Insurance or if there is an actual and immediate fear of Clal Insurance's ability to comply with the minimum equity required from it (according to the Equity Regulations). The amounts of principal and/or interest postponed as mentioned, will accumulate linkage differentials if the original principal is linked (meaning Bonds Series G only, will accumulate linkage differentials) starting from the date of postponement and until the actual date of payment, as well as interest starting from the date of postponement until the actual date of payment at the rate of interest that the Bonds bear at the time. The interest will be calculated by way of compound interest. (8) For details regarding the amendment of the agreement between Clalbit Finance and Clal Insurance from March 17, 2014 concerning the order of priority of liabilities of Clal Insurance see Note 25 (a) (6) (f) of the Annual Statements. (9) Following that mentioned in Note 16 (g) and Note 46 (e) of the Annual Statements, regarding the arrangement between the Company and Torus on closing the exposure in respect of open years on account of the Broadgate businesses, as of January 2014, the Company is no longer liable in respect of the various open underwriting years and is not exposed to a deterioration or improvement in the results of these years, all in exchange for payment in the sum of approx. GBP 13,824 thousand and approx. US $630 thousand paid to Torus on January Accordingly, Lloyds released documentary credit letters to the Company, which were provided by banks with the Company's guarantee in the sum of approx. GBP 9,770 thousand and approx. US $ 8,976 thousand. Repaying the liability did not lead to material recognition in profit or loss. 2 54

118 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims 1 The following are details regarding material changes that occurred in the reporting period concerning material claims 2 not during the regular course of business. No material change occurred in all remaining proceedings described in Note 45 of the Annual Statements and not descried below. The amounts of the following claims are presented in the sums as of the date of filing unless stated otherwise. a. Class actions A1. Material claim approved for filing as a class action In April 2008 the consolidated subsidiary Clal Insurance Ltd (hereinafter: Clal Insurance) received a financial claim filed to the Labor Court in Jerusalem (hereinafter: the Claim) and a motion to approve the Claim as a class action (hereinafter: Motion). According to the plaintiff, as part of a "directors insurance" policy Clal Insurance determined that the benefit coefficient for paying insured women insurance benefits upon reaching the age of retirement, will be lower than insured men, due to the longer life expectancy of women, yet on the other hand Clal Insurance charged and is charging insured women an identical risk premium to men, despite the fact that the mortality rates of women are much lower than men. According to the plaintiff, in 2001 or shortly around that time, Clal Insurance amended the policy but only in regard to new policies. The main remedies requested from the court are to instruct that: a. The discrimination exercised by the defendant is contrary to the law and all the provisions of the policy and/or that any act by virtue of this discrimination, are null and void. b. The plaintiff and the remaining members of the group it is asking to represent (hereinafter: the Group) have the right to choose one of the following alternatives: (1) compare the benefit coefficients for an insured woman and an insured man and instruct that in case of a onetime payment instead of benefits, the onetime payment sum for an insured woman be increased in proportion between the benefit coefficient for an insured man and that of an insured woman of relevant age. (2) to decrease, retroactively and prospectively, the risk premium amounts charged from insured women and determine them at risk premium amounts that according to the plaintiff are appropriate for an insured woman, whereas the amounts that will be decreased will be added to the amounts accrued for savings. c. To give suitable instructions for the Group's members that were not located or did not exercise the right to choose between the above alternatives. The grounds claimed in the Claim are inter alia breach of the principle of equality and discriminating conduct, discriminating condition in a standard contract, breaching the obligation of good faith and unjust enrichment. 1 On March 19, 2013 Clal Health was merged into Clal Insurance in a way that Clal Insurance replaced Clal Health in all issues and matters. Therefore, claims filed against Clal Health will be considered as claims filed against Clal Insurance. 2 In this Note, a claim will be considered material if the amount claimed in the claim and/or the motion to recognize a class action, net of tax, exceeds the sum of approx. NIS 17 million. 2 55

119 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A1. Material claim approved for filing as a class action (cont.) The Group which the plaintiff is asking to represent is all the women that purchased a "directors insurance" from the defendant that distinguished between women and men in terms of benefit payments, but did not make a distinction between the genders in terms of the risk premium. The plaintiff does not state the amount of damage caused and in lack of details necessary to evaluate the accurate financial scope and estimates the total damages caused to members of the Group at hundreds of millions of NIS. In April 2008 three additional claims were filed to the Labor Court in Jerusalem on identical matters as well as Motions to approve them as a class action, against other insurance companies. The national Labor Court's Presiding Judge decided to unite the hearings in the various claims in the Regional Court of Jerusalem. In July 2011 Clal Insurance filed a response to the Motion. In January 2012 Clal Insurance filed a motion to dismiss in limine on account of limitation (hereinafter: Motion to Dismiss) and in July 2012 the court rejected the Motion to Dismiss without an order for expenses. In August 2014 the Regional Labor Court in Jerusalem accepted the Motion to approve the class action, while determining that there are foundations needed to accept the Motion at this preliminary stage of the hearing, such as a shared matter of fact or justice. The court emphasized that at this stage it does not deliberate the action per se and that in its opinion in order to approve the Motion, it is sufficient for it not to be a "false claim". The court determined that the cause of action is lack of distinction between men and women in calculating the risk in the directors insurance policies. The Group approved for the action was working women insured by the respondents and that in calculating their risk premium there was no distinction between women's tariffs and men's tariffs. According to the court's decision it was determined that the court is not specifically bound to the requested remedy and that the issue of the remedy to be given if the class action will be accepted, will be discussed upon clarifying the action per se. The court instructed that notices be published to members of the Group and also instructed payment of negligible costs of action. Clal Insurance has yet to file a statement of defence. 2 56

120 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions 1. In September 2013 a claim was filed to the District Court in Tel Aviv (hereinafter: the Claim) against a subsidiary Clal Insurance and Issta Tourism and Vacations in Israel and Round the World Ltd (hereinafter: Issta and together with Clal Insurance the Defendants) as well as a motion to approve it as a class action (hereinafter: Motion). The Motion and the Claim discuss the plaintiffs' argument that after they reserved flight tickets overseas with Issta they received a call from a sales representative from Clal Insurance offering them travel insurance. The plaintiffs claim that their personal details were intentionally forward without their consent, between the Issta database and the Clal Insurance database, thereby grossly breaching the Protection of Privacy Law. The causes of action are inter alia breaching a regulation, deception contrary to the provisions of the Consumer Protection Law, and unjust enrichment. The group that the plaintiffs want to represent are all of Issta and Clal Insurance's customers whose personal details were forwarded and traded by them and they have therefore suffered damage. The plaintiffs asked the court to instruct the Defendants to compensate the members of the group in the amount of damages caused as a result of the aforementioned injustices in the sum of NIS 100 million or any other amount according to the details held by them in principal values only, with the addition of interest and linkage differentials, to grant a declaratory order that the Defendants breached the provisions of the law and marketed the product produced and supplied by them contrary to required standards of Israeli law, to instruct a future forecasting mandatory injunction binding the Defendants to change their standards and procedures so they do not undermine the privacy of their customers any longer, to instruct the Defendants to return the addition of enrichment accumulated by them as a result of their actions and/or defaults discussed in the Claim to all members of the group, to instruct ruling special compensation to the plaintiffs, to instruct payment of attorney fees to the representing attorneys as a percentage of the principal and according to the discretion of the honorable court as well as payment of cost of action. Note that Clal Insurance engaged in an agreement with Issta and according to the terms of the agreement Clal Insurance has the right of indemnity from Issta for any damage, loss or expense caused to Clal Insurance, including expenses for any amount it will be forced to pay a third party, including inter alia for breaching Issta's obligations according to the agreement, including transfer of customer's details not according to the provisions of the agreement. Clal Insurance responded to the Motion. The Motion is in the evidence stage. 2. In January 2008 a subsidiary Clal Insurance received a claim filed to the District Court in Tel Aviv Yafo (hereinafter: the Claim) as well as a motion to approve it as a class action (hereinafter: Motion). The claim was filed by a number of plaintiffs and against additional defendants, all insurance companies. 2 57

121 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 2. (cont.) The Claim discusses payment called "subannuals" that is a payment charged in life insurance policies in respect of which the insurance tariff is determined as an annual amount, yet payment is performed in a number of installments (hereinafter: Subannual). According to the plaintiff, Clal Insurance charges Subannual payments in an amount that exceeds the permissible amount in a number of ways: charging Subannuals in relation to the "policy factor", charging Subannuals in relation to the savings components in the life insurance policies and charging Subannuals in relation to policies that are not life insurance. Accordingly the plaintiff claims that in its actions Clal Insurance breached the provisions of the Supervision of Financial Services (Insurance) Law, and its regulations, breached circulars of the Supervision on Insurance, misled its insuree public, took advantage of its status as a monopoly in the insurance market, unjust enrichment, acting in bad faith, breaching the provisions of the policy and fulfilling depriving conditions in the policy which is a standard contract. The requested remedies are return of all amounts unjustly charged from the plaintiffs as well as a mandatory injunction ordering the defendants to change their way of acting in the matters specified in the Claim. If the Claim is approved as a class action, the amount claimed from all the defendants is estimated by the plaintiffs at approx. NIS 2.3 billion, from which the amount claimed from Clal Insurance is approx. NIS million. In February 2010 the parties reached a procedural arrangement stating the plaintiff's arguments that Clal Insurance charged Subannuals at rates higher than the permitted amounts in respect of insurance policies issued before 1992 will be erased from the Motion and the Claim and that Clal Insurance charged the maximal Subannuals even when the number of installments was lower than twelve payments. Accordingly the amount claimed from Clal Insurance was amended to approx. NIS million. The Commissioner filed his position in the case in which he accepted the insurance companies position. Clal Insurance responded to the Motion. In February 2014 the court ordered the petitioners to reply whether they intended to remove the Motion within thirty days. In April 2014 the petitioners informed that they are not removing the Motion to approve. The Motion is in the summing up stage. 2 58

122 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 3. In June 2013 a claim was filed to the District Court in Tel Aviv Yafo against a consolidated subsidiary Clal Insurance (hereinafter: Claim) and also a motion to approve it as a class action (hereinafter: Motion). The Claim and Motion deal with the argument made by the plaintiff's (hereinafter: the Insured) who was insured as part of a collective nursing insurance through the Makefet Pension Fund and was recognized in 2010 by Clal Insurance as a person in need of nursing care, who argued that Clal Insurance pays its insurees decreased and deficient insurance benefits in a manner that they do not include additions for linkage differentials and interest. The causes of action inter alia include breach of contract, breaching the Insurance Contract Law, , a discriminating condition in a standard contact, breach of a regulation, breaching sections 55 and 58 of the Supervision of Financial Services (Insurance) Law, , unjust enrichment, breach of obligations by virtue of the Consumer Protection Laws. The group which the plaintiff is asking to represent are anyone who received insurance benefits from Clal Insurance in the 7 years preceding filing the Claim and/or will receive them until a verdict is given in the Claim, without adding due linkage differentials and interest to the insurance benefits. The plaintiff pleaded to the court for a declaratory judgment whereby Clal Insurance will pay insurance benefits to its insurees with the additional of due linkage differentials and interest from the date of the insurance event until the actual date of payment as instructed in section 28 of the Insurance Contract Law, , to instruct that Clal Insurance remit to individuals of the group whose representation is asked and are interested, the linkage differentials and interest that were withheld and deprived from the insurance benefits paid to them; to instruct that Clal Insurance amend its default from here on and pay the individuals of the group whose representations is asked, insurance benefits that include due linkage differentials and interest, to rule suitable attorney fees to the attorneys representing the insured, to rule a suitable compensation for the insured as a representative plaintiff and obligate Clal Insurance to pay expenses. The amount of the plaintiff's personal claim is NIS 7,897. The amount of the class action is approx. NIS million. Clal Insurance responded to the Motion. 4. In April 2007 a statement of claim and a motion to approve it as a class action were filed to the District Court in Tel Aviv (hereinafter: Motion to Approve) against Clal Finances Batucha a subsidiary of a consolidated subsidiary Clal Finances and also against a group of other members of the stock exchange: Bank Hapoalim Ltd, Leumi Bank of Israel Ltd, Discount Bank of Israel Ltd, First International Bank of Israel Ltd, Harel Investment House Ltd and the Central Company for Stock Exchange Services Ltd. 2 59

123 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 4. (cont.) The petitioners claim they own participating units in various trust funds that were previously managed by subsidiaries of the banks, including Clal Trust Funds (formerly Ilanot Discount Ltd) (hereinafter: Ilanot Discount) which was sold to Clal Finances. The matter of the claim and Motion to Approve are the "brokerage" commissions, which according to the petitioners, Clal Trust Funds (which in part of the period relevant to the claim controlled Clal Batucha) as the manager of the trust funds, would pay Discount Bank of Israel Ltd (hereinafter: Discount Bank) and Clal Batucha for buying and selling securities and/or foreign currency that Discount Bank and/or Clal Batucha performed for it, being a member of the stock exchange. According to the petitioners, some of the defendants also unjustly charged the trust funds managed by their subsidiaries for "brokerage" commissions at rates that were higher than the rates charged from the defendants' other customers, not as part of the trust funds, that had smaller volumes of activity than those of the aforementioned funds. The petitioners claim that by doing so Clal Trust Funds decreased the value of the fund's assets, decreased the value of each participating unit and as a result, reduced each investor's profits. The petitioners add and claim that the reason for continuing to collect the high commission is various understandings reached by Clal Finances Batucha and Discount Bank as part of selling control of Ilanot Discount. The petitioners claim that in doing so Clal Finances Batucha breached the provisions of the Joint Investments in Trust Act, They also claim that Clal Finances Batucha breached the fiduciary duty towards holders of participating units in the fund, breached the contract with investors in the trust fund, misled the investors and took advantage of their ignorance. The scope of claimed damages to the group is estimated by the petitioners against all defendants at approx. NIS million. The petitioners claim that out of this amount, Clal Finances Batucha is liable for approx. NIS 50.3 million, whereas for part of this amount it is sued alone and for part of the amount it is sued jointly and severally with Discount Bank. The remedy demanded in the claim is to charge all the defendants to repay the excess commissions supposedly charged from the beginning of 2004 and also a mandatory injunction instructing the defendants to change their conduct in regard to charging commissions. In February 2010 Clal Finances Batucha filed a response to the Motion to Approve. In January 2011 the petitioners filed a response to Clal Finances Batucha's response together with an experts opinion. In August 2011 Clal Finances Batucha announced that it is joining the motion filed by the First International Bank of Israel Ltd (against which the Motion to Approve was also filed) to erase sections from the petitioners' said response and from the opinion (hereinafter: Motion to Erase) claiming that the petitioners' response includes new matters in a manner that constitutes changing and 2 60

124 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 4. (cont.) expanding the Motion to Approve. In April 2012 the court determined that the claims of expanding the claim will be discussed as part of the final decision of whether to approve the class action. In April 2012 the court instructed that the case be forwarded to the Securities Authority in order to receive its position which was received in July In September 2012 Clal Batucha submitted its response to the Authority's position. During another preliminary hearing in the case and by recommendation of the court, the parties referred to mediation which did not succeed. The motion is in the summing up stage. 5. In July 2011 a claim was filed against a subsidiary Clal Insurance to the District Court in the Central District (hereinafter: Claim) as well as a motion to approve it as a class action (hereinafter: Motion). The group that the plaintiff wishes to represent is all policy holders and/or beneficiaries insured by the respondent with insurance policies in the branches of nonlife insurance and paid the respondent credit fees and/or collection fees and/or overpayment arrangement fees in a way that deviates from the provisions of the law and/or deviates from the interest rates presented to the insurees as of May 1, The claim argues unjust, excess collection of credit fees by the respondent from its insurees and breach of the provisions of the law while misleading the insure public. The cause of action claimed in the Claim inter alia are breach of the provisions of the Supervision of Financial Services (Insurance) Law, and its regulations, breaching the Civil Wrongs Ordinance [New Version], breaching a regulation, negligence, breaching the obligation of good faith in negotiations in respect of a contract and fulfilling the contract and unjust enrichment. The total amount of the class action was estimated by the plaintiff at approx. NIS million. The plaintiff's personal amount of claim is estimated at NIS The remedies requested by the plaintiff inter alia are to instruct the respondent to return to the plaintiff and to each plaintiff from the represented group the funds that according to the argument were unjustly stolen from them with the addition of linkage differentials to the CPI and due interest as well as special interest as defined in the Insurance Contract Law from the date of every payment until the date of actually repaying the amounts, to rule compensation for the group or the public for proceeds accumulated and/or funds supposedly charged in excess, to instruct that the respondent stop over charging its insureds for credit fees and/or payment arrangement fees and/or collection fees in each policy and/or addendum to a policy to be issued by it from the date of filing the Motion and thereafter and to stop charging credit fees and/or payment arrangement fees and/or collection fees in each existing policy and/or addendum to an existing policy in which credit fees were calculated in excess. 2 61

125 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 5. (cont.) In January 2013 Clal Insurance responded to the Motion. In May 2014 a motion to approve a compromise arrangement and a compromise agreement were filed in the Claim. The compromise arrangement determines inter alia that Clal Insurance will give the public entitled in "personal insurance" and "other insurance" as defined in the compromise agreement (hereinafter: Entitled Public) a discount in an agreed rate from the credit fees charged from an insured among the Entitled Public for a nonlife insurance policy to be purchased in Clal Insurance. In July 2014 the court gave its verdict approving the compromise agreement and determining directives for applying it. 6. In May 2012 a claim was filed to the District Court in Jerusalem (hereinafter: the Claim) against a subsidiary Clal Insurance, a subsidiary of Clal Insurance Clal Health and another insurance company as well as three health funds (hereinafter: the Defendants) as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim and Motion deal with collective nursing insurance that members of various health funds are entitled to join according to the terms of the policies as determined. According to the plaintiffs, contrary to the law, the Defendants refuse to insure the plaintiffs with nursing insurance (or alternatively determine impossible conditions for them) thereby harming the group members' rights to equality and dignity. The Claim and Motion were filed against Clal Health which is the insurer in a collective policy for members of Maccabi Healthcare Services and a collective policy for members of Leumit Health Fund as well as against Clal Insurance since according to the plaintiffs a reasonable person sees no difference between these two companies and rather classifies them as one body not being able to know that they are separate entities. Note that in March 2013 Clal Health was merged into Clal Insurance. The causes of actions are inter alia breach of the following provisions and laws: Equal Rights for Persons with Disabilities Law, 1998 (hereinafter: Equal Rights Law), Basic Law: Human Dignity and Liberty, National Health Insurance Law, , International Convention for Rights for Persons with Disabilities, sections 12 and 39 of the Contracts Law (General Part), and breaching a regulation. The group that the plaintiffs are asking to represent are all persons with disabilities (according to the definition of a "person with a disability" in the Equal Rights Law) who were customers of the Defendants but the Defendants cancelled the nursing insurance contract with them as well as all persons with disabilities that asked to be insured in nursing insurance but the Defendants refused to insure them and all persons with disabilities that wanted to be insured in nursing insurance but did not approach the Defendants knowing that they will refuse to insure them. 2 62

126 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 6. (cont.) The plaintiffs demand that the court determine and declare that the Defendants breached the provisions of the above laws. The plaintiffs also demand that the court obligate the Defendants to: stop discriminating members of the group and determine clear procedures for individual, specific and equal, unbiased care towards persons with disabilities, present an organized procedure for refusing to insure, specifically in respect of persons with disabilities, which will include a notice regarding the rights available to anyone who was refused insurance, grant retroactive coverage to members of the group found qualified to be insured after an equal underwriting process and/or members of the group that were insured and were removed from the insurance by the insurance company. The court is also asked to obligate the Defendants to compensate all members of the group for damages, both by breaching the Equal Rights Law and undermining their dignity and value of equality, in an amount of approx. NIS 660 million. In December 2012 Clal Insurance and Clal Health responded to the Motion. In May 2014 the parties informed the court that they agreed to a mediation process before a mediator and in September 2014 the mediator informed the court that the mediation failed. The Motion is in preliminary proceedings. 7. In May 2012 a claim was filed to the District Court in Jerusalem (hereinafter: the Claim) against a subsidiary Clal Insurance, a subsidiary of Clal Insurance Clal Health, a subsidiary Toren Insurance Agencies Ltd and other insurance companies (hereinafter: the Defendants) as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim and Motion deal with the plaintiffs arguments of discrimination towards disabled persons and the Defendants refusal to insure them with individual insurances such as health, travel, pension, personal accidents, life, nursing and loss of working capacity insurances (hereinafter: Individual Insurances). The causes of action argued against the Defendants are inter alia breaching the Equal Rights for Persons with Disabilities Law, (hereinafter: Equal Rights Law), breaching the Basic Law: Human Dignity and Liberty (hereinafter: Basic Law Human Dignity), breaching section 12 of the Contracts Law (General Part), , breaching section 58 of the Supervision of Financial Services (Insurance) Law, and against some of the Defendants also breaching the Supervision of Insurance Business (Terms in an Insurance Contract) (Provisions for a Previous Medical Condition) Regulations, The group on behalf of which the plaintiffs ask to approve the class action, which they estimate includes about 700,000 people, are all people that wanted to insure themselves with the Defendants during the determining period that the Defendants refused to insure them with one of the Individual Insurances, all due to an illness or disability that they suffered from and also persons with disabilities (as defined in the 2 63

127 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 7. (cont.) Equal Rights Law) who did not approach or will not approach the Defendants in the future with a request to insure them, knowing that the Defendants will refuse to insure them due to their disabilities. The plaintiffs demand that the court determine and declare that the Defendants breached the provisions of the above laws. The plaintiffs also demand that the court obligate the Defendants to: stop discriminating members of the group and determine clear procedures for individual, specific and equal, unbiased care towards persons with disabilities, present an organized procedure for refusing to insure and a procedure for agreeing to insure persons with disabilities and grant retroactive coverage to members of the group found qualified to be insured after an equal underwriting process. The court is also asked to obligate the Defendants to compensate all members of the group for damages, both for hurting their dignity and feelings and undermining their right to equality as well as the autonomy as well as financial damages for loss of time and bother at an amount of approx. NIS 934 million. Clal Insurance, Clal Health and Toren Insurance Agencies responded to the Motion. In May 2014 the parties informed the court that they agreed to a mediation process before a mediator and in September 2014 the mediator informed the court that the mediation failed. The Motion is in preliminary proceedings. 8. In January 2013 a claim to the District Court in the Central District (hereinafter: the Claim) was received at the offices of a subsidiary Clal Insurance against it and against the Israeli Motor Vehicle Insurance Pool (hereinafter: the Pool) and 13 additional insurance companies (hereinafter together: the Defendants) as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim deals with charging insurance premiums for compulsory motor vehicle insurance for a period of one entire year even when the insurance policy is paid by the insured at a date later than the date stipulated in the insurance policy. According to the plaintiff, although the policy only becomes valid after actual payment, the payment is for a year of insurance starting from the date specified in the insurance policy. The group which the plaintiff is asking to represent are the Defendants' insurees by compulsory motor vehicle insurance that paid the premium in arrears, meaning after the date specified in the insurance policy issued to them, in the period of 7 years before filing the action. Alternatively, the group which the plaintiff is asking to represent is the aforementioned group of insurees insured in the "Pool" only. The causes of action against the Defendants are inter alia: unjust enrichment, taking advantage, breaching regulations, misleading, nondisclosure, breaching the obligation of good faith and negligence. 2 64

128 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 8. (cont.) On the date of filing the Claim the total amount of the action for all members of the group was estimated at NIS million which include a sum of approx. NIS 3.34 million claimed from the Pool only. The amount of the plaintiff's personal action is NIS46 million. In February 2014 the plaintiff filed a request to amend the motion to approve the class action, in which the combined damages of all Defendants together was estimated at approx. NIS 26.7 million whereas a sum of approx. NIS 2.7 million from the above, is attributed to the Israeli Motor Vehicle Insurance Pool (hereinafter: Amended Motion). In March 2014 a prehearing deliberation was held in which 7 Defendants were erased from the proceeding since no suitable plaintiffs were found in their regard. The remedies requested by the plaintiff are repayment of the premiums charged in excess and unjustly, plus linkage and interest. Clal Insurance responded to the Motion. The Motion is in preliminary proceedings. 9. In April 2013 a claim was filed to the District Court in Tel Aviv (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance as well as a motion to approve the Claim as a class action (hereinafter: the Motion). According to the plaintiff, whose late wife (hereinafter: the Insured) was insured in a nursing insurance policy for members of Maccabi Healthcare Services, although an insured in a nursing insurance policy is entitled to begin to receive compensation starting from the date that he or she becomes in need of nursing services, according to Clal Insurance the entitlement to compensation begins on the date that a nurse visited the insured's house, examined the insured and determined that the insured is indeed a patient in need of nursing services. Additionally according to the plaintiff, there is an entitlement to receive nursing benefits even during the waiting period. The group that the plaintiff wishes to represent are insurees in nursing insurance by Clal Insurance in the last 7 years who suffered from an insurance event and began to receive compensation later than the day that they became nursing patients and/or insureds of Clal Insurance, including in nursing insurance, who paid a monthly premium after the insurance event, including but not only during the waiting period. The plaintiff pleaded in his name as well as on behalf of the group's members, that Clal Insurance must be obligated to amend on a prospective basis, the nursing policies issued to the public, including any accompanying form in which Clal Insurance refrains from asking the insured when he or he became a nursing patient; to obligate Clal Insurance to pay members of the group the insurance benefits for the entire period in which they were nursing patients and did not receive compensation; to obligate Clal Insurance to repay any monthly premium paid by members of the group starting from the date that they became nursing patients until the date that they began to receive compensation, including (but not only) any premium paid during the waiting period; to grant any additional and/or other remedy that the court deems right and suitable under the circumstances; to obligate Clal Insurance for expenses of this Motion and any other special remuneration the representative plaintiff as well as fees to the plaintiff's attorney. 2 65

129 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 9. (cont.) The amount of the plaintiff's personal claim is NIS 18,425. The amount of the class action claimed by the plaintiff is NIS million. The Motion is in the evidence stage. 10. In June 2012 a claim was filed to the District Court in the Central District (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim and Motion deal with the argument that Clal Insurance reduces insurance benefits in accidental disability insurances in a manner that contradicts the Commissioner's instructions from May 2006 in regard to certain insurance companies, in which the Commissioner decided that an insurance company cannot calculate the insurance benefits while adjusting them to the disability table in the accidental disability insurance policy and thus significantly reduced the insurance benefits that an insured is entitled to receive (hereinafter: Commissioner's Decision). The causes of action are: breaching a regulation, unjust enrichment, breaching the obligation of good faith and deception contrary to the Contracts Law (General Part), , breaching the Consumer Protection Law, and the Insurance Contract Law, as well as the disclosure obligation contrary to the provisions of the Consumer Protection Law and the Commissioner's instructions. The group that the plaintiffs wish to represent are anyone holding or that held a policy with an accidental disability component purchased for him or herself as well as for family members and that the insured or a family member suffered from a disability during the last 7 years in respect of which a permanent disability rate was determined and filed a claim to receive compensation from Clal Insurance. The plaintiffs argue on their behalf as well as the members of the group, that Clal Insurance must be obligated to repay its entitled insurees the amounts that were unjustly subtracted from them, as they claim, in the past seven years, to instruct Clal Insurance to inform its insurees that were deprived or their right was denied, as they claim, of the difference they are entitled to receive and also to instruct Clal Insurance to inform its insureds in an accidental disability insurance that there is no application to the manner of calculation performed by Clal Insurance and also inform them of the Commissioner's Decision as mentioned. According to the plaintiffs' estimate, the damages claimed from Clal Insurance for all members of the group for the last 7 years is the amount of NIS 150 million. Clal Insurance responded to the Motion. In February 2013 the court instructed that the case be transferred to another panel discussing similar claims against other insurance companies. In May 2013 the parties were referred by the court to mediation. 2 66

130 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 10. (cont.) Note that in the past a claim and motion to approve it as a class action in this matter was filed against Clal Insurance in respect of part of the causes of action specified in the current Claim. The motion was denied inter alia due to lack of personal cause of the plaintiff and lack of misleading during the precontract stage. Also note that in the Commissioner's Decision it was stated that the version of the policy based on which the aforementioned Claim was filed against Clal Insurance, is materially different than the version of the policy discussed in the Commissioner's Decision. In February 2014 the parties filed a motion to approve a compromise arrangement to the court and in March 2014 the plaintiffs filed a notice to the court that they are retracting from the compromise arrangement. In September 2014 the parties filed a new motion to approve the compromise arrangement to the court, which stipulated inter alia that Clal Insurance will give each one from the public entitled in accidental disability insurances as defined in the compromise arrangement (hereinafter: Entitled Public) a return in the rate of 40% (forty percent) of the difference in the insurance benefits that each one from the Entitled Public would have been entitled to if Clal Insurance had not adjusted the insurance benefits in the accidental disability insurances according to the terms of the relevant policy. In addition, it will bear the payments and fees recommended to the petitioners and their representatives (respectively). The compromise arrangement is subject to the approval of the court. The court did not dismiss the new motion to approve the compromise arrangement and instructed that a notice be published in the press stating that a compromise arrangement was filed and that the compromise arrangement be sent to the Legal Advisor to the Government. In October 2014 an objection to the compromise arrangement was filed by a third party and it will be discussed in the hearing scheduled for December In regard to the additional class action filed concerning accidental disability policies see section 11 below. 11. In November 2014 a claim was filed to the District Court of the Central District (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim was filed on a similar matter to the claim and motion to approve it as a class action that is contingent against Clal Insurance and described in Note 7 (a) (a2) (10) above that deals with the matter of calculating insurance benefits in accidental disability insurances and the argument that Clal Insurance reduces the insurance benefits in accidental disability insurances in a manner that contradicts the instruction of the Commissioner and by performing adjustments to the disability table in the accidental disability policy which significantly reduces the insurance benefits that an insured is entitled to receive (hereinafter: Original Claim). As part of the Original Claim, a motion was filed to the court to approve the compromise arrangement and validate it as a verdict. 2 67

131 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 11. (cont.) According to the plaintiff, who was insured by Clal Insurance in an accidental disability insurance under a policy with a version different than the version of the policy in the Original Claim, Clal Insurance reduces the insurance benefits in accidental disability insurance in a manner that contradicts both the wording of the policy held by the plaintiff and the court's verdict in the class action on that matter which was filed and approved against other insurance companies, although the section in the insured's policy is formulated similarly to the relevant section in the insurance policies of the other insurance companies, against which the class action was approved. In addition the plaintiff raised argument against the definition of "disability" in the policy, which the plaintiff claimed creates unclarity concerning the scope of insurance coverage in a manner that allows Clal Insurance greater latitude to unjustly reduce the insurance benefits after an insurance event and also raises claims regarding the policy's requirement to receive reasonable proof that the insured became fully and permanently disabled as a result of the accident within a year from the date of the accident, which the plaintiff claims might exclude many insurance events from the application of the policy which due to the severity thereof, the disability in their case is only stabilized more than a year after the accident. The causes of action against Clal Insurance are: breaching the insurance contract, depriving condition in a standard contract, illegal contract and enforcing charges according to section 31 of the Contracts Law (General Part), , misleading description contrary to section 55 of the Supervision of Financial Services (Insurance) Law, , breaching a regulation and breaching good faith contrary to the Contracts Law (General Part), The group that the plaintiff is asking to represent is anyone who was insured by Clal Insurance in an accidental disability insurance with a similar policy to that of the plaintiff and sustained disability as a result of an accident that occurred during the three years before filing the Motion to approve it as a class action. The plaintiff pleas on his behalf as well as members of the group, to obligate Clal Insurance to pay insurance benefits in respect of disability as a result of an accident as determined in the policy of each individual in the group, net of any amount already paid by it if paid by virtue of the policy for that accident or to instruct any other remedy in favor of the group, including instructions regarding supervision of execution of the verdict. The court is also asked to determine remuneration to the representative plaintiff and fees to the attorney thereof. The amount of the plaintiff's personal claim is the sum of NIS 187,506. The plaintiff estimates that the damages from Clal Insurance to all members of the group at NIS 150 million. The plaintiff reserves the right to appeal and determine the individuals and size of the group as well as to change the amounts of the claim after documents are disclosed on behalf of Clal Insurance. Clal Insurance is still studying the Claim and Motion. 2 68

132 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 12. In May 2013 a claim was filed to the District Court in Tel Aviv Yafo (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim deals with the argument that Clal Insurance breaches its obligation to pay interest and linkage differentials in respect of insurance benefits paid by it. According to the arguments, the date from which the interest and linkage differentials need to be calculated is starting from the date of insurance event until the date of actual payment. Alternatively it was claimed that the insurers must pay linkage differentials from the date of insurance event until the date of actual payment and interest as of the end of 30 days from the date of delivering the Claim until the date of actually paying the insurance benefits. According to the Claim, Clal Insurance does not do so. The groups that the plaintiff is asking to represent are: a. the first group anyone who in the 7 years before filing the action received and/or will receive until a verdict is given in the action, insurance benefits from Clal Insurance with due interest being attached to the insurance benefits, b. the second group anyone who in the 7 years before filing the action received and/or will receive until a verdict is given in the action, insurance benefits from Clal Insurance with due linkage differentials being attached to the insurance benefits. The causes claimed in the Claim are inter alia by virtue of the Unjust Enrichment Law, , Contracts Law (General Part), , the Commissioner's instructions in the Commissioner's circular on "Clarifying and Settling Claims and Handling Public Appeals", the Insurance Contract Law, , breaching a regulation and breaching the obligation of disclosure and obligations prohibiting misleading and taking advantage of the consumer's unfamiliarity with insurance laws. The plaintiff estimates the accumulated amount for the first group in the sum of approx. NIS 518 million (if it will be ruled that interest must be calculated as of the date that the insurance event occurred) and in the amount of approx. NIS 210 million (if it will be ruled that interest must be calculated as of 30 days from the date of delivering the claim to the insurance company). The plaintiff estimates the accumulated amount for the second group in respect of linkage differentials in an additional amount of approx. NIS 490 million. The remedies requested by the plaintiff are to obligate Clal Insurance to pay members of the first group due linked interest, to obligate Clal Insurance to pay members of the second group due linkage differentials, to obligate Clal Insurance to pay members of both groups linkage differentials and interest in respect of the underpayment that was done from the date of paying the underpaid insurance benefits until the date that Clal Insurance will actually pay members of the groups the difference. In addition and/or alternatively, if it will be determined that compensation to the members of the groups is not practical under the circumstances, the court is asked to instruct compensation in favor of the public as it deems right. The court is also asked to obligate Clal Insurance to rule special remuneration to the plaintiff and attorney fees for the plaintiff's representative. Clal Insurance responded to the Motion. 2 69

133 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 13. In July 2013 a claim was filed to the District Court in the Central District (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim and the Motion were also filed against a medical expert and a medical services company rendering services to Clal Insurance (hereinafter: Additional Parties). The Claim deals with the argument that in phrasing the policy, Clal Insurance denies students insured by a students' personal accidents policy the right to compensation for esthetic permanent disabilities and that it systematically cooperates with experts on its behalf, even contrary to the policy which allows the Exceptions Committee, despite an exclusion regarding esthetic disability, to determine that an esthetic scar will entitle the injured person to disability (at a level to be determined according to Clal Insurance's discretion) in a way that prevents and indirectly denies any change of receiving compensation for the esthetic disability from the aforementioned Exceptions Committee. The group that the plaintiffs want to represent are any student under the age of 21 studying or that studies in educational institutions of the local authority and/or educational institutions that announced they were joining the insurance arrangement who sustained an esthetic disability only and/or an esthetic disability accompanying another disability (including their entitled parents) and that during the last 18 years sustained a disability that entitles them (or their parents) to determining a permanent disability for the esthetic scars and of any sort and type. The causes argued in the Claim are inter alia by virtue of the Civil Wrongs Ordinance [New Version], , breaching a regulation, negligence and fraud, Unjust Enrichment Law, , Contracts Law (General Part), , Consumer Protection Law, , Insurance Contract Law, and the Commissioner's instructions. The total amount of Claim in the class action was estimated by the plaintiff at 500M NIS. The personal amount of claims of the four plaintiffs together was estimated at 121,585 NIS. The remedies requested by the plaintiffs are inter alia to approve the action as a class action and determine that the petitioners will be the representative plaintiffs and the causes of action will be as mentioned in the Motion, to determine that the remedy requested is repaying and compensating all the group's members in respect of the difference in the payment deprived of them meaning: due linkage differentials and interest, to give a mandatory injunction instructing that the amounts deprived as mentioned be repaid starting from the period starting 18 years before filing the Motion and to determine that the limitation in insurance claims does not apply under the circumstances, to instruct that in the circumstances that the rights of group members were deprived, counting the limitation periods in insurance claims will be stopped upon filing the Motion and/or will not apply in cases when it is found that the rights of insureds were deprived due to breaching the law and/or as a result of a mistake and/or misleading and/or fraud and/or breaching a regulation and/or negligence and/or a default and/or any similar grounds, to determine remuneration to the petitioners and to obligate the respondents for cost of action and more. 2 70

134 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 13. (cont.) Clal Insurance responded to the Motion. Note that in June 2014 a preliminary hearing was held regarding the Motion in which it was agreed to remove additional parties from the Motion. In August 2014 the plaintiffs filed a consensual motion to withdraw from the Motion (hereinafter: Motion to Withdraw) without either party admitting to the other party's arguments or waiving its arguments. As part of the Motion to Withdraw Clal Insurance undertook to send directives to doctors and workers on its behalf with clarifications on the matter of settling a claim in case of esthetic scars and also undertook to pay the plaintiffs and their representatives rewards and fees in an insignificant amount. The Motion to Withdraw is subject to the approval of the court and there is no certainty that it will be approved. In November 2014, following the court's request, the Legal Advisor to the Government submitted its response to the Motion to Withdraw, according to which it has no objection to approving the Motion and leaving the decision regarding the approval with the court. 14. In January 2013 a claim was filed to the District Court in Haifa (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim and Motion deal with a directors insurance policy which includes insurance coverage for "loss of working capacity" (hereinafter: Insurance Coverage). According to the plaintiff, Clal Insurance charges overpayment of premium for the Insurance Coverage, according to the insured's actual wages and not according to the wages insured in the policy for purpose of the Insurance Coverage, whereas the aforementioned differences was not repaid by it, whether by crediting it to the savings component of the policy and whether by any other manner. The causes of action against Clal Insurance are: breaching a regulation, negligence, unjust enrichment, breaching the obligation of good faith contrary to section 39 of the Contracts Law (General Part), , deception, nondisclosure and false representation contradicting section 55 of the Supervision of Financial Services (Insurance) Law, The group that the plaintiff is asking to represent are all the insureds and/or employers that were charged excess premiums in order to purchase Insurance Coverage and that the difference between the funds actually paid and the amounts they were supposed to pay were not transferred to them as claimed by the plaintiff, whether by crediting it to the savings component of the policy and whether by any other manner. The plaintiff argues on his or her behalf as well as members of the group that inter alia Clal Insurance must be obligated to repay the plaintiff and each member of the group the overpayments unjustly charged as of January 1, 2005 until the date of filing the action. The plaintiff estimates that the total damages to all members of the group claimed from Clal Insurance and for purpose of an estimate are approx. NIS 90 million. The amount of the plaintiff's personal claim is NIS 56,

135 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 14. (cont.) In July 2014 the parties filed a motion to approve a compromise arrangement in the Claim to the court. As part of the compromise arrangement and in light of the fact that an examination that was done shows that it is a representative error in the reports delivered to the insuree, without impairing the insuree's rights, Clal Insurance undertook to amend the manner of representation in the reports to insurees and also agreed to bear rewards to the plaintiff and attorney fees in an insignificant amount. The court decided to reject the motion to approve the compromise arrangement and determined that since it is an error in representing details that did not cause financial damage to the plaintiff, there is no justification in approving the compromise arrangement as an act of the court, but rather at the most and without the court giving a decision in the matter, a motion to withdraw from the claim must be filed. The plaintiff announced his intention to continue with the Claim. Clal Insurance has yet to file a response to the Motion. 15. In June 2014 a claim was filed to the District Court in Jerusalem (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance and 6 additional insurance companies (hereinafter: the Defendants) as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim and Motion deal with life insurance policies issued in respect of mortgage insurance purposes (hereinafter: the Policies). According to the plaintiffs, the amounts insured as part of the Policies are higher than the loans with the loaning bank and as a result the insureds are forced to pay the Defendants monthly premiums that are higher than the amounts they would have paid if the insurance amount would have been adjusted to the mortgage loan registered at the time in the bank's books. The causes for the action against the Defendants are: breaching a regulation, breaching sections 55 and 58 of the Supervision of Financial Services (Insurance) Law, , breaching the obligation of good faith, negligence and unjust enrichment. The group that the plaintiffs are asking to represent are all the Defendants customers that were insured by one or more of the Defendants during the last 7 years (entirely or partially) before filing the Motion and purchased life insurance in respect of a mortgage loan which they took from one of the mortgage banks in Israel and that the amount of the insurance derived from the insurance premiums they were forced to pay in the last 7 years exceeded the balance of the loan from the bank and as a result the insured overpaid for the life insurance they took for the mortgage. The plaintiffs argue that Clal Insurance and the remaining Defendants must be obligated to: (a) repay the members of the group for the differences in premiums between the premiums that they were supposed to pay according to the correct loan balances in the loaning banks and the premiums that they actually paid, plus compensation for their distress; (b) to change their manner of activities so that the Defendants will calculate the amounts of insurance as a derivative of the premium amount based on accurate details of the mortgage banks every month and at the least every six months, specifically according to the interest rates, linkage and distribution 2 72

136 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 15. (cont.) terms relevant to the loan channels of each insured; (c) to give the insureds detailed information on the manner of calculating the insurance amount and premium and to explain the possibility of updating the Defendants every month or at least every six months of the balances of the loans with banks if they cannot use accurate details and as a result the Defendants had to use estimates. In addition the plaintiffs ask that Clal Insurance and the remaining Defendants be obligated to pay attorney fees and remuneration for the plaintiffs. According to the plaintiffs' estimates, the total damages to all members of the group claimed from Clal Insurance amount to approx. NIS 97 million. The amount of the plaintiffs personal claim against Clal Insurance in respect of the years 2009 to 2013 is NIS 789. The plaintiffs reserve the right to amend the amounts after receiving accurate details from the Defendants. Clal Insurance has yet to respond to the Motion. 16. In July 2014 a claim was filed to the District Court in Lod (hereinafter: the Claim) against a consolidated subsidiary Clal Pension and Provident Funds as well as against four other companies that manage pension funds (hereinafter: the Defendants) as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim and Motion were filed by two associations that claim their objective is to assist the elderly population (hereinafter: the Plaintiffs). The Plaintiffs claim they are entitled to file a class action according to section 4 (a) (3) of the Class Actions Law, in light of their public objectives, although they were not personally and directly impaired by any of the Defendants and despite the Plaintiffs efforts to locate a representative plaintiff that failed. The Claim deals with raising the management fees collected from pensioners in respect of the pension funds managed by the Defendants. According to the Plaintiffs, at the stage of receiving the pension the Defendants took advantage of their contractualstatutory right to raise the management fees in bad faith and are generally raising the management fees paid by pensions to the managing company to the maximal management fees permitted according to the regulations (0.5% of the accumulated balance) by exploiting the fact that pensioners are a "captive audience" refrained from moving its savings to other pension funds, while on average active plan holders pay management fees that are significantly lower (approx. 0.3% of the accumulated balance and approx. 2% of their current deposits). It was also claimed that the Defendants do not disclose to their plan holders that the management fees that they will pay the Defendants will immediately increase to the maximal management fees when they become pensioners. The causes of action argued against the Defendants inter alia are abusing a statutory right in bad faith; cartel like conduct contrary to restrictive trade practices; breaching the fiduciary duty and duty of care towards plan holders of funds managed by the Defendants; breaching the disclosure obligation towards plan holders and concealing material information from them; using a discriminating condition in a standard contract; unjust enrichment and breaching a regulation. 2 73

137 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 16. (cont.) The group that the Plaintiffs are asking to represent in the Claim is anyone who was a plan holder in a new comprehensive pension fund managed by one of the Defendants and is entitled to receive pension and/or will be entitled to receive pension in the future. The Plaintiffs ask to obligate the Defendants to return the overpaid management fees charged from members of the group unjustly plus interest and linkage; obligate the Defendants to reduce the management fees charged from pensions so that they do not exceed the management fees charged before each one retired; to prohibit the Defendants to raise the management fees of plan holders shortly before they retire; to rule special compensation to the Plaintiffs and fees for the representing attorneys. The Plaintiffs estimate, based on an actuary opinion that was attached to the Motion, that the management fees charged by the Defendants from accumulated assets for the pensioners' funds equal more or less 5% of the pension paid to plan holders, whereas they estimate that the excess collection equals approx. 2% of the pension paid to a pensioner every month and that will be paid in the future to plan holders that become pensioners, if the excess collections remain as they are. According to the Plaintiffs, the management fees unjustly collected by the Defendants from existing pensioners are NIS 48 million and the management fees that will be unjustly collected in the future from existing pensioners are NIS152 million and management fees that will be unjustly collected by the Defendants from future pensioners for accumulations until today are NIS 2,800 million. The aforementioned amounts are claimed in respect of all the Defendants. Clal Pension and Provident Funds Ltd has yet to respond to the Motion. 17. In July 2014 a claim was filed to the District Court in the Central District (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim and Motion deal with a tariff collected in compulsory and/or third party and/or comprehensive insurance policy of the "named driver" type (hereinafter: the Policy) in cases that during the insurance period the youngest driver expected to permanently use the motor vehicle (hereinafter: the Driver) is expected to reach the age and/or driving seniority that starting from it the defendant collects decreased premiums (hereinafter respectively: Entitling Age and Entitling Seniority). According to the plaintiff, Clal Insurance must calculate the premium in advance proportionally so that starting from the Driver's birthday and/or the date of changing his or her driving seniority, a decreased tariff will be charged according to the tariff that Clal Insurance collects from drivers in that Entitling Age and/or Entitling Seniority. Alternatively, the plaintiff claims that Clal Insurance must calculate the Driver's age and driving seniority according to the year of birth and year of receiving a driver's license and not according to an accurate date, as do many other insurance companies as far as the plaintiff knows. In addition the plaintiff will claim that as part of renewing the Policy after the previous insurance period, Clal Insurance must calculate, of its own initiative, the 2 74

138 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 17. (cont.) premium it collects from the insured considering that a year has been added to his or her age and seniority compared to the previous Policy. Additionally and/or alternatively, the plaintiff claims that Clal Insurance must be obligated to disclose to the insured, of its own initiative, various details of information before engaging and/or renewing the Policy as part of the Policy documents and also in a separate notice sent shortly before the date that the Driver reaches the Entitling Age and/or Entitling Seniority. The group that the plaintiff wants to represent are anyone who purchased and/or renewed and/or will purchase and/or renew the Policy from the Defendant during the seven years before filing the action until the date of the final verdict, which during the insurance period the youngest driver expected to use the motor vehicle will reach the age and/or driving seniority that entitle the Driver to decreasing the premium and in fact the Driver did not receive the reduction and also anyone among the aforementioned group and insured by comprehensive insurance and/or third party insurance of the "every driver" type. The main causes for the action according to the Motion are: unjust enrichment; breaching an increased obligation to charge tariffs according to the Defendant's notice to the Commissioner; breaching the obligation of good faith, duty of care, fiduciary duty and disclosure obligation; misleading description of the insurance transaction; breaching a regulation, depriving condition in a standard contract and negligence. The plaintiff estimated the total amount of claim at approx. NIS 26 million. The plaintiff's personal claim amount is NIS The remedies requested by the plaintiff are inter alia to approve the action as a class action; to define the groups and subgroups on behalf of which the class action specified in the Motion will be handled; to declare and determine that the Defendant must calculate the premium for the policies as specified in the Motion; to obligate the Defendant to voluntarily disclose various information details as specified in the Motion; to prohibit the Defendant from collecting administration expenses or any other payment from the insured for issuing a new compulsory insurance policy if it is required not by fault of the insured; to obligate the Defendant to compensate members of the groups for damages, plus due linkage differentials and interest from the date of excess collection to the date of the actual compensation and/or remittance; to obligate the Defendant to return to the members of the group all its enrichments at their expense as a result of breaching the duties mentioned in the action; to instruct that a neutral examiner be appointed to check the scope of cases in which the Defendant breached its duties discussed in the action and the extent of damages caused to the public as well as its enrichments; to instruct any other remedy in favor of the groups or for compensating the public as the court deems right under the circumstances; to instruct special compensation to the plaintiff and a suitable remuneration for its representative who worked hard and initiated the legal proceeding; to obligate the Defendant to pay cost of action and attorney fees. Clal Insurance has yet to respond to the Motion. 2 75

139 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 18. In April 2010 a claim was filed to the District Court in the Central District (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance and 4 other insurance companies (hereinafter: the Defendants) as well as a motion to approve it as a class action (hereinafter: the Motion). According to the two plaintiffs suing Clal Insurance, if insurance is stopped during a certain month after the premium in respect of that month was collected in advance, Clal Insurance refrains from refunding its insurees in respect of the relative portion of the surplus premium for that month or alternatively repays the premium in nominal values only. The causes of action against the Defendants are: misleading and misrepresentation in the precontractual and contractual stage, generally breaching the provisions of the law and specifically the provisions of the Insurance Contract Law, , bad faith and unjust enrichment. In addition the plaintiffs claim that the provisions in the agreements between the parties must be rescinded on account of them being depriving conditions in a standard contract, according to the Standard Contracts Law, The group that the plaintiffs wish to represent are anyone who is and/or was insured by one or more of the Defendants in any insurance policy except property insurance or the heir of any such insuree and that the insurance policy was stopped for whatever reason, whether due to cancelling it by the insuree or whether as a result of an insurance event. The two plaintiffs' personal amount of claim against Clal Insurance is NIS for one of the plaintiffs and NIS for the other. If the action will be approved as a class action the amount sued by all the plaintiffs against the Defendants in the action is NIS 225 million in respect of a period of ten years. The plaintiffs do not mention the amount claimed from Clal Insurance alone should the action be approved as a class action. The plaintiffs plea for pecuniary remedies, refund of excess premiums unjustly collected from the members of the group and/or repayment of the revaluation differences and a mandatory injunction instructing the Defendants to change their manner of action in regard to collecting premiums at the end of an insurance period and refunding premiums from the date of creating the right to a refund plus due linkage differentials and interest, rewards for the plaintiffs and attorney fees. Clal Insurance responded to the Motion. In December 2011 the court instructed the erasing of the plaintiffs' arguments referring to section 28 a' of the Insurance Contract Law, which imposes payment of special interest and also removing insurees whose policy partially or temporarily expired. The Motion is in the summing up stage. In August 2014 a court decision was given that the Commissioner must present his position on the issues in dispute considering their nature and possible implications of a decision in their regard. In November 2014 the Commissioner submitted his position on the case which inter alia stated that at this stage he does not intend to respond on the issue of possible implications of accepting the action on the Defendants and also noted that the parties agreements in the matter of the manner of 2 76

140 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 18. (cont.) collecting the premium for the period after the passing away of an insuree or the period after cancelling the insurance as expressed in the Insurance Contract Law, are the ones that bind the parties. In the Commissioner's opinion, the actuarial report filed on behalf of the Defendants is insufficient. 19. In February 2014 a financial claim was filed to the District Court in Tel Aviv (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance as well as a motion to approve it as a class action (hereinafter: the Motion). According to the plaintiff, Clal Insurance takes advantage of the fact that an insured does not pay the savings component in a policy that includes a saving component and risk component for a while and fundamentally and blatantly breaches the terms of the policy by making unilateral changes in the policy (shortening the policy period, moving the date of beginning the insurance and raising the insured's age at the beginning of the insurance) and as a result increases the price of the real premium contrary to the law, although the premium for the risk component in the policy was fully paid. Thus, according to the plaintiff Clal Insurance causes its insurees damages in significant amounts. The causes of action against Clal Insurance are breaching an agreement and collecting money that Clal Insurance is not entitled to, misleading contrary to section 55 of the Supervision of Financial Services (Insurance) Law, (hereinafter: Supervision Law), breaching the obligation if voluntary disclosure by virtue of rulings, abusing the ignorance and inexperience of the plaintiffs contrary to section 58 of the Supervision Law and unjust enrichment. The group that the plaintiff is asking to represent is anyone who engaged and/or was insured in a life insurance policy and did not pay the policy's savings component in full from the time of entering the policy until the date of entitlement to a monthly benefit according to the policy and were unjustly charged in respect of excess premiums due to moving the beginning of the insurance. The plaintiff pleas on his behalf as well as the members of the group that Clal Insurance must inter alia be obligated to pay each member of the group the excess premium collected due to moving the beginning of the insurance until the date of approving the class action plus the maximal due linkage differentials and interest. In addition, the plaintiff is pleading for an order prohibiting Clal Insurance to continue and collect premiums in rates exceeding the rate stipulated in the policy. Alternatively, if an individual compensation for each member of the group is not feasible for whatever reason or if some members of the group will not be located, the plaintiff asks that Clal Insurance will be obligated to pay a suitable and appropriate sum in favor of the entire public in a sum that equals the premiums collected and not repaid to the payers plus due linkage differentials and interest. In addition the plaintiffs asks that Clal Insurance be obligated to pay attorney fees to its attorney and rewards to the plaintiff. 2 77

141 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 19. (cont.) According to the plaintiff, the total damage claimed for all members of the group from Clal Insurance amounts to approx. NIS 20 million. According to the plaintiff, accurate details about the size of the group and the damage caused is known to Clal Insurance and not to them, therefore the estimated amount is subject to receiving accurate details from Clal Insurance after approving the class action. The amount of the plaintiff's personal claim is the sum of NIS 100 thousand. Clal Insurance responded to the Motion. 20. In May 2011 a claim was filed to the District Court in Central District (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance and additional insurance companies (hereinafter: the Defendants) as well as a motion to approve it as a class action (hereinafter: the Motion). The plaintiffs claim that the Defendants charge, without any stipulation in the policies and without any consent, amounts of money that often considerably exceed the premium paid by the insurees that are called "policy factor" and/or "other management fees" (hereinafter: Policy Factor). According to the plaintiffs, collecting the Policy Factor is unjustly done although as part of the Commissioner of Insurance's (hereinafter: Commissioner) circulars the Defendants were principally permitted to charge a Policy Factor in life insurance policies subject to a number of restrictions. The plaintiffs also claim that the Commissioner's consent to charge the Policy Factor is a necessary yet insufficient condition for collecting a Policy Factor according to the Commissioner's circular, there also has to be a suitable contractual provision and it is not enough to make do with a notice or disclosure to the insured regarding collection of this payment. The plaintiffs note that in April 2011 the court in which the current action was filed, approved a motion to acknowledge a claim against another insurance company (hereinafter: Other Motion) which is identical to this Claim, as a class action. Note that in regard to this decision, another insurance company filed a motion to appeal to the Supreme Court which determined in a ruling from September 2012 that the motion to appeal and the appeal per se are accepted since the District Court did not solve a material issue that was presented to it of whether the Policy Factor was collected from the savings component or from the risk component and therefore, the decision of the District Court to approve the class action is negated and the hearing in the motion to approve the Other Motion will be returned to the District Court for a new hearing. The causes of action argued against the Defendants inter alia are misleading customers both in the precontract stage and in the contract stage, breaching the provisions of the law and the Supervision of Financial Services (Insurance) Law, and the regulations by virtue thereof, bad faith, unjust enrichment, breaching an agreement, breaching the fiduciary duty, breaching a regulation and relying on depriving conditions in a standard contract. The group that the plaintiffs wish to represent are anyone who is and/or was insured by the Defendants or any one of them and was charged any amount as a Policy Factor. 2 78

142 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 20. (cont.) The plaintiffs plea on their behalf and on behalf of all group members for a remedy of paying the amount compensation/remittance which equals the amount of the Policy Factor actually collected from members of the group plus the return denied to them in respect of this amount since it was deducted from the premium for the Policy Factor and not invested for them. They also plea for a mandatory injunction ordering the Defendants to change their manner of operation in regard to collecting Policy Factor and a remuneration to the plaintiffs as well as their attorney fees. The plaintiffs Claim is for the Policy Factor collected from them in the years 2004 to 2010, inclusive. According to the plaintiffs, the personal damage claimed to all the plaintiffs in respect of one year was estimated at NIS 1,522 (the personal damages of the plaintiff from Clal Insurance in respect of one year was estimated at NIS 215). According to the evaluations and various assumptions performed by the plaintiffs regarding collection of the Policy Factor in the last seven years by the Defendants and the relevant annual returns, the amounts of the Claim to the group members against all Defendants was estimated by the plaintiffs at a nominal amount of approx. NIS 2,325 million. Out of this amount the sum attributed to Clal Insurance according to its contended share in the market, is approx. NIS million. In November 2012 the Commissioner of Insurance from the Ministry of Finance presented its position on the case through the Legal Advisor to the Government. Both the plaintiffs response and the Company's response to the Commissioner's position were filed. In December 2012 a pretrial hearing was held and as a result the Defendants were required to forward information to the Commissioner on the possible effect of approving the Claim as a class action on the Defendants' stability according to section 8 (b) (2) of the Class Action Law, and the information was forwarded. The Claim is in the summing up stage. In September 2014 the parties informed the court that they were submitting the matter for mediation. 21. In November 2014 a claim was filed to the District Court in Central District (hereinafter: the Claim) against a consolidated subsidiary Clal Insurance, a subsubsidiary of the Company Tmura Insurance Agencies (1987) Ltd (hereinafter: Tmura) and an additional insurance company and additional insurance agency (hereinafter: the Defendants) as well as a motion to approve it as a class action (hereinafter: the Motion). The Claim deals with the plaintiffs arguments regarding collection of excess premiums by the Defendants from members of the group in regard to selling overseas travel insurance to holders of Isracard credit cards and Israel Credit Cards Ltd's credit cards (hereinafter: Cal). According to the plaintiffs which hold these credit cards and called to activate the basic policy attached to the credit cards, when a person calls the telephone call center in order to active the basic policy, that person comes across the Defendants' sales 2 79

143 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 21. (cont.) representative whose purpose is to sell the caller a travel insurance policy at a full price. According to the plaintiffs, the product sold as part of the aforementioned telephone calls is not an extension, addition or increase to the basic policies, but in fact is an ordinary policy sold at a full price, so that person is insured twice in terms of overlapping coverages. The causes of action against Clal Insurance are inter alia misleading and breaching the obligation of disclosure contrary to section 55 of the Supervision of Financial Services (Insurance), , fraud contrary to section 56 of the Civil Wrongs Ordinance, bad faith in negotiations, taking advantage of the ignorance and inexperience of insureds contrary to section 58 of the Supervision of Financial Services (Insurance), , negligence and unjust enrichment. The group which the plaintiffs are asking to represent includes holders of Isracard and Cal credit cards who were entitled to receive travel insurance without having to pay additional payments and purchased travel insurance from the Defendants through the telephone call centers operated by the Defendants in the last seven years. The plaintiffs plea, on their behalf and behalf of the group members, that the Defendants must be obligated to repay the excess premiums paid by members of the group during the seven years before filing the action to the group members and the plaintiffs estimate them to amount to approx. NIS 270 million (out of which approx. NIS 70 million are attributed to Clal Insurance); give an order instructing the Defendants that as part of selling policies they must take into account the economic value of basic policies and charge premiums that consider this value; give full and proper disclosure to persons calling the call centers; allow Isracard and Cal credit card holders to activate the basic policies not only through the telephone call center; alternatively to instruct any other remedy in favor of the group, including provisions regarding supervising the execution of the verdict. In addition the court is asked to determine remuneration for the representative plaintiffs and its attorney fees at a rate of not less than 25% and 5%, respectively, from the amount ruled plus VAT due. The amount of the plaintiffs personal claims from Clal Insurance is NIS 53. According to the plaintiffs, the damages claimed to all members of the group from Clal Insurance is approx. NIS 70 million. The plaintiff reserves the right to appeal for determining the details and size of the group as well as to change the amounts of the claim after discovery of documents on behalf of Clal Insurance. Clal Insurance and Tmura are learning the Claim and the Motion. 22. In November 2014 a claim was filed to the District Court Economic Division in Tel Aviv (hereinafter: the Claim) against the Bank of Jerusalem (hereinafter: Bank of Jerusalem) and a number of additional defendants that served as directors in Clal Finance Batucha Investment Management Ltd (hereinafter: Clal Batucha) in the years 2007 and until Clal Batucha was sold to the Bank of Jerusalem in December 2013 (hereinafter: the Defendants) as well as a motion to approve it as a class action (hereinafter: the Motion). 2 80

144 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 22. (cont.) The action deals with the plaintiff's claims that Clal Batucha, in the position of a portfolio manager, performed transactions with securities from the IDB Group for its clients, whilst preferring its interests as well as the interests of various companies in the IDB Group over its clients' interests. According to the plaintiff, Clal Batucha breached the provisions of the law, including the provisions of the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, (hereinafter: Regulating Law), on the fiduciary duty of Clal Batucha towards its clients, its obligation to inform its clients of a conflict of interests that it has in performing the aforementioned actions and without receiving their consent in advance before performing any transaction which includes a conflict of interests as well as the prohibition of preferring the financial assets of Clal Batucha or any equity accounted investee. According to the plaintiff he was engaged in an investment management agreement with Clal Batucha which purchased securities of companies in the IDB Group for his portfolio and by doing so Clal Batucha caused him considerable losses. The causes of action against the Bank of Jerusalem (by virtue of the merger with Clal Batucha) are inter alia: breaching the fiduciary duty of the portfolio managers contrary to section 11 of the Regulation Law; actions in conflict of interests without informing the client contrary to section 15 of the Regulation Law; preferring financial assets of a portfolio manager or related party contrary to section 16 of the Regulation Law; breaching the fiduciary duty of an agent contrary to section 8 of the Agency Law, ; prohibition of receiving perquisites contrary to section 13 of the Trust Law, ; breaching the fiduciary duty by virtue of the general law and breaching the provisions of the agreement between Clal Batucha and its clients. The plaintiff also claimed that the sued directors breached their duty of care towards members of the group. The group that the plaintiff wishes to represent are anyone who received investment management services from Clal Batucha for which securities issued by companies among the IDB Concern were purchased without receiving advance approval of the client in respect of each transaction and the client suffered damages as a result. For this matter, the plaintiff includes all corporations held or controlled (directly or indirectly) by IDB Holdings Corporation Ltd and IDB Development Corporation Ltd in the IDB Concern. The plaintiff asks that the court (a) give an order against Clal Batucha and the other Defendants to deliver information and details about the damages (according to the plaintiff) to each one of the members in the group; (b) to obligate the Defendants to compensate the members of the group for all their damages or alternatively determine another remedy in favor of the group members, all or part thereof. The court is also asked to determine remuneration for the representative plaintiffs and its attorney fees. The plaintiff's personal claim amount is approx. NIS 18,624. According to the statement of claim, the damage claimed for all members of the group cannot be estimated at this stage. 2 81

145 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A2. Contingent motions to approve material claims as class actions (cont.) 22. (cont.) Clal Finances Ltd, a subsidiary fully owned (100%) by the Company (hereinafter: Clal Finances) is not a party to the Claim yet it received notice of filing the Claim from the Bank of Jerusalem according to the agreement of selling Clal Batucha to the Bank of Jerusalem stipulating that Clal Finances has an indemnity undertaking, all as specified in Note 27 (b) (3) (d) of the Company's consolidated financial statements as of December 31, The aforementioned indemnity undertaking can and will be activated if the Bank of Jerusalem will be obligated by law in regard to the aforementioned Claim and subject to the terms of the agreement between the parties. Furthermore, some of the directors that served in Clal Batucha during the period that it was controlled by the Company and the Defendants as part of the Claim, are holders of indemnity letters towards the Company and/or Clal Finances and/or Clal Batucha. Clal Finances is studying the Claim and the Motion. A3. Additional details about exposure to class actions yet to be filed and other expenses In addition to the aforesaid legal proceedings and as specified in Note 45 (a) (a4) (2) of the Annual Statements, there is also a potential exposure that cannot be estimated or quantified at this stage, that additional class actions will be filed against Group companies due to the complexity of the companies' insurance products, together with the complexity of the regulation that applies to the activities of Group Companies, which may lead to a dispute with a customer regarding the interpretation of the provisions of the law or an agreement or the manner of applying the provisions of the law or an agreement that applies to the relationship between Group companies and a customer. This exposure is particularly enhanced in the long term savings and long term health insurance divisions that Group companies are active in, since in these divisions the policies were partially issued dozens of years ago and today, after material changes in regulations and considering the development in court rulings and the Commissioner's position, these policies might be given a different interpretation, retroactively. Also, in the aforementioned divisions the policies are valid in respect of dozens of years and therefore there is an exposure that in cases that a customer's argument will be accepted and a new interpretation will be given to the aforementioned in the policy, the future profitability of that company will be effected for the existing policies portfolio. This is in addition to the compensation that can be given to customers for past activities. Also there is an exposure at this stage that cannot be estimated or quantified, for failures in the manner of operating products in the long term savings and health division, which, as mentioned, are characterized with extremely long durations and are subject to material, complex and frequent changes. In light of regulation and/or taxation provisions, the multiple automation systems in institutional bodies in the group and their limitations, as well as additions/changes to the basic version of products and the many and frequent changes throughout the product's life time, including by employees and/or employers and/or anyone on their behalf, concerning insurance coverage and/or saving deposits. These complexities and changes inter alia concern the scopes and rates of deposits, the various components of the product, manner of attributing funds to employees, products 2 82

146 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Class actions (cont.) A3. Additional details about exposure to class actions yet to be filed and other expenses (cont.) and their components, date of crediting them, identifying arrears in deposits and handling them, employment, personal and underwriting status of customers. This complexity increases in light of multiple parties working with Group companies in managing and operating the products, including in regard to contradicting instructions in their respect or in respect of their representatives. The institutional bodies in the Group currently engage in studying, locating and handling issues that might result from the aforementioned complexities, both in respect of individual cases and in respect of types of customers and/or products. In addition, following the provisions of the Commissioner's circular on the issue of improving the details of plan holders' rights in institutional bodies, the Group companies are in the midst of a comprehensive process of improving details in the systems within the long term savings division and with customers in terms of product details and customer details. At this stage, the Group companies cannot estimate and quantify the scope and costs of the process of handling and improving the aforementioned and their implications, including in regard to their past activities. In addition, it is not possible to foresee in advance the types of claims that will be made in this regard and/or the exposure resulting from them in regard to activities in these divisions, which might be made, inter alia through the deliberation of class actions and/or crosssegment decisions of the Commissioner. The exposure to claims yet to be filed against the Group companies is brought to the attention of the companies in a number of ways. This is done inter alia by referring customers to agents in the companies and specifically the supervisor of public appeals in the Group's companies, customer complaints to the public appeals division in the Commissioner's office and claims (that are not class actions) filed to the court. Note that in regard to a customer's complaint submitted to the public appeals division in the Commissioner's office, then in addition to the risk of the customer choosing to raising claims as part of a class action, the Group companies are also exposed to the risk that the Commissioner will decide on the complaint by crosssegment decisions that will apply to an extensive group of customers. In the past years there was an increase in the exposure to the aforementioned risk due to the increasing involvement of the Commissioner in complaints of customers that the Commissioner comes across and the Commissioner's tendency to determine a principle position by crosssegment decisions. The Group companies cannot foresee whether a customer's argument brought to the attention of the companies will eventually lead to filing a cross action, even in cases that the customer threatens to do so and in addition the Group companies cannot evaluate the potential exposure that might result if a class action will be filed as mentioned. b. Material claims and derivative claims B1. Material actions 3 not in the regular course of business or exposure thereto From January 2004 to June 2013, Clal Insurance engaged with the Hadassah Medical Organization (hereinafter: Hadassah) in renewable annual agreements for professional liability insurance in the second layer, which renders insurance coverage for claims in an amount that exceeds the selfinsurance amount offered by Hadassah (hereinafter: First Layer). 3 See Note 2 above. 2 83

147 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) b. Material claims and derivative claims (cont.) B1. Material actions not in the regular course of business or exposure thereto (cont.) The limited liability offered by Clal Insurance as part of the second layer, changed over the insurance years, whereas the insurance liability during the last insurance period that began on January 2012 and ended in June 2013 was for a claim in an amount exceeding approx. NIS 8.8 million and up to an amount of approx. NIS 18 million per event and NIS 36 million in respect of all the insurees for that insurance period (the aforementioned amounts are linked to the CPI from January 1, 2012). In February 2014 Hadassah filed a motion for an order to freeze proceedings and appoint a trustee in order to formulate a rehabilitation plan and a creditors arrangement according to sections 350 b (d) (1) and 350 (d) of the Companies Law to the District Court in Jerusalem (hereinafter: the Motion). During the proceedings held as part of the Motion, arguments were made that the insurance companies that insured Hadassah with professional liability insurance, including Clal Insurance, are supposed to bear the financial costs that might be imposed in the First Layer, beyond the designated deposit amount that Hadassah deposited for this purpose, if Hadassah will not pay the claims itself. Clal Insurance made it clear to the trustee that it has a different position by which it is liable only for the second layer. In May 2014, a motion was filed to the court to approve the rehabilitation plan, which includes a onetime state relief to Hadassah in the sum of NIS 140 million as well as ongoing support which together might supplement the accumulated fund in Hadassah in the extent of the actuarial liabilities of Hadassah for contingent claims in the First Layer for the period until December 31, To the best of the Company's knowledge, on May 22, 2014 the rehabilitation plan was approved by the court and freezing proceedings were cancelled. B2. Material derivative claims In March 2014 a motion to approve a derivative claim and a derivative claim (Derivative Claim ) was filed to the District Court Economic Division in Tel Aviv (hereinafter: the Motion and the Claim) against a consolidated subsidiary Clal Insurance, four additional insurance companies and Maccabi Healthcare Services (hereinafter: Maccabi). The Motion and Claim deal with the argument that Maccabi does not make exhaustive efforts and realize the right of participation allegedly available to it by virtue of the law towards insurance companies for expenses spent as part of Additional Health Services (hereinafter: AHS) in regard to cases where supposedly there are overlapping liabilities between the AHS and commercial health insurance policies sold by insurance companies. According to the plaintiff, the majority of the overlapping is for surgeries and choosing surgeons in Israel, as well as medical consultation. It is also claimed that insurance companies allegedly encourage their insurees to activate AHS plans in health funds and to refrain from activating the commercial insurance policies, through financial rewards to their insurees in order to avoid assuming the realization of a risk for an insurance event while moving the risk towards the health funds and thus supposedly generating unjust enrichment. According to the plaintiff, Maccabi's right of participation towards insurance companies results from the overlapping liabilities between the AHS and the commercial health insurance policies sold by the insurance companies and results from a general principle that is extensively applied by the law shared by all branches of the laws of obligations and by virtue of the provisions of sections 56 and 59 of the Contracts Law (General Part), , enrichment laws and the decided rulings. 2 84

148 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) a. Material claims and derivative claims (cont.) B2. Material derivative claims (cont.) The main remedy requested is realization of Maccabi's right of participation against insurance companies whilst obligating each insurance company to pay Maccabi at least half of the payments it paid in order to cover expenses paid by it in the AHS plans, both in the surgeries component and in choosing a surgeon in Israel and in the medical consultation component in the seven years before filing the Motion in cases that Maccabi's insurees have commercial health insurance in respect of these components. The Motion was filed after Maccabi rejected the plaintiff's demand to make exhaustive efforts to realize the aforementioned right of participation towards insurance companies. The plaintiff estimates the amount of claim against all insurance companies at NIS 800 million plus interest and linkage. The plaintiff does not designate part of the amount of its claim to Clal Insurance, yet notes that according to the details of the Capital Market, Insurance and Savings Division of the Ministry of Finance as of the years 2011 and 2012, the market share of Clal Insurance is 13%14% out of the total market share of insurance companies in the field, whereas the total market share of the sued insurance companies is 98%. Note that in February 2014 a similar claim was filed against Clal Insurance, four additional insurance companies and Clalit Health Services (see Note 45 (b) (b2) (1) of the Annual Statements). In April 2014 a decision was given by the court instructing that the Clalit Health Services case and the Maccabi case be combined. At this stage Clal Insurance is studying the Claim and Motion. B3. Nonmaterial derivative claims A motion to approve a derivative claim and a derivative claim that was filed in January 2014 to the District Court in Tel Aviv Yafo (hereinafter: the Motion and the Claim, respectively) against Discount Investment Corporation Ltd (hereinafter: Discount Investment), directors and officers in Discount Investment and certain other shareholders in Discount Investment connected to IDB Development or controlling shareholders in Discount Investment at the time, including the Company and Clal Finances Ltd (hereinafter all together: the Respondents) contending illegal dividend distribution. The Company and Clal Finances are sued as shareholders in the relevant period. In July 2014 the court approved the plaintiff's motion to combine the Motion and the Claim with another derivative claim filed in this matter. The amount of claim attributed to the Company, Clal Finances and two additional shareholders connected to IDB Development or the controlling shareholders in Discount Investment, is approx. NIS 44 million which includes the amounts distributed as dividends as mentioned above as well as interest on the aforementioned amounts until the date of filing the Motion (the aforementioned amount was not split between the sued shareholders). The amount of dividends that the Company and Clal Finances received is immaterial and the majority is attributed to plan holders, insurees and customers. At this stage, the Company and Clal Finances are studying the Claim and the Motion. 2 85

149 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) c. Details about exposure to claims 1. Following is a specification of the total amount of claims in class actions, material and immaterial, that were approved as class actions, in contingent motions to approve them as class actions, contingent motions to approve derived claims and other material claims, as noted by the plaintiffs in their claims (nominal) as part of the pleadings filed against the Group's companies. Note that in most of the cases the plaintiffs state that the amount claimed by them has been specified as an estimate only and that the accurate amount will be accurately verified during the legal proceeding. Also note that the aforementioned amount does not include claims for which the representative plaintiff did not specify the amount of claim. Additionally it is clarified that the amount claimed does not necessarily quantify the amount of actual exposure for the Company, which can eventually be lower or higher. 4 Type of claim Qty. of claims Amount sued in NIS Million a. Claims approved as class actions 1.The amount referring to the Company was specified The claim was filed against a number of agents and a specified amount was not attributed to the Company 3. The amount of claim was not specified 1 b. Contingent motions to approve class actions 1.The amount referring to the Company was specified 22 3, The claim was filed against a number of agents and a specified amount was not attributed to the Company 7 2, The amount of claim was not specified 3 4. An annual amount was specified (and accordingly the total amount is period dependent) c. Other material claims 1.The amount referring to the Company was specified The claim was filed against a number of agents and a specified amount was not attributed to the Company 3. The amount of claim was not specified d. Derived claims 1.The amount referring to the Company was specified 2. The claim was filed against a number of agents and a specified amount was not attributed to the Company 3 1, The amount of claim was not specified In addition to that detailed in Note 45 (a) and 45 (b) of the Annual Statements and the material changes described in Note 7 (a) and 7 (b) above, the Company and/or its subsidiaries are parties to additional legal proceedings not in the regular course of business and that are not material claims initiated by customers, previous customers and various third parties in a total amount of approx. NIS 46 million. There are many different causes of action against the Company and/or its subsidiaries as part of these proceedings. 4 Also note that the specified amounts do not include the sums demanded by plaintiffs as remuneration for the representative plaintiff and fees for his or her attorney. 2 86

150 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) c. Details about exposure to claims (cont.) 1. (cont.) The aforementioned immaterial claims (and as specified in Note 27 (b) (3) (d) of the Annual Statements in respect of the year 2013), also include a dispute between Clal Finance Batucha and the Income Tax Authorities on issues of deduction at source which is being deliberated in the District Court and for which Clal Finance has a contingent liability by virtue of its indemnity undertaking according to the agreement for selling Clal Batucha to the Bank of Jerusalem, whereas the Income Tax Authorities demanded that Clal Finance Batucha pay the sum of approx. NIS 18 million, including fines, interest and linkage differentials as of the date of issue of assessments in respect of the tax years The parties reached a deliberative arrangement splitting the discussion in the District Court into two components deliberating the principal issue at the base of the dispute (hereinafter: First Stage) and deliberating other claims raised by Clal Batucha (hereinafter: Second Stage). On August 14, 2014 Clal Finance received the decision of the District Court from a deliberation held in the First Stage, whereby the court rejected Clal Batucha's position after making an innovative principal determination in the aforementioned dispute with the Tax Authorities. It is emphasized that the verdict dealt with the legal question referring to one of the issues for decision before the court and does not constitute a decision in the issues of the Second Stage nor a financial decision in the dispute with the Tax Authorities. According to the Group, which relies on the opinions of Clal Finance's legal advisors, even if the District Court's decision remains valid, the Company has more good arguments for the Second Stage in order to materially decrease the burden of the assessments. Therefore, according to the Company's estimates that are based inter alia on the opinions of its legal advisors as aforesaid, the Company has suitable provisions for covering its liabilities towards the Bank of Jerusalem in regard to the indemnity sections of the agreement for selling Clal Finance Batucha Investment Management Ltd. 2. Furthermore and in general, in addition to the general exposure that exists for institutional bodies from Group Compamies, for future claims as specified in Note 45 (a) (a4) (2) of the Annual Statements, from time to time, including due to complaints raised by insurees, inspections and requests for information, there is also an exposure to warnings by the Commissioner to impose financial sanctions on these bodies and/or the Commissioner's instructions to amend and/or recover and/or perform certain acts regarding actions performed by institutional bodies in the Group in the past concerning an insuree or a group of insurees and/or exposure to crosssegment decisions published by the Commissioner as part of the Commissioner's authority based on the Supervision of Financial Services (Insurance) Law, authorizing the Commissioner to also instruct recompense to customers for faults that the warning or decision refers to. Additionally, occasionally institutional bodies are involved in hearings and/or deliberations with the Commissioner in regard to the aforementioned warnings and/or decisions and a final decision has yet to be given in these matters. The Company makes provisions in the financial statements for the aforementioned warnings based on the opinions of its legal advisors and/or is in the process of studying the warnings, as applicable. 2 87

151 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) c. Details about exposure to claims (cont.) 2. (cont.) Following the aforesaid, in April 2014 the Commissioner published a draft of a principal decision in the matter of joining collective life insurance (hereinafter: Decision Draft). The Decision Draft was published following crosssegment inspections on the issue of collective life insurance conducted by the Commissioner in various insurance companies, which found cases of insurees being added to collective life insurance without receiving their explicit consent in advance, although the insuree paid in respect of the insurance (fully or partially) (hereinafter: the Insurees). According to the instructions of the Decision Draft, insurers are required to contact Insurees not experiencing an insurance event and receive their explicit, written consent to continue to be insured. If the Insurees inform the insurer that they are not interested in the insurance or did not inform the insurer of their decision, the insurer can cancel the insurance coverage and recover the premium in the sum of the premium that the Insurees paid from the date of initially joining the insurance and at the latest for a period of three years from the date of publishing the Decision Draft, if published, plus linkage differentials and interest according to the provisions of the Adjudication of Interest and Linkage Law, (hereinafter: Recovery). According to the Decision Draft, in these cases the insurance company must also return the portion of the premium paid by the employer, if any, to the employer. The Decision Draft determines provisions regarding the insurer's obligation to forward a proposed outline for Recovery to the Commissioner in advance as well as a list of Insurees for whom the insurer cannot receive their response. At the end of the process and not later than March 31, 2015 the insurer must submit an internal auditor's report to the Commissioner which includes details of the Recovery process and controls added to prevent the recurrence of cases that Insurees joined collective life insurance without receiving their explicit, written consent in advance. The Company is studying the Decision Draft. At this stage the final version of the decision has yet to be published and there is no certainty regarding its provisions as well as the manner of application that will be required and the expected implications of the Decision Draft, if published. Note that the insurance companies are conducting deliberations with the Commissioner regarding the Decision Draft. d. Provisions are made in the financial statements of the relevant subsidiaries for costs that might result from claims described in Note 45 (a), (b) and (c) of the Annual Statements and the material changes described in Note 7 (a), (b) and (c) above only if it is more likely than not (meaning the probability is more than 50%) that there will be a payment liability resulting from past events and the amount of liability can be quantified or estimated within a reasonable time frame. The amounts of the provisions performed are based on an estimation of the extent of risk in each of the claims shortly before publishing this report (except some of the claims that were filed in the last two quarters and that in that due to the preliminary stage of handling them, the chances of success in these claims cannot be evaluated). In this matter note that the events occurring during the legal deliberations might require a new evaluation of this risk. The consolidated subsidiaries' evaluations of the risk are based both on the opinions of their legal advisors and the estimates of the relevant companies regarding the amounts of compromise agreements that the managements of these subsidiaries foresee as more likely than not that will be paid by them. 2 88

152 Notes to the consolidated interim financial statements as at September 30, 2014 Note 7 Contingent liabilities and claims (cont.) d. (cont.) It is noted that in the opinions of attorneys regarding most of the motions to approve class actions for which a provision was not made, the attorneys estimations refers to the chances of the motion to approve the class action and does not refer to the prospects of the claim itself if approved as a class action. This inter alia is for the reason that the scope and content of the deliberations in the claim per se, after it is approved as a class action, will be affected by the decision of the court regarding the approval of the claim as a class actions, which usually refers to causes of action that were approved as well as those not approved, to remedies that were approved and were not approved etc. The provision included in the financial statements as of September 30, 2014 in respect of all the legal claims mentioned in Note 45 (a), 45 (b) and 45 (c) of the Annual Statements and the material changes described in Note 7 (a), (b) and (c) above, totals the sum of approx. NIS 87 million. Note 8 Assets and liabilities held for sale and discontinued operations a. Developments during and after the report period regarding Clal Finance (1) Developments concerning the transaction of selling Clal Finance Following the aforementioned in Note 27 (b) (1) of the Annual Statements regarding the Company's engagement in an agreement to sell its holdings in Clal Finance to Concepteam S.A, a foreign company (hereinafter: the Buyer) controlled by Messieurs Ruth Schpizer and Shlomo Lechi on January 16, 2014 (hereinafter: the Agreement), on May 30, 2014 the last date for completing the Agreement expired without completing the Agreement. As of the date of the report, the Company does not expect to complete the transaction of selling Clal Finance within a year. Accordingly in the statement of the financial position as at September 30, 2014, the statements of Clal Finance are completely consolidated with the Company's statements. Details of companies in Clal Finance presented in section c' below, are for activities sold only. Following the aforementioned in Note 27 (b) (2) of the Annual Statements regarding the decision of the meeting of bond holders (Series A) of Clal Finance from April 10, 2014 to approve the amendment of the trust deed, mainly: arranging the rights of bond holders towards Clal Finance after completing the Agreement for selling the company to the Buyer, if completed; and provisions in the matter of an exemption for the Company, for Clal Finance and the Buyer and officers in the Company and Clal Finance in regard to the Agreement it is clarified that the amendment to the trust deed for the bonds did not become valid since the transaction to sell the Company's shares in Clal Finance expired as aforesaid. (2) Redeeming bonds (Series A) On July 20, 2014 Clal Finance filed a motion to the District Court in Tel Aviv Yafo (hereinafter: the Court) to approve early redemption of all bonds (Series A) of Clal Finance, according to the provisions of section 25 (h) of the Law for Promotion of Competition and Reduction of Concentration, and the Companies Ordinance (Application for a Compromise or Arrangement), (hereinafter: the Motion). 2 89

153 Notes to the consolidated interim financial statements as at September 30, 2014 Note 8 Assets and liabilities held for sale and discontinued operations (cont.) a. Developments during and after the report period regarding Clal Finance (cont.) (2) Redeeming bonds (Series A) (cont.) On August 18, 2014 Clal Finance published the results of the meeting of the company's bond holders, which approved the resolution to instruct the trustee that if Clal Finance will offer to redeem the bonds by early redemption for the price of agorot for each 1 NIS, nominal value, the trustee will inform the Court that the bond holders do not object to the request. On August 19, 2014 Clal Finance filed a motion to the Court with the trustee's consent to amend the motion to redeem the bonds mainly changing the consideration to be paid to bond holders for each 1 NIS nominal value of bonds to NIS On August 24, 2014 and on August 25, 2014 the Israeli Securities Authority and the Official Receiver, respectively, informed the Court that they have no objection to the Court's decision. On September 7, 2014 the Court approved the Motion and accordingly on September 28, 2014 Clal Finance redeemed all the bonds (Series A). Following early redemption, Clal Finance ceased being a reporting corporation (as the term is defined in the Companies Law, ) and a "layer company" as the term is defined in the Concentration Law (for additional details see Note 1 (b) (5) above). The total amount of early redemption paid to the bond holders was approx. 238M NIS and as a result the Company reported a loss of approx. NIS 20 million in its financial statements. The aforementioned loss refers to the difference between the balance of liabilities to bond holders noted in the Company's books and the final redemption price that was determined. This loss was included in financing expenses as part of another sector for the periods of nine and three months ended on September 30, (3) Motion to reduce the equity of Clal Finance On October 22, 2014 Clal Finance filed a motion to the District Court to perform a reduction of equity by way of distribution (as the term is defined in the Companies Law, ) (hereinafter: the Law) to the Company in the sum of NIS million. The aforementioned distribution (which does not fulfill the "profit test" in the aforementioned Law) is subject to the approval of the court. In regard to the aforementioned distribution, the company committed to Clal Finance that it assumes certain contingent liabilities of Clal Finance. It is emphasized that the distribution is subject to the approval of the court and the Company has no certainty that the motion will be approved and/or the distribution will be performed. On October 23, 2014 after Clal Finance became a nonreporting company (as mentioned in section 2 above) and its decision to reduce equity (as aforesaid), Clal Finance provided the Company with a loan in the amount of approx. NIS 248 million. The interest in respect of the loan will be the interest rate stipulated in the Income Tax Regulations referring to loans between related parties. The terms of the loan will be determined between the management of the Company and the management of Clal Finance inter alia so that the dates of paying the loan as mentioned will serve the cash flows needs of Clal Finance and guarantee its compliance with its liabilities. If the court will approve the motion to reduce the equity, the amount transferred will be considered as payment on account of the amount to be transferred as part of the reduction of equity. 2 90

154 Notes to the consolidated interim financial statements as at September 30, 2014 Note 8 Assets and liabilities held for sale and discontinued operations (cont.) a. Developments during and after the report period regarding Clal Finance (cont.) (4) For developments regarding the dispute of Clal Finance Batucha Investment Management Ltd (hereinafter: Clal Batucha) with the Tax Authorities see Note 7 (c) (1). b. The following are details of assets and liabilities classified as held for sale: As of September 30, 2013 As of December 31, 2013 HQ building HQ building Companies in and other Companies in and other Clal Finance assets Total Clal Finance assets Total NIS in thousands Unaudited Audited Assets Intangible assets Fixed assets 109, ,891 76,262 76,262 Accounts receivable and other receivables 213, ,542 29,591 29,591 Total other financial investments 56,310 56,310 77,923 77,923 Cash and other cash equivalents 145, , , ,684 Total assets 415, , , ,198 76, ,460 Liabilities Bonds 251, ,365 Accounts payable and other payables 70,378 70,378 15,810 15,810 Deferred tax liabilities Liabilities for banking corporations and others 70,694 70,694 2,048 2,048 Total liabilities 141, , , ,679 Assets net 274, , , ,519 76, ,

155 Notes to the consolidated interim financial statements as at September 30, 2014 Note 8 Assets and liabilities held for sale and discontinued operations (cont.) c. The following are details of profit and loss referring to discontinued operations: For the period of nine months ended For the year ended on December 31, on September 30, Companies Companies in Clal in Clal Finance Broadgate Total Finance Broadgate Total NIS in thousands Unaudited Audited Net profits from investments and financing income Income from commissions Income from other financial services 65,434 65,434 73,017 73,017 Total income 65,434 65,434 74,355 74,355 General and administration expenses 106, , , ,549 Impairment of intangible assets 3,198 3,198 Total expenses 106, , , ,747 Loss before income tax ( 41,237) ( 41,237) ( 50,392) ( 50,392) Income tax 1,136 2,408 3,544 1,251 ( 76) 1,175 Capital gain from sale 28,176 9,632 37,808 29,552 ( 305) 29,247 Profit (loss) for period ( 14,197) 7,224 ( 6,973) ( 22,091) ( 229) ( 22,320) Earnings (loss) for share attributed to Company shareholders Basic and diluted profit (loss) for share (in NIS) from discontinued operations ( 0.26) 0.13 ( 0.13) ( 0.40) ( 0.40) For the period of three months ended on September 30, 2013 Companie s in Clal Finance Broadgate Total NIS in thousands Unaudited Income from other financial services 8,181 8,181 Total income 8,181 8,181 General and administration expenses 21,001 21,001 Total expenses 21,001 21,001 Loss before income tax ( 12,820) ( 12,820) Income tax ( 476) ( 476) Capital gain from sale ( 1,902) ( 1,902) Loss for period ( 12,820) ( 1,426) ( 14,246) Earnings (loss) per share attributed to Company shareholders Basic and diluted loss per share (in NIS) from discontinued operations ( 0.23) ( 0.03) ( 0.26) 2 92

156 Notes to the consolidated interim financial statements as at September 30, 2014 Note 8 Assets and liabilities held for sale and discontinued operations (cont.) d. The following are details of net cash flows referring to discontinued operations: For the period of nine months ended on September 30 For the period of three months ended on September 30 For the year ended on December NIS in thousands Unaudited Audited Cash flows provided by discontinued operations: Net cash from (used in activities) current activities ( 26,584) ( 13,038) 261,111 Net cash from investing activities 197, ,518 Net cash used in financing activities ( 14,285) Net cash from (used in) discontinued operations 170,490 ( 13,038) 524,344 Note 9 Material events during and after the reporting period a. Signing a collective agreement between the Group companies, the General Organization of Workers in Israel and the Group's employees' committee As mentioned in Note 24 (d) of the Annual Statements, on January 2, 2014 the Company's subsidiaries Clal Insurance, Clal Pension and Provident Funds, Clal Credit Insurance, Clalbit Systems Ltd and Clal Credit and Finance Ltd (hereinafter: the Companies) signed a collective agreement between the New General Organization of Workers in Israel and the Group's workers committee (hereinafter: the Agreement). The Agreement is valid until December 31, 2016, industrial quiet will be maintained until March 31, 2017 and there will be no salary raises except as stipulated in the Agreement in respect of the period until September 30, The Agreement will apply to all the Companies' employees, except employees in specific positions defined in the Agreement and managers in the rank defined in the Agreement (hereinafter: Employees). The main points of the Agreement are specified in Note 24 (d) of the Annual Statements. As a result of applying section 14 of the Severance Pay Law, to the Employees, both for past periods and from now on, the severance pay amounts in the Employees' funds included in the Agreement will be paid as of the eve of signing the Agreement, to the full amount of severance pay that they would have been entitled to according to the law had they been dismissed and accordingly the Companies will be exempt from seniority debt completions in respect of every salary raise given starting from the date of applying the Agreement. The liability for termination of employment was classified as a defined deposit liability instead of being classified as a defined benefit plan as was before signing the Agreement. This except for certain components that will continue to be classified as a defined benefit plan and measured accordingly. The aforementioned change in the liabilities to Employees did not have a material effect on activity results. 2 93

157 Notes to the consolidated interim financial statements as at September 30, 2014 Note 9 Material events during and after the reporting period (cont.) b. Share based payment Following the aforementioned in Note 44 (a) (2) of the Annual Statements 221,000 warrants were allotted to 3 officers in the Company and 2 additional employees who are not officers in the Company on January 22, February 6, March 17 and October 19, The allotments were performed according to an average exercise price of NIS 71. Additionally, following the aforementioned in Note 1 (a) above and as approved in August 2014 by the Company's Board by recommendation of the Compensation Committee on May 8, 2014 after the creditors arrangement in IDB Development becoming valid, the condition of "transferring control" as defined in Note 43 (b) (4) (c), Note 43 (b) (5) (a) and Note 44 (a) (2) in the Annual Statements was fulfilled and thereafter the right to exercise the options allotted to the Company CEO became active in December Note that registering the full expense in respect of the options allotted to the CEO was completed in the financial statements for the first quarter of Furthermore, due to transferring control as mentioned in case of terminating of employeeemployer relations during the 12 months thereafter, the remaining offerees that options were allotted to according to the 2013 plan, are entitled to exercise some of the options allotted to them as specified in the aforementioned Notes. The above had no material effect on the Company's financial statements. c. Moving to the Atidim Tower and selling the HQ building 1. Following the aforementioned in Note 46 (b) (1) of the Annual Statements, moving the Group's activity to the Atidim Tower was completed in July Following the aforementioned in Note 46 (b) (2) of the Annual Statements, on March 1, 2014 possession in the project was delivered to the Amot company. After evacuating the project, the Group's activities moved to its new offices at the Atidim Tower as mentioned in section 1 above. Selling the rights in the project generated capital gains in the sum of approx. NIS 20 million after tax to the sellers, which was recognized in the period of three months ended on March 31, 2014, excluding expenses for accelerated depreciation of movables found in the project. d. Broadgate For details about closing the exposure for the open years on account of Broadgate's businesses after its sale, see Note 6 (c) (9). e. Repayment and updating terms of loans According to Note 29 (b) of the Annual Statements, during the reporting period the Company paid loans in the principal amount of approx. NIS 30 million, according to the original terms of the loans. Also according to the policy for limiting the debt and financing costs of the Company and following the receipt of funds from Clal Finance Ltd as specified in Note 8 (a) (3) above, on November 11, 2014 the Company paid, by voluntary early payment, the total sum of approx. NIS 243 million from its loans to banking corporations. 2 94

158 Notes to the consolidated interim financial statements as at September 30, 2014 Note 9 Material events during and after the reporting period (cont.) e. Repayment and updating terms of loans (cont.) The amount paid by early repayment was used to pay all the Company's debts to one banking corporation (in the sum of approx. NIS 173 million) and partial repayment of the Company's debts to a second banking corporation (which is an interested party in the Company) in the sum of NIS 70 million (out of the total loan amount of approx. NIS 140 million). Note that the loan agreements with both banking corporations include provisions regarding the Company's right to perform early repayment of the loans (including the formula for calculating commissions in respect of early payment). Furthermore, the Company engaged with the second banking corporation to whom it partially paid the loan, in a new agreement for determining the dates of repayment of the remaining loan, so that the principal of the loan will be paid in two equal installments in 2018 and 2019 (instead of one repayment in 2015). The rest of the loan terms remain unchanged, except in respect of adjusting the financial criteria concerning the Company's maximum financing liabilities amount, that will be adjusted to the corresponding limit that the Company has in a financing agreement with a different bank so that the aforementioned amount will be NIS 750 million from now on (instead of NIS 1,500 million) and except for changing the formula for calculating the early repayment commission in respect of the early payment, if any will be done in the future, to one that reflects compensation for economic damage that might be caused to the bank as a result of early repayment of the loan balance. Following that mentioned in Note 43 (a) (4) of the Company's financial statements for the year 2013 regarding the Company's engagement with bodies that might be considered material creditors of controlling shareholders in the Company and since the banking corporations are bodies as mentioned (in addition to one of the corporations being an interested party in the Company), for the sake of caution and in light of the fact that the controlling shareholders in the Company might be considered as having a personal interest in early repayment and determining the dates for paying the loan balance as mentioned, the transaction was reviewed by the Company's Audit Committee and the Board. On October 7, 2014, on October 23, 2014 and November 11, 2014 the Company's Audit Committee determined that early repayment and determining the dates for paying the loan balances as mentioned do not constitute an "exceptional transaction" as defined in the Companies Law, , considering all the terms. The Company's Board approved the transaction on October 26, 2014 and November 11,

159 Notes to the consolidated interim financial statements as at September 30, 2014 Note 9 Material events during and after the reporting period (cont.) f. Rating Following that mentioned in Note 29 (f) of the Annual Statements regarding the Group's ratings: Rating company Name of company Rating Forecast Update date Maalot Midroog The Company Clal Insurance Clal Finance Clal Insurance ila Test Nov.13 ila Negative June144) (FSR) 1 (AA) Test Nov13 (FSR) 1 (AA+) Negative June144) Rating the deferred liability notes debt (AA) Test Nov13 Rating the deferred liability notes debt (AA) Negative June144) Rating the debt (Tier 2 hybrid equity) (A+) Test Nov13 Rating the debt (Tier 2 hybrid equity)2) (AA) Negative June144) Issue (BBB+) Test Nov13 Series A 3) (BBB+) Stable Jan13 (IFSR)1) Aa1 Negative May13 (IFSR)1) Aa1 Stable July14 Debt rating Tier 2 subordinated equity liability notes (Aa2) Negative May13 Debt rating Tier 2 subordinated equity liability notes (Aa2) Stable July14 Debt rating Tier 2 Tier 2 hybrid equity liability notes (Aa3) Negative May13 Debt rating Tier 2 hybrid equity liability notes (Aa3) Stable July14 Clal Finance Series A 3) (Baa1) Test Jan.13 1) Rating the financial stability of the insurer. 2) The rating also refers to the two new Series, G and H, in the total sum of up to NIS 600 million nominal value. 3) Regarding payment of the bonds and turning Clal Finance into a nonreporting corporations, see Note 8 (a) (2) above. 4) In August 2014 Maalot retained the ratings presented in the above table. g. Clal Finance 1. For information about developments during the reporting period concerning Clal Finance and the bonds (Series A) issued by Clal Finance, see note 8 above. 2. Developments concerning the dispute of Clal Finance Batucha Investment Management Ltd (hereinafter: Clal Batucha) with the Tax Authorities see note 7 (c) (1). h. Shelf prospectus On May 4, 2014 the Company received a notice from the Israeli Securities Authority by virtue of its authority according to section 23 a (b) of the Securities Law, , that it decided to extend the period for offering Company securities according to the Company's shelf prospectus from May 31, 2012 by 12 additional months, meaning until May 31, i. Publishing the shelf prospectus and issue of bonds by Clalbit Finance For information on publishing the shelf prospectus and issue of bonds by Clalbit Finance, see Note 6 (c) (7) above. 2 96

160 Notes to the consolidated interim financial statements as at September 30, 2014 Note 9 Material events during and after the reporting period (cont.) j. Changing the designation of property, plant and equipment to investment property During the period of nine months ended on September 30, 2014, floors in a structure owned by the Group that thus far were occupied by Group companies, were evacuated and rented out to a third party and their classification was changed accordingly from property, plant and equipment to investment property. Following the classification, other comprehensive income was registered from a new evaluation reserve for the property, plant and equipment items in the sum of NIS 33 million, before tax (NIS 25 million after tax). k. Mobileye On August 1, 2014 Mobileye N.V (hereinafter: Mobileye) announced that on July 31, 2014 it completed a listing for trade, offer for sale and raising equity on the New York Stock Exchange (hereinafter: the Issue). On the eve of the Issue Mobileye split shares in the ratio of 1:5 so that thereafter Clal Insurance held 1,549,160 shares of Mobileye (approx. 0.75% of its issued capital). The price of a share in the issue and offer for sale was set at 25 Dollars (for shares exercised as part of the issue Dollars after underwriters commissions and other Issue expenses). Also note that as part of the Issue, including exercising options to underwriters after the Issue, Clal Insurance exercised approx. 50% of its holdings in Mobileye shares so that following the exercise, the Company holds 778,375 shares of Mobileye. There is an exercise limit (blockage) in respect of the rest of the Company's holdings of 180 days. As of September 30, 2014, the value of the Mobileye shares is approx. 54 Dollars per share. Accordingly during the periods of nine and three months ended on September 30, 2014 the Company included in comprehensive income the sum of approx. NIS 164 million and approx. NIS 88 million before tax (a total of approx. NIS 102 million and approx. NIS 55 million after tax), respectively. Also see Note 5 (b). l. Directors and officers liability insurance in the Company Following that mentioned in Note 43 (b) (6) (a) of the Annual Statements, on July 28, 2013 the general meeting of the Company approved a commitment as part of a transaction in respect of directors and officers liability insurance in the Company and certain companies held by it, including officers who either they or their relatives are controlling shareholders in the Company, for a period of 3 years starting from August 1, 2013, whereas the commitments as mentioned can also be implemented by extending the existing insurance policies by changing their terms, provided that the commitments will be based on the principles as approved in the aforementioned meeting (hereinafter: Framework Decision). According to the Framework Decision, the Company's division committed to insurance policies for a period from August 1, 2013 to July 31, 2014 that was extended until November 30, 2014 with the same conditions, according to which the liability limits in the basic policy in respect of officers liability insurance will not exceed US$ 50 million, per claim and accumulatively, and the total liability limits as part of a collective policy (joint for companies in the Company's Group and IDB companies) will not exceed US$ 90 million so that the accumulated total liability limited for the basic and collective policy will not exceed US$ 140 million for the insurance period. In addition, another insurance layer was purchased up to a total limit of NIS 90 million, which supplements the liability limit of the collective policy to the original liability limit insured according to it, for covering additional claims as mentioned, if any will be filed. Note that for every division the collective policy will only apply (subject to its terms) beyond the indemnity by virtue of the basic policy of that division and that there is no certainty that the division will actually be able to use the insurance coverage, all or part thereof, by virtue of the 2 97

161 Notes to the consolidated interim financial statements as at September 30, 2014 Note 9 Material events during and after the reporting period (cont.) l. Directors and officers liability insurance in the Company (cont.) collective policy and/or the additional insurance layer as mentioned. The aforementioned policies were issued by Clal Insurance as the insurer, with reinsurance at a rate of 100%. According to the Framework Decision, the Company intends to commit to an officers liability policy starting from December 1, 2014 until November 30, 2015 in which the total liability limit will not exceed 140M Dollars for one claim or accumulatively in respect of the insurance period. The policy will be joint for the Company and companies in the Company's Group, including Clal Finance and does not include committing to a collective policy in respect of officers liability insurance with additional groups in the IDB Group like in the past. The aforementioned policy will not be issued by Clal Insurance as the insurer. m. Provident funds Following that mentioned in Note 33 (c) of the Annual Statements regarding the management fees reform, there has been a decrease in the income from management fees in the division as a result of the regulatory provisions and competition conditions in the industry during the reporting period. As a result on June 30, 2014 the Company reviewed the need for registering a provision in respect of impairment in goodwill ascribed to provident fund management through a report from an external, independent appraiser based on the approach of capitalizing the cash flows forecast resulting from activities (value of use). According to the valuation, the recoverable amount of the provident funds activity was higher than the value of this activity in the books and therefore, a loss from the impairment in goodwill was not registered. As of September 30, 2014 there were no indications of impairment in the value of goodwill. The following are the key assumptions used to calculate the recoverable value. As of June 30, 2014 As of December 31, 2013 Valuation methodology DCF DCF Rate of operational capitalization WACC before tax 14.90% 15.30% Long term growth rate 0% 0% Effective marginal tax 37.7% 37.7% Minimum management fees *) Minimal sum of NIS 6 per month Minimal sum of NIS 6 per month Maximum management fees from accumulation *) In the year 2014 and thereafter up to 1.05% In the year 2014 and thereafter up to 1.05% Number of years in cash flows forecast 5 5 *) For additional details regarding the management fees reform and manner of reviewing its overall effect, see Note 33 of the Annual Statements. 2 98

162 Notes to the consolidated interim financial statements as at September 30, 2014 Note 9 Material events during and after the reporting period (cont.) n. Income tax Following that mentioned in Note 23 of the Annual Statements regarding amendment 174 of the Income Tax Ordinance (New Version), (hereinafter: the Ordinance) stating that Israeli Accounting Standard 29 will not apply and adopting the International Financial Reporting Standards (IFRS) in determining taxable income (hereinafter: Temporary Order) on July 31, 2014 amendment 202 of the Ordinance was published, extending the validity of the Temporary Order to the tax years 2012 and 2013, retroactively from January 1, The aforementioned has no material effect on the financial statements. o. Developments in the capital market The decline in the risk free interest curve continued after the reporting date. Following that mentioned in Note 2 (b) above, a decline in the interest rates might cause an increase in the insurance liabilities in nonlife insurance in the mandatory divisions and liabilities with an obligation to supplement for benefit reserves and liabilities for pension in payment of life insurance, as well as provisions for life insurance, nursing and health insurance as part of the liability adequacy test (LAT). Note that the aforementioned change in the interest curve might have a positive effect on the value of financial assets of the Group presented at fair value (in this matter see Note 42 (c) (2) of the Annual Statements) in a manner that might decrease the aforementioned effect. On the other hand, an increase in the risk free interest curve might lead, under certain conditions, to decreasing the liabilities for the liability adequacy test (LAT) and supplementing benefit reserves and pension liabilities in payment. At the same time, an increase in the interest curve might negatively affect the value of the Group's financial assets presented at fair value. Note that the effects described above are partial and do not include the effect of the rest of the Group's activity on the results of activities and equity. 2 99

163 Notes to the consolidated interim financial statements as at September 30, 2014 Appendix Details of assets for investment linked contracts and other financial investments of consolidated insurance companies registered in Israel 1. Assets for investment linked contracts The following are details of assets held in exchange for insurance contracts and investment contracts: As of December As of September NIS in thousands Unaudited Audited Investment property 1) 2,506,868 Financial investments Marketable debt assets 19,176,364 Nonmarketable debt assets 6,835,393 Shares 8,685,914 Other financial investments 12,204,621 Total financial investments 1) 46,902,292 Cash and cash equivalents 1,235,850 Other 496,877 Total assets for investment linked contracts 51,141,887 *) Reclassified 1) Presented at fair value through profit and loss 2. Details of other financial investments 1,572,412 1,731,726 17,132,446 18,430,956 6,406,537 6,303,293 (* 7,749,651 8,011,881 (* 9,245,526 9,803,257 40,534,160 42,549,387 2,796,786 2,311, , ,207 45,414,034 47,009,389 Fair value through profit and loss NIS in thousands Marketable debt assets (a) 532,149 Nonmarketable debt assets (b) 15,611 Shares (c) Other (d) 283,717 Total other financial investments 831,477 As at September 30, 2014 Availablefor sale Loans and debtors Total Unaudited 6,576,544 7,108,693 20,241,872 20,257,483 1,138,947 1,138,947 1,628,402 9,343,893 1,912,119 20,241,872 30,417,242 As at September 30, 2013 Fair value through profit and Availablefor Loans and loss sale debtors Total NIS in thousands Unaudited Marketable debt assets (a) 517,487 7,039,057 7,556,544 Nonmarketable debt assets (b) 20,697 19,349,540 19,370,237 Shares (c) 865, ,633 Other (d) 214,312 1,176,583 1,390,895 Total other financial investments 752,496 9,081,273 19,349,540 29,183,

164 Notes to the consolidated interim financial statements as at September 30, 2014 Appendix Details of assets for investment linked contracts and other financial investments of consolidated insurance companies registered in Israel (cont.) 2. Details of other financial investments (cont.) NIS in thousands Fair value through profit and loss As at December 31, 2013 Availablefor Loans and sale debtors Audited Total Marketable debt assets (a) 540,984 6,634,754 7,175,738 Nonmarketable debt assets (b) 20,116 19,387,227 19,407,343 Shares (c) 936, ,782 Other (d) 276,525 1,260,023 1,536,548 Total other financial investments 837,625 8,831,559 19,387,227 29,056,411 a. Quoted debt assets composition As at September 30, 2014 Book value Amortized cost 1) NIS in thousands Unaudited Government bonds 3,970,966 3,813,165 Other debt assets Other nonconvertible debt assets 3,123,400 2,965,939 Other convertible debt assets 14,327 13,419 3,137,727 2,979,358 Total quoted debt assets 7,108,693 6,792,523 Impairments attributed to income statement (accumulated) 100,823 As at September 30, 2013 Book value Amortized cost 1) NIS in thousands Unaudited Government bonds 3,844,533 3,736,205 Other debt assets Other nonconvertible debt assets 3,684,102 3,500,156 Other convertible debt assets 27,909 25,255 3,712,011 3,525,411 Total quoted debt assets 7,556,544 7,261,616 Impairments attributed to income statement (accumulated) 126,786 As at December 31, 2013 Book value Amortized cost 1) NIS in thousands Audited Government bonds 3,831,919 3,730,491 Other debt assets Other nonconvertible debt assets 3,319,953 3,134,929 Other convertible debt assets 23,866 21,698 3,343,819 3,156,627 Total quoted debt assets 7,175,738 6,887,118 Impairments attributed to income statement (accumulated) 116,

165 Notes to the consolidated interim financial statements as at September 30, 2014 Appendix Details of assets for investment linked contracts and other financial investments of consolidated insurance companies registered in Israel (cont.) 2. Details of other financial investments (cont.) a. Quoted debt assets composition (cont.) 1) Amortized cost cost net of principal payments, plus (net) of accumulated depreciation according to the effective interest method of any difference between the cost and the amount of payment and net of any depreciation in respect of impairment attributed to income statement. a. Nonmarketable debt assets composition As at September 30, 2014 Book value Fair value NIS in thousands Unaudited Government bonds Hetz bonds and treasury deposits 14,403,954 20,920,914 Other nonconvertible debt assets, except bank deposits 4,758,120 5,309,269 Bank deposits 1,095,409 1,272,549 Total nonmarketable debt assets 20,257,483 27,502,732 Impairment attributed to income statement (accumulated) 35,765 As at September 30, 2013 Book value Fair value NIS in thousands Unaudited Government bonds Hetz bonds and treasury deposits 13,963,402 18,280,024 Other nonconvertible debt assets, except bank deposits 4,611,206 *) 5,122,032 *) Bank deposits 795,629 *) 924,768 *) Total nonmarketable debt assets 19,370,237 24,326,824 Impairment attributed to income statement (accumulated) 43,243 *) Reclassified As at December 31, 2013 Book value Fair value NIS in thousands Audited Government bonds Hetz bonds and treasury deposits 13,890,316 18,682,511 Other nonconvertible debt assets, except bank deposits 4,591,530 5,048,690 Bank deposits 925,497 1,042,560 Total nonmarketable debt assets 19,407,343 24,773,761 Impairment attributed to income statement (accumulated) 44,

166 Notes to the consolidated interim financial statements as at September 30, 2014 Appendix Details of assets for investment linked contracts and other financial investments of consolidated insurance companies registered in Israel (cont.) 2. Details of other financial investments (cont.) b. Shares NIS in thousands As at September 30, 2014 Book value Cost Unaudited Tradable shares 1,133, ,497 Nontradable shares 5,086 36,270 Total shares 1,138,947 1,000,767 Impairment attributed to income statement (accumulated) 230,496 NIS in thousands As at September 30, 2013 Book value Cost Unaudited Tradable shares 823, ,210 Nontradable shares 42,477 48,567 Total shares 865, ,777 Impairment attributed to income statement (accumulated) 267,124 NIS in thousands As at December 31, 2013 Book value Cost Audited Tradable shares 895, ,972 Nontradable shares 41,510 48,477 Total shares 936, ,449 Impairment attributed to income statement (accumulated) 239,

167 Notes to the consolidated interim financial statements as at September 30, 2014 Appendix Details of assets for investment linked contracts and other financial investments of consolidated insurance companies registered in Israel (cont.) 2. Details of other financial investments (cont.) c. Other financial investments 1) As at September 30, 2014 Book value Cost NIS in thousands Unaudited Tradable financial investments 1,186,242 1,116,091 Nontradable financial investments 725, ,538 Total other financial investments 1,912,119 1,678,629 Impairment attributed to income statement (accumulated) 77,003 As at September 30, 2013 Book value Cost NIS in thousands Unaudited Tradable financial investments 801, ,250 Nontradable financial investments 589, ,447 Total other financial investments 1,390,895 1,258,697 Impairment attributed to income statement (accumulated) 66,997 NIS in thousands As at December 31, 2013 Book value Audited Tradable financial investments 939,269 (* 890,240 Nontradable financial investments 597, ,555 Total other financial investments 1,536,548 1,384,795 Impairment attributed to income statement (accumulated) 68,793 *) Reclassified 1) Other financial investments mainly include investments in exchange tracker funds, certificates of participation in mutual funds, investment funds, financial derivatives, future contracts, options and structured products. Cost 2 104

168 Financial Data from the Consolidated interim Financial Statements Attributed to the Company Itself As at September 30, 2014 (Regulation 38 D ) Unaudited 3 1

169 Page Special report of the auditors on separate interim financial information 33 Separate interim financial information of the Company: Interim financial position data 34 Interim profit and loss data 35 Interim comprehensive income data 36 Interim cash flow data 37 Additional information

170 טלפון פקס קוסט פורר גבאי את קסירר רח' עמינדב 3, תלאביב טל פקס ey.com סומך חייקין מגדל המילניום KPMG רחוב הארבעה 17, תא דואר 609 תל אביב To: The shareholders of Clal Insurance Enterprises Holdings Ltd Re: Special report of the Auditors on Separate Interim Financial Information According to Regulation 38 D of the Securities Regulations (Periodic and Immediate Reports), Introduction We have reviewed the separate interim financial information presented according to Regulation 38 D of the Securities Regulations (Periodic and Immediate Reports), for Clal Insurance Enterprises Holdings Ltd (hereinafter: the Company) as at September 30, 2014 and for the periods of nine and three months ended on that date. The separate interim financial information is the responsibility of the Board of Directors and Management of the Company. Our responsibility is to express a conclusion on this separate interim financial information for this interim period based on our review. Scope of review We conducted our review in accordance with Review Standard 1 of the Institute of Certified Public Accountants in Israel Review of Financial Information for Interim Periods Performed by the Auditor of the Entity. A review of separate interim financial information is comprised of inquiries, mainly with people responsible for financial and accounting matters, and application of analytical and other review procedures. A review is considerably limited in scope compared to an audit conducted in accordance with generally accepted auditing standards in Israel and therefore, does not enable us to obtain assurance that we would become aware of all significant matters that would be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, we have not become aware of any matter which would have caused us to believe that the above separate interim financial information has not been prepared, in all material respects, according to Regulation 38 D of the Securities Regulations (Periodic and Immediate Reports), Tel Aviv November 23, 2014 Kost, Forer, Gabbay & Kasierer Somekh Chaikin Certified Public Accountants Certified Public Accountants Joint Auditors 3 3

171 . Financial Data from the Consolidated Interim Financial Statements Attributed to the Company Itself at September 30, 2014 Interim financial position data As at September 30 As at December , 2013 NIS in thousands Unaudited Audited Assets Investment in equity accounted investees 4,491,379 3,987,914 4,176,081 Loans and balances of investees 23,310 37,434 42,754 Current tax assets 1,440 1,739 Accounts receivable and other receivables 1,631 1,609 1,968 Other financial investments: Marketable debt assets 65,612 74,939 75,155 Shares 718 Total other financial investments 66,330 Cash and cash equivalents 31,133 Total assets 4,613, ,634 75, , ,437 4,238,648 4,401,905 Equity Share capital 143,158 Premium on shares 968,433 Capital reserves 707,344 Retained earnings 2,403,775 Total equity 4,222,710 Liabilities Accounts payable and other payables 2,166 Investee balances 95 Deferred tax liabilities 1,822 Liabilities to banking corporations and others 386,990 Total liabilities 391,073 Total liabilities and equity 4,613, , , , , , ,380 2,069,226 2,251,895 3,717,057 3,898,031 3,252 5,298 19, , , , , ,874 4,238,648 4,401,905 The attached additional information constitutes an integral part of the Company's separate interim financial information. November 23, 2014 Signature Signature Signature Approval date of financial statements Danny Naveh Chairman of Izzy Cohen CEO Ronit Zalman Malach the Board CFO 3 4

172 . Financial Data from the Consolidated Interim Financial Statements Attributed to the Company Itself at September 30, 2014 Interim profit and loss data For the year ended For the period of nine months For the period of three December ended September 30 months ended September NIS in thousands Unaudited Unaudited Audited Company's share in profits (losses) of investees, net of tax 155,828 Profits from investments, net and financing income From investees 1,070 Others 650 Income from management fees and participation in expenses from investees Other income 2,000 Total income 159,548 General and administrative expenses 3,198 Financing expenses 13,117 Total expenses 16,315 Profit (loss) before income tax 143,233 Income tax (tax benefits) Profit (loss) for period from continued activities 143,233 Profit (loss) from discontinued operations, net Profit (loss) for period 143, ,972 ( 10,845) 145,310 (* 581,132 1, ,856 2, ,236 2,485 1, , ,691 ( 10,286) 147, ,173 4,909 1,062 1,827 6,607 21,117 4,078 6,602 26,492 26,026 5,140 8,429 33, ,665 ( 15,426) 139, , ,665 ( 15,426) 139, ,074 7,224 ( 1,426) (* ( 229) 365,889 ( 15,426) 137, ,845 *) Regarding discontinued operations see Note 2 (d) of the consolidated interim statements. The attached additional information constitutes an integral part of the Company's separate interim financial information. 3 5

173 . Financial Data from the Consolidated Interim Financial Statements Attributed to the Company Itself at September 30, 2014 Interim comprehensive income data For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended December NIS in thousands Unaudited Unaudited Audited Profit (loss) for period 143, ,889 ( 15,426) 137, ,845 Other comprehensive income: Items of other comprehensive income that after initial recognition as part of the comprehensive income were transferred or will be transferred to the income statement: Change, net, in the fair value of availableforsale financial assets charged to capital reserve ( 26) Change, net, in the fair value of availableforsale financial assets transferred to the income statement ( 73) Impairment loss in respect of availablefor sale financial assets transferred to income statement Other comprehensive income in respect of investees transferred or will be transferred to the income statement, net of tax 180,393 Other comprehensive income before tax for period transferred or will be transferred to the income statement 180,294 Taxes in respect of other components of comprehensive income transferred or that will be transferred to the income statement Other comprehensive income for the period after initial recognition as part of the comprehensive income that was transferred or will be transferred to the income statement, net of tax 180,294 Other comprehensive income items that will not be transferred to the income statement: Other comprehensive income in respect of investees that will not be transferred to the income statement, net of tax ( 2,908) Other comprehensive income (loss) for the period that will not be transferred to the income statement, net of tax ( 2,908) Total comprehensive income for period 320,619 ( 813) ( 94) ( 30) 30,270 85,965 29,457 85,841 29,457 85,841 12,299 ( 385) 12,299 ( 385) 407,645 70,030 ( 93) ( 783) ( 12) ,479 19,094 21,386 18,908 21,386 18,908 4,095 9,058 4,095 9, , ,811 The attached additional information constitutes an integral part of the Company's separate interim financial information. 3 6

174 . Financial Data from the Consolidated Interim Financial Statements Attributed to the Company Itself at September 30, 2014 Interim cash flow data For the period of nine months ended September 30 For the period of three months ended September 30 For the year ended Decembe r NIS in thousands Unaudited Unaudited Audited Cash flow from current activities Profit (loss) for period 143,233 Adjustments: Company's share in losses (profits) of investees ( 155,828) Dividend from investees 9,900 Loss (profit) for discontinued operations Interest accrued in respect of liabilities to banking corporations 13,068 Profit from other financial investments ( 643) ( 133,503) Changes in other items in data of financial position, net: Changes in accounts receivable and other receivables 337 Changes in accounts payable and other payables ( 2,542) ( 2,205) Cash from current activities in respect of transactions with investees, net 15,869 Interest received 871 Income tax received 3,338 Cash from current activities, net 27, ,889 ( 15,426) ( 378,972) 10, ,918 9,900 ( 7,224) 18,907 4,659 ( 1,936) ( 161) ( 263,307) 25, ( 4,819) 540 ( 4,629) 32,777 5,891 1, ,620 11, , ,845 ( 145,310) ( 581,132) 105,918 1, ,940 10,936 ( 557) ( 1,601) ( 138,501) ( 465,650) ( 160) ( 133) 185 ( 98) 33,548 12, ,646 33, ,229 Cash flows from investment activities Repayment of loans to investees 15,000 Granting loans to investees Investment in availableforsale financial assets ( 108,333) Consideration from sale of availableforsale financial assets 118,473 Cash from investments, net 25, ( 15,000) ( 104,368) ( 30,647) 147,477 63,808 28,764 33, ,033 ( 15,000) ( 15,000) ( 30,354) ( 104,368) 90, ,477 45,621 29,142 Cash flows from financing activities Repayment of liabilities to banking corporations ( 30,000) Interest paid in respect of liabilities to banking corporations ( 13,484) Repayment of other liabilities ( 81,563) Dividend paid Cash used in financing activities, net ( 125,047) ( 99,038) ( 15,000) ( 24,144) ( 4,078) ( 11,510) ( 120,000) ( 254,692) ( 19,078) ( 76,346) ( 106,731) ( 9,890) ( 14,618) ( 11,510) ( 120,000) ( 86,236) ( 252,859) Increase (decrease) in cash and cash equivalents ( 72,304) Cash and cash equivalents for beginning of period 103,437 Cash and cash equivalents for end of period 31,133 ( 88,308) 25, ,925 5, ,617 31,133 ( 6,923) ( 119,488) 141, , , ,

175 . Financial Data from the Consolidated Interim Financial Statements Attributed to the Company Itself at September 30, 2014 Additional information 1. General The separate interim financial information is presented according to Regulation 38 D of the Securities Regulations (Periodic and Immediate Reports), and does not include all the information required according to Regulation 9 C and the Tenth Addendum to the Securities Regulations (Periodic and Immediate Reports), regarding separate financial information of a corporation. This separate interim financial information should be read together with the separate financial information as at and for the year ended December 31, 2014 and with the Concise Consolidated Interim Financial Statements as at September 30, 2014 (hereinafter: Consolidated Interim Statements). 2. Additional material information required for understanding the separate interim financial information a. Regarding assets and liabilities held for sale and discontinued operations see Note 8 of the Consolidated Interim Statements. b. Regarding issue of options in the group during the reporting period, see Note 9 (b) of the Consolidated Interim Statements. c. Regarding repayment of loans and credit see Note 9 (e) of the Consolidated Interim Statements. d. Regarding updates in the Company's ratings, see Note 9 (f) of the Consolidated Interim Statements. e. Regarding extending the period of issue of Company securities according to the Company's shelf prospectus from May 30, 2012 see Note 9 (h) of the Consolidated Interim Statements. f. Regarding the loan in the sum of approx. NIS 248M from Clal Finance to the Company, see Note 8 (a) (3) of the Consolidated Interim Statements. g. Regarding repayment of loans and updating the Company's loan conditions, see Note 9 (e) of the Consolidated Interim Statements. 3 8

176 Quarterly Report on the Effectivness of the Internal Control over Financial Reporting and Disclosure according to Regulation 38 C (a)

177 Quarterly Report on the Effectivness of the Internal Control over Financial Reporting and Disclosure according to Regulation 38 C (a) The Management, supervised by the Board of Directors of Clal Insurance Enterprises Holdings Ltd (hereinafter: the Corporation) is responsible for determining and applying appropriate internal control over financal reporting and disclosure in the Corporation. The members of management for this purpose are: 1. Mr. Izzy Cohen, CEO; 2. Mr. Mr. Moshe Ernst, Executive VP of Clal Insurance, Chief of Headquarters; 3. Mrs. Ronit ZalmanMalach, Executive VP of Clal Insurance, Chief Financial Officer; 4. Mrs. Hadar Brin Weiss, Senior VP of Clal Insurance, General Counsel; 5. Mr. Eran Shahaf, Senior VP of Clal Insurance, Internal Auditor; 6. Mr. Yoni Kuperman, Executive VP of Clal Insurance, Head of Long Term Savings Division; 7. Mrs. Elite Caspi, Executive VP of Clal Insurance, Head of Nonlife Insurance Division; 8. Mr. Daniel Cohen, Executive VP of Clal Insurance, Head of Health Insurance Division; 9. Mr. Reuven Yariv Kaplan, Executive VP of Clal Insurance, Customer Relations, Marketing and Strategy Unit Manager; 10. Mr. Haim Rer, Executive VP of Clal Insurance, Claims Unit Manager; 11. Mr. Jacob (Chico) Zekaria, Executive VP of Clal Insurance, Business Unit Manager; 12. Mr. Yoram Naveh, Executive VP of Clal Insurance, Head of Resources Division & CEO of Clal Finance Ltd; 13. Mrs. Hila Conforti, Executive VP of Clal Insurance, Chief Risk Officer; 14. Mr. Ofer Brandt, Executive VP of Clal Insurance, Chief Actuary; 15. Mr. Gil Arazi, CEO of Clalbit Systems Ltd; 16. Mr. Joshua (Shuki) Burstein, Executive VP of Clal Insurance, Head of Investments, Funding and Finance Division, CEO of Canaf Clal Finance Management Ltd; 17. Mrs. Gali Schved, VP of Clal Insurance, Head of Marketing and Strategy; The internal control over financial reporting and disclosure includes controls and procedures applied in the Corporation that were planned by the CEO and the most senior ranking financial officer or under their supervision or by anyone that actually performs these positions, under the supervision of the Corporation's Board of Directors and are intended to provide reasonable assurance of the credibility of the financial reporting and preparing the statements according to the provisions of the law, to guarantee that the information that the Corporation is required to disclose in its statements according to the law is collected, processed, summarized and reported on time and according to the format prescribed in the law. The internal control includes inter alia controls and procedures planned to assure that the information that the Corporation is required to disclose as mentioned, is accrued and forwarded to the Corporation's management, including its CEO and the senior ranking financial officer or anyone actually performing these positions, in order to allow making decisions on time, considering the disclosure requirements. Due to its structural limitations, the internal control over financial reporting and disclosure is not intended to give absolute assurance that any misleading presentations or omission of information in the statements will be prevented or discovered. Clal Insurance Ltd, a subsidiary of the Corporation, is an institutional body which is subject to the directives of the Ministry of Finance's Commissioner of Capital Market, Insurance and Savings regarding the effectiveness of internal control over financial reporting.

178 With regard to the internal control in this subsidiary, the Corporation applies the following provisions: Circular of Institutional Bodies regarding the "Responsibility of Management for Internal Control over Financial Reporting", Circular of Institutional Bodies regarding the "Responsibility of Management for Internal Control over Financial Reporting Amendment" and Circular of Institutional Bodies regarding the " Internal Control over Financial Reporting Statements, Report and Disclosures". In the quarterly report on the effectiveness of the internal control over financial reporting and disclosure attached to the quarterly report for the period ended on June 30, 2014 (hereinafter: Last Quarterly Report on Internal Control), the internal control was found to be effective. Until the date of the report, the Board of Directors and Management were not informed of any event or issue that can change the evaluation of the effectiveness of the internal control, as found in the Last Quarterly Report on Internal Control. As of the date of the report, based on the mentioned in the Last Quarterly Report on Internal Control and on the information presented to the Management and the Board of Directors as mentioned above, the internal control was found to be effective.

179 Executive Certification Certification of CEO I Izzy Cohen, declare that: 1. I have reviewed the quarterly reports of Clal Insurance Enterprises Holdings Ltd (hereinafter: the Corporation), for the third quarter of 2014 (hereinafter: the Reports). 2. To my knowledge, the Reports do not include any incorrect presentation of a material fact and do not lack any presentation of a material fact necessary in order for the presentations included therein not to be misleading in regard to the periods of the Reports, in light of the circumstances of these presentations not being included. 3. To my knowledge the financial statements and any other financial information included in the Reports appropriately reflect, in all material aspects, the financial position, results of operations and cash flow of the Corporation for the dates and periods that the Reports refer to. 4. Based on my most updated evaluation of the internal control over financial reporting and disclosure, I have disclosed the following to the Corporation's auditor, Board of Directors and the Board's Balance Sheet Committee: a. All significant deficiencies and material weaknesses in determining or activating the internal control over financial reporting and disclosure, which might reasonably effect the Corporation's ability to collect, process, summarize or report the financial information in a way that can question the credibility of the financial reporting and preparation of the financial statements according to the provisions of the law; and b. Any fraud, whether material or immaterial, involving the CEO or anyone directly subordinated thereto or other employees that have a significant role in the internal control over financial reporting and disclosure. 5. I personally or together with others in the Corporation: a. Determined controls and procedures or made sure that controls and procedures are determined and applied under my supervision, which are intended to assure that the material information referring to the Corporation, including consolidated companies as defined in the Securities Regulations (Annual Financial Statements), is brought to my attention by others in the Corporation and consolidated companies, particularly during the course of preparing the Reports; and b. Determined controls and procedures or made sure that controls and procedures are determined and applied under my supervision, which are intended to reasonably assure the credibility of the financial reporting and preparation of the financial statements according to the provisions of the law, including in accordance with acceptable accounting principles; c. I was not informed of any event or issue that occurred during the period between the date of the periodic report and this report that can change the conclusions of the Board of Directors and Management in regard to the effectiveness of the internal control over financial reporting and disclosure of the Corporation. The mentioned above will not undermine from my liability or the liability of any other person according to the law. November 23, 2014 Signature Izzy Cohen, CEO

180 I Ronit ZalmanMalach, declare that: Executive Certification Certification of Senior Ranking Financial Officer 1. I have reviewed the interim financial statements and other financial information included in the interim financial statements of Clal Insurance Enterprises Holdings Ltd (hereinafter: the Corporation), for the third quarter of 2014 (hereinafter: the Reports). 2. To my knowledge, the interim financial statements and other financial information included in the interim financial statements do not include any incorrect presentation of a material fact and do not lack any presentation of a material fact necessary in order for the presentations included therein not to be misleading in regard to the periods of the Reports, in light of the circumstances of these presentations not being included. 3. To my knowledge the interim financial statements and other financial information included in the interim financial statements appropriately reflect, in all material aspects, the financial position, results of operations and cash flow of the Corporation for the dates and periods that the Reports refer to. 4. Based on my most updated evaluation of the internal control over financial reporting and disclosure, I have disclosed the following to the Corporation's auditor, Board of Directors and the Board's Balance Sheet Committee: a. All significant deficiencies and material weaknesses in determining or activating the internal control over financial reporting and disclosure as far as it concerns the interim financial statements and other financial information contained in the interim financial statements, which might reasonably effect the Corporation's ability to collect, process, summarize or report the financial information in a way that can question the credibility of the financial reporting and preparation of the financial statements according to the provisions of the law; and b. Any fraud, whether material or immaterial, involving the CEO or anyone directly subordinated thereto or other employees that have a significant role in the internal control over financial reporting and disclosure. 5. I personally or together with others in the Corporation: a. Determined controls and procedures or made sure that controls and procedures are determined and applied under my supervision, which are intended to assure that the material information referring to the Corporation, including consolidated companies as defined in the Securities Regulations (Annual Financial Statements), is brought to my attention by others in the Corporation and consolidated companies, particularly during the course of preparing the Reports; and b. Determined controls and procedures or made sure that controls and procedures are determined and applied under my supervision, which are intended to reasonably assure the credibility of the financial reporting and preparation of the financial statements according to the provisions of the law, including in accordance with acceptable accounting principles; c. I was not informed of any event or issue that occurred during the period between the date of the periodic report and this report that refers to the interim financial statements and any other financial information contained in the interim financial statements, that in my opinion can change the conclusions of the Board of Directors and Management in regard to the effectiveness of the internal control over financial reporting and disclosure of the Corporation.

181 The mentioned above will not undermine from my liability or the liability of any other person according to the law. November 23, 2014 Signature Ronit ZalmanMalach, CFO

182 Report Regarding the Controls and Procedures for Disclosure in the Financial Statements of Clal Insurance Company Ltd I Izzy Cohen, declare that: Clal Insurance Company Ltd Certification 1. I have reviewed the quarterly reports of Clal Insurance Company Ltd (hereinafter: the Company), for the quarter ended on September 30, 2014 (hereinafter: the Report). 2. Based on my knowledge, the Report does not include any incorrect presentation of a material fact and does not lack any presentation of a material fact necessary in order for the presentations included therein not to be misleading in regard to the period covered by the Report in light of the circumstances of these presentations not being included. 3. Based on my knowledge the quarterly financial statements and other financial information included in the Report appropriately reflect, in all material aspects, the financial position, results of operations, changes in shareholders' equity and cash flow of the Company for the dates and periods covered in the Report. 4. I and others in the Company declaring this certification, are responsible for determining and applying controls and procedures for disclosure and internal control over financial reporting in the Company; and a. Have determined such controls and procedures or made sure that such controls and procedures are determined and applied under our supervision, which are intended to assure that the material information referring to the Company, including consolidated companies, is brought to our attention by others in the Company and consolidated companies, particularly during the course of preparing the Report; b. Have determined controls and procedures or made sure that controls and procedures are determined and applied under our supervision, which are intended to reasonably assure the credibility of the financial reporting and that the financial statements are prepared according to the International Financial Reporting Standards (IFRS) and the directives of the Commissioner of the Capital Market; c. We have evaluated the effectiveness of the controls and procedures of disclosure applied by the Company and have presented our conclusions regarding the effectiveness of controls and procedures of disclosure for the end of the period covered in the Report based on our evaluation; and d. Have disclosed any change in the internal control of the Company over financial reporting that occurred in this quarter and that materially affected or is reasonably expected to materially affect the internal control over financial reporting in the Company. 5. Based on our most updated evaluation regarding the internal control over the financial reporting, I and others in the Company declaring this certification have informed the Company's auditor, Board of Directors and the Board's Balance Sheet Committee of the following: a. All significant deficiencies and material weaknesses in determining or activating the internal control over financial reporting and disclosure, which are reasonably expected to undermine the Company's ability to register, process, summarize and report the financial information; and

183 b. Any fraud, whether material or immaterial, involving the management or other employees that have a significant role in the Company's internal control over financial reporting. The mentioned above will not undermine from my liability or the liability of any other person according to the law. November 23, 2014 Signature Izzy Cohen, CEO

184 Clal Insurance Company Ltd Certification I Ronit ZalmanMalach, declare that: 1. I have reviewed the quarterly report of Clal Insurance Company Ltd (hereinafter: the Company), for the quarter ended on September 30, 2014 (hereinafter: the Report). 2. Based on my knowledge, the Report does not include any incorrect presentation of a material fact and does not lack any presentation of a material fact necessary in order for the presentations included therein not to be misleading in regard to the period covered by the Report in light of the circumstances of these presentations not being included. 3. Based on my knowledge the quarterly financial statements and other financial information included in the Report appropriately reflect, in all material aspects, the financial position, results of operations, changes in shareholders' equity and cash flow of the Company for the dates and periods covered in the Report. 4. I and others in the Company declaring this certification, are responsible for determining and applying controls and procedures for disclosure and internal control over financial reporting in the Company; and a. Have determined such controls and procedures or made sure that such controls and procedures are determined and applied under our supervision, which are intended to assure that the material information referring to the Company, including consolidated companies, is brought to our attention by others in the Company and consolidated companies, particularly during the course of preparing the Report; b. Have determined controls and procedures or made sure that controls and procedures are determined and applied under our supervision, which are intended to reasonably assure the credibility of the financial reporting and that the financial statements are prepared according to the International Financial Reporting Standards (IFRS) and the directives of the Commissioner of the Capital Market; c. We have evaluated the effectiveness of the controls and procedures for disclosure applied by the Company and have presented our conclusions regarding the effectiveness of controls and procedures of disclosure for the end of the period covered in the Report based on our evaluation; and d. Have disclosed any change in the internal control of the Company over financial reporting that occurred in this quarter and that materially affected or is reasonably expected to materially affect the internal control over financial reporting in the Company. 5. Based on our most updated evaluation regarding the internal control over the financial reporting, I and others in the Company declaring this certification have informed the Company's auditor, Board of Directors and the Board's Balance Sheet Committee of the following: a. All significant deficiencies and material weaknesses in determining or activating the internal control over financial reporting and disclosure, which are reasonably expected to undermine the Company's ability to register, process, summarize and report the financial information; and b. Any fraud, whether material or immaterial, involving the management or other employees that have a significant role in the Company's internal control over financial reporting.

185 The mentioned above will not undermine from my liability or the liability of any other person according to the law. November 23, 2014 Signature Ronit ZalmanMalach Executive VP CFO