1. General Review of the Sector A. General... 35

Transcription

1 Non-life Insurance

2 The Capital Market, Insurance and Saving Division Contents 1. General Review of the Sector... 5 A. General... 5 B. Concentration Profile of Operations and Outcomes A. Profitability B. Reserves C. Commissions D. Management and General Expenses E. Investment Assets in Non-life Insurance Business Results in Health Insurance A. General B. Division into Sub-Lines in Health Insurance Activities in the Health Sphere Reported under Non-life insurance and Life Insurance C. Sickness and Hospitalization Line Activities in the Health Sphere Reported under Non-life insurance Stability and Risk Evaluation A. Reinsurance B. Loss Ratio Box Box A Reform in the Compulsory Vehicle Insurance Line List of tables Table F-1 Number of Insurance Companies Operating in Non-Life Insurance Lines, Table F-2 Gross Premiums by Non-Life Insurance Lines, Table F-3 Gross Premiums in Non-Life Insurance by Insurance Groups, Table F-4 Results of Market Concentration Indices in Non-Life Insurance Lines, Table F-5 Market Share of Gross Premiums in Non-Life Insurance Lines by Insurance Groups Table F-6 Profit Rates from Gross Premiums in Various Insurance Lines, Table F-7 Profits from Non-Life Insurance Business by Insurance Companies... 23

3 Non-life Insurance Table F-8 Market Share by Profits in Non-Life Insurance Lines by Insurance Groups Table F-9 Use of Parameters in Setting Compulsory Vehicle Insurance Rates for Private Vehicles Table F-10 Minimum and Maximum Rates in Privately-Owned Private Vehicle Market, Table F-11 Ratio of Income from Investments to Non-Life Insurance Reserves Table F-12 Ratio of Insurance Agents Commissions to Gross Premiums Table F-13 General and Administrative Expenses in Non-Life Insurance Table F-14 Total Assets and Debit Balances in Non-Life Insurance Table F-15 Data on Collective Health Insurance by Main Sub-lines, Table F-16 Data on Private Health Insurance by Main Sub-lines, Table F-17 Gross Premiums by Main Health Insurance Sub-lines, Table F-18 Claims by Main Health Insurance Sub-lines, Table F-19 Gross Premiums in Insurance Companies by Main Private Health Insurance Sub-lines, Table F-20 Gross Premiums in Insurance Companies by Main Collective Health Insurance Sub-lines, Table F-21 Ratio of Retained Premiums (After Payment to Reinsurers) to Gross Premiums, Table F-22 Gross Loss Ratio by Lines and Companies, List of Charts Chart F-1 Ratio of Income from Investments to Investment Assets in Non-Life Insurance Chart F-2 Gross Premiums in Non-Life Insurance Business versus Profits from Non-Life Insurance Business Chart F-3 Profits by Main Non-Life Insurance Lines, Chart F-4 Market Share Comparison - Premiums versus Profits Chart F-5 Market Share Comparison Premiums versus Profits in Non-Life Insurance Business Chart F-6 Profit Rate from Premiums, by Insurance Companies, Chart F-7 Distribution of Gross Premiums by Health Insurance Sub-lines, Chart F-8 Loss Ratio in Collective Insurance by Main Health Insurance Sub-lines,

4 The Capital Market, Insurance and Saving Division Chart F-9 Loss Ratio in Private Insurance by Main Health Insurance Sub-lines, Chart F-10 Ratio of Direct Commissions in Collective Insurance to Gross Premiums by Main Health Insurance Sub-lines, Chart F-11 Ratio of Direct Commissions in Private Insurance to Gross Premiums by Main Health Insurance Sub-lines, Chart F-12 Total Gross Premiums by Main Health Insurance Sub-lines, Chart F-13 Private Insurance - Distribution of Gross Premiums in Medical Expenses Sub-Line by Insurance Companies, Chart F-14 Private Insurance - Distribution of Gross Premiums in Medical Expenses Sub-Line by Insurance Companies, Chart F-15 Private Insurance - Distribution of Gross Premiums in Critical Illnesses Sub-Line by Insurance Companies, Chart F-16 Private Insurance - Distribution of Gross Premiums in Critical Illnesses Sub-Line by Insurance Companies, Chart F-17 Private Insurance - Distribution of Gross Premiums in Long-term Care Sub-Line by Insurance Companies, Chart F-18 Private Insurance - Distribution of Gross Premiums in Long-term Care Sub-Line by Insurance Companies, Chart F-19 Collective Insurance - Distribution of Gross Premiums in Medical Expenses Sub-Line by Insurance Companies, Chart F-20 Collective Insurance - Distribution of Gross Premiums in Medical Expenses Sub-Line by Insurance Companies, Chart F-21 Business Results in Sickness and Hospitalization Line, Chart F-22 Distribution of Gross Premiums by Companies in Sickness and Hospitalization Line, Chart F-23 Distribution of Gross Premiums by Companies in Sickness and Hospitalization Line, Chart F-24 Ratio of Retained Premiums to Gross Premiums... 50

5 Non-life Insurance 1. General Review of the Sector A. General The non-life insurance lines include all the insurance lines with the exception of life insurance. For example, non-life insurance includes insurance for vehicles, apartments, the loss of property, liability insurances, and other insurances. Table F-1 Number of Insurance Companies Operating in Non-Life Insurance Lines, 2005 Personal accident 16 Vehicle compulsory 16 Vehicle property 16 Sickness and hospitalization 16 Comprehensive residential 16 Comprehensive business premises 10 Employers liability 15 Engineering insurance 7 Property loss 13 Professional liability 10 Third party 15 Credit insurance 4 This table details the number of companies active in each non-life insurance line i.e. insurance companies that reported premiums in As the table shows, most of the companies are active in the vehicle insurance, apartments, and personal accidents line, as well as in sickness and hospitalization. Only four companies are active in the credit insurance line, and seven companies are active in the engineering insurance line. The scope of premiums and profits in these lines are relatively low. Apart from the fields of insurance involved, the different non-life insurance lines also vary in terms of the lifespan of the policy and the rate of clearance of claims. For example,

6 The Capital Market, Insurance and Saving Division policies in property insurances and financial insurances are usually short term (generally one year), and claims are clarified within a relatively short period of time. Policies in liabilities insurances are also usually made for a period of one year, but the clearance rate is slower due to their legal complexity and the need for a longer period to clarify damage. The longer period of obsolescence enables the filing of claims long after the expiry of the policies. Lines in which insurance events may be clarified over an extended period of time (such as compulsory insurances) typically have a long period for the clearance of claims. The differences between the various insurance lines sometimes require individual consideration of the financial results of each line. Table F-2 Gross Premiums by Non-Life Insurance Lines, (in NIS millions, percent) Rate of change Distribution in premiums by lines Vehicle property 4,953 5,005 4,953 5,139 5, % 0.2% 29.2% Vehicle compulsory 4,048 4,221 4,222 4,140 4, % -0.6% 23.3% Sickness and hospitalization 1,252 1,472 1,630 1,839 1, % 6.3% 11.1% Comprehensive residential 1,091 1,294 1,332 1,375 1, % 0.2% 7.8% Property loss 1,131 1,558 1,421 1,080 1, % 4.4% 6.4% Professional liability % -9.7% 4.6% Third party % 2.6% 3.1% Comprehensive business premises % 7.2% 2.8% Property other % 19.4% 2.5% Employers liability % 1.8% 1.8% Other liabilities % 26.8% 1.8% Personal accident % 13.7% 1.5% Other % 3.7% 1.4% Natural disasters in agriculture % -25.7% 0.9% Engineering insurance % -27.6% 0.8% Foreign trade risks % 14.8% 0.8% Credit insurance % 20.5% 0.4% Travel abroad See note Total 15,595 17,233 17,489 17,586 17, % 0.4% 100.0% Note: Following a change in reporting, starting in 2005 the data of the travel abroad insurance line are reported together with the sickness and hospitalization insurance line.

7 Non-life Insurance Table F-2 details the gross premiums in the non-life insurance lines for the period 2001 through 2005; the rates of change in each line over the past two years; and the relative portion of the premiums in each line out of total premiums in the non-life insurance lines. An analysis of the results for the non-life insurance lines shows that, by comparison to last year, an increase of approximately NIS 70 million was recorded an increase of 0.4% in premiums. Total premiums in the non-life insurance lines in 2005 totaled some NIS 17.7 billion. It is notable that the vehicle insurance lines (compulsory and property) lines in which most of the companies are active (Table F-1) yield over half the total premiums 52.5%. Over the years, these lines have maintained stability in terms of their proportional share of the insurance lines. In the compulsory vehicle line, a decrease of 0.6% was recorded in 2005 in premiums in comparison to 2004, despite an increase of 3.4%1 in the total fleet of vehicles in Israel. This decrease is the result of the reform introduced in the industry in recent years, which has led to a lower compulsory insurance tariff of approximately 5% in the past year. In total, tariffs have fallen by approximately 40% in recent years (see details below). While no real change was recorded in the scope of the premiums in the property lines, including the vehicle-property and comprehensive apartments lines, an increase of 4.4% in the scope of premiums was recorded in the property loss line, after a decline of 24% in the previous year. In the comprehensive business line, an increase of 7.2% in premiums was seen over the preceding year. Significant development can also be seen in the credit insurance and foreign trade risk insurance lines. A substantial decline 25.7% was recorded in the natural damages insurance line, following an increase of some 46% the previous year, probably against the background of the decline in the number of insurance companies active in this line in In the engineering insurance line, a decline of 27.6% was recorded in the scope of premiums; this decline continues the downward trend in the line in recent years. 1. According to CBS figures.

8 The Capital Market, Insurance and Saving Division Table F-3 Gross Premiums in Non-Life Insurance by Insurance Groups, (in NIS millions, percent) Premiums Market share (by premiums) Rate of change in premiums Company Clal Group 3,598 3,503 3, % 20.1% 19.8% -2.6% -1.2% Harel Group 3,349 3,365 3, % 19.3% 18.4% 0.5% -4.7% Phoenix Group 2,331 2,146 2, % 12.3% 12.1% -8.0% -1.9% Menorah 1,360 1,561 1, % 9.0% 9.9% 14.8% 10.9% Migdal Group 1,748 1,740 1, % 10.0% 9.7% -0.4% -2.6% Ayalon 1,173 1,078 1, % 6.2% 6.3% -8.1% 2.1% Eliahu % 4.7% 4.7% -3.8% 0.3% ILD Group % 4.7% 4.4% 7.7% -5.9% IDI % 4.0% 3.8% 5.2% -4.0% Shirbit % 2.1% 2.7% 18.7% 31.5% Agricultural Insurance % 2.1% 2.6% 4.3% 25.7% AIG % 2.2% 2.3% 15.1% 3.0% Shomera % 1.4% 1.5% 33.3% 8.2% Natural Disasters Fund % 0.9% 0.9% 7.6% 6.4% Ezer % 0.5% 0.5% 13.2% -7.2% Foreign Trade Insurance % 0.3% 0.3% -11.9% -2.4% Inbal % 0.1% 0.1% 37.0% -6.9% Total excluding Avner and Karnit 17,295 17,394 17, % 100% 100% 0.6% 0.4% Avner (6) Karnit Total 17,489 17,586 17, % 100.0% 100.0% 0.6% 0.4% An analysis of the figures for gross premiums in non-life insurance by insurance groups (Table F-3) shows that in the field of non-life insurance, the five major insurance groups Clal, Harel, Phoenix, Menorah, and Migdal collected approximately 70% of total premiums. However, only Menorah managed to record an increase in the scope of gross premiums collected by comparison to 2004; in so doing, it also managed to secure a larger market share

9 Non-life Insurance than that of Migdal. It is also notable that no significant changes occurred in the division of total premiums between the different insurance groups (changes were less than one percent), and that the non-life insurance market includes two main groups, each holding over 18% of total premiums in the market, three medium-sized companies (9-13% of the market), and a small number of small companies. The table further shows that Agricultural Insurance and Shirbit recorded a substantial growth rate in premiums over the past year 25.7% and 31.5%, and over the past two years 31.1% and 56.1%, respectively. Shomera recorded an increase of 33.3% last year, but this year secured a smaller increase in premiums 8.2%. AIG recorded an increase of just 3% in 2005, while in the previous year its premiums rose by 15.1%; weighting the figures for the two years together produces a growth rate of 18.5%. Despite the significant development of these companies, there was no real change in their portion of total premiums in the sector, and they were unable to erode the share enjoyed by the leading companies in non-life insurance business. B. Concentration The lack of competition in the insurance lines sometimes leads to higher prices (premiums) and lower standards of service for consumers. The reason for this is that the companies do not have an incentive to improve their efficiency and to cut their profits to improve the benefits enjoyed by the consumer, and they can load higher costs and profit on the pure risk price of the insurance product. The concentration level in the sector provides an indication of the level of competition in the market. High concentration generally reflects insufficient competition in the sector. Table F- 4 details the results of the concentration indices for 2005 in key insurance lines. Three main indices are used for estimating concentration: 1. The Herfindahl-Hirschman Index (HHI), which is calculated by totaling the squares of the insurance companies market shares. The market share for each company is calculated as the ratio of gross insurance premiums collected by the company and total insurance premiums in the line. The index ranges from 0 to 1 (1 reflects a maximum level of concentration in the line, with only one active company). 2. The Concentration Ratio 3 (CR3) index combines the market shares of the three largest insurance companies or groups in the line. The higher the percentage obtained, the more concentrated the line.

10 The Capital Market, Insurance and Saving Division 3. The Concentration Ratio 5 (CR5) index combines the market shares of the five largest insurance companies or groups in the line. Table F-4 Results of Market Concentration Indices in Non-Life Insurance Lines, Herfindahl- Hirschman CR3 CR Natural disasters in agriculture % 100.0% 100.0% 100.0% Credit insurance % 100.0% 100.0% 100.0% Comprehensive business premises % 92.6% 97.3% 97.3% Foreign trade risks % 98.4% 100.0% 100.0% Sickness and hospitalization % 77.4% 97.1% 97.1% Property other % 73.9% 91.5% 91.5% Engineering insurance % 97.3% 99.0% 99.0% Professional liability % 73.1% 94.1% 94.1% Property loss % 70.7% 87.0% 87.0% Other % 70.2% 86.0% 86.0% Personal accident % 64.9% 84.7% 84.7% Other liabilities % 67.6% 85.2% 85.2% Employers liability % 58.5% 83.2% 83.2% Third party % 58.7% 82.7% 82.7% Comprehensive residential % 56.2% 79.6% 79.6% Vehicle property % 44.1% 51.5% 51.5% Vehicle compulsory % 35.1% 51.6% 51.6% Total % 49.7% 69.1% 69.1% According to the indices, no real change was recorded in the level of concentration in the non-life insurance market; the market share of the three major companies fell slightly by comparison to the previous year. The market share of the five major companies remained unchanged. 10

11 Non-life Insurance In most lines, a decline was seen in the level of concentration by comparison to for example, in the personal accidents and sickness and hospitalization lines. A particularly notable feature was the decline in the level of concentration in the compulsory vehicle line, for the fifth successive year, probably as the result of the reform in the line, which led to enhanced competition (see also the description of the reform in the compulsory vehicle line, below). The line with the highest level of competition is the compulsory vehicle line. By contrast, the agricultural damages line is the most concentrated, since most of the operations in this field are undertaken by the Fund for Natural Damages in Agriculture. Last year, additional insurance companies were also active in this field, including Agricultural Insurance and Migdal, but they have discontinued these activities this year. A high level of concentration can also be seen in the foreign trade risks insurance and credit insurance lines, in which a small number of companies are active. In the property insurance lines, such as property loss, vehicle-property, and comprehensive apartments, recent years have been marked by stability in the level of concentration, reflecting the stability in the scope of premiums in these lines. In the engineering insurance line, an increase in concentration has been recorded this year, mainly since Agricultural Insurance last year reported a share of 6% in this line, while this year it did not report any income. 11

12 The Capital Market, Insurance and Saving Division Table F-5 Market Share of Gross Premiums in Non-Life Insurance Lines by Insurance Groups (percent) Property loss Sickness and hospitalization Engineering insurance Comprensive residential (excluding mortgage banks) Residential insurance through mortgage banks Comprehensive business premises Vehicle compulsory Vehicle property Employers liability Clal Group 40.9% 21.2% 36.7% 19.2% 45.8% 3.6% 16.4% 15.8% 24.3% 18.7% Harel Group 24.0% 37.0% 8.6% 15.9% 23.5% 0.0% 10.8% 16.0% 15.3% 30.8% Phoenix Group 7.8% 19.2% 18.5% 16.2% 1.0% 18.8% 8.0% 12.4% 16.9% 11.2% Migdal Group 1.2% 9.3% 5.1% 10.1% 13.1% 58.5% 8.3% 6.5% 17.3% 10.7% Menorah 4.6% 10.5% 13.3% 13.9% 9.9% 12.6% 9.6% 10.3% 9.4% 10.4% Ayalon 6.9% 1.6% 10.0% 6.1% 0.0% 0.0% 8.1% 7.3% 7.0% 8.5% ILD Group 1.1% 0.1% 1.4% 3.6% 0.0% 2.1% 7.3% 5.5% 1.5% 1.1% Eliahu 3.2% 0.0% 0.2% 3.3% 0.1% 0.0% 8.9% 6.6% 2.0% 1.1% IDI 0.0% 0.2% 0.0% 5.7% 5.3% 0.6% 5.7% 6.7% 0.1% 0.1% AIG 0.6% 0.1% 0.7% 2.9% 1.2% 0.0% 2.5% 3.1% 0.8% 3.4% Agricultural Insurance 8.3% 0.1% 5.1% 0.0% 0.0% 0.1% 2.9% 2.8% 4.6% 3.1% Shirbit 0.0% 0.8% 0.6% 1.1% 0.0% 2.0% 3.9% 4.9% 0.0% 0.5% Shomera 0.0% 0.0% 0.0% 1.9% 0.0% 1.7% 2.7% 2.2% 0.8% 0.3% Natural Disasters Fund 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Ezer 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Foreign Trade Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Israel Pool for Motor Vehicle Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.0% 0.0% 0.0% 0.0% Inbal 1.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Other liability lines the basis of the companies non-consolidated reports 12

13 Non-life Insurance The data in Table F-5 show that the two main insurance groups, Clal and Harel, hold the largest market shares in most of the non-life insurance lines: In the property loss line, they hold a market share of some 65%; in the sub-line for the insurance of apartments through mortgage banks, which belongs to the comprehensive apartment insurance line, they hold a market share of about 69%; and in the sickness and hospitalization line, they hold a market share of approximately 58%. Conversely, their lack of dominance is particularly evident in the comprehensive business insurance line, in which the Migdal group holds a market share of around 59%. The table further shows that in most insurance lines a small number of insurance companies hold a significant market share, whereas in the compulsory vehicle line, premiums are relatively widely dispersed over all the insurance companies. This fact is also apparent in Table F-4 Results of Market Concentration Indices in Non-Life Insurance Lines. In the natural damages insurance line, the Natural Damages Fund held a market share in excess of 99% in 2005, while Shirbit held the remainder. By contrast, in 2004 the Natural Damages Fund held a market share of some 69.9%; Migdal held a market share of approximately 30%; and a small share was held by Agricultural Insurance. This development explains the fall in premiums in this line. 13

14 The Capital Market, Insurance and Saving Division 2. Profile of Operations and Outcomes A. Profitability The profit of the insurance companies is influenced both by the premiums they collect in return for the risk they undertake and by the profit secured on their investment activities. The method of recording of income in the financial statements and the manner of calculation of reserves vary from one insurance line to another, and these factors also influence profit as reported in the financial statements. In the property lines, the entire insurance fee is recorded as income at the time the policy is issued, and the relative portion of the insurance fee received on account of the period after the date of the financial statement is credited to Reserves for existing risks. The insurance companies invest the funds of these reserves and secure profit on account of these investments; this profit is credited immediately to the profit and loss statement. In the liabilities lines, the manner of recording premiums is identical to that in the property lines. However, due to the long period required for the clarification of claims in the liabilities lines, the companies are required not to recognize profits immediately, and they postpone recognition thereof. All profits from the underwriting year that has ended are maintained in an additional reserve for a period of three to five years, pending the final clarification of claims in these lines. Profit held in this additional reserve comprises income recorded from premiums, less management and general expenses, commissions for agents, and paid claims. In addition, the incremental return secured on the investment of reserve funds is also recorded as profit. This profit is released and transferred to the profit and loss statement only at the end of the said period. Accordingly, in 2005, profit (or loss) accumulated in the property lines on account of 2005 was recorded, as well as profit (or loss) in the liabilities lines on account of the underwriting year 2002 and preceding years. 14

15 Non-life Insurance Chart F-1 Ratio of Income from Investments to Investment Assets in Non-Life Insurance Insurance company yield 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% % 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% Tel Aviv 100 index yield Insurance company yield Tel Aviv 100 index yield Chart F-1 presents the rate of returns on investments by insurance companies in non-life insurance lines between the years Since most of the investment assets in nonlife insurance are invested in the local capital market, the trend of change in income from investments is similar to the trend of change in the Tel Aviv 100 index. The Tel Aviv 100 index appears in this table for comparison purposes. 15

16 The Capital Market, Insurance and Saving Division Chart F-2 Gross Premiums in Non-Life Insurance Business versus Profits from Non-Life Insurance Business (in NIS millions) 2,500 20,000 2,000 18,000 Profit 1,500 1,000 16,000 14,000 Premiums , ,000 Premiums Profit Chart F-2 describes the development of gross premiums and of profit in non-life insurance business. The chart shows that in 2005, the change in premiums was extremely small; profitability reached the high level secured in At this level, the insurance companies managed to increase profit substantially despite the negligible increase in premiums. One explanation for this could be the increase in income from investments in this year, as presented in Chart F-1. Over the past decade, the trend has been one of substantial growth in profitability in the nonlife insurance sector, alongside a modest increase in gross premiums in this period. In 1995, the profit rate for the entire non-life insurance sector was 4% of premiums, while this figure rose to about 12.5% in 2003 and about 11.8% in

17 Non-life Insurance Chart F-3 Profits by Main Non-Life Insurance Lines, (in NIS millions) 1,600 1,400 1,200 1, Vehicle compulsory Comprehensive residential Property loss Vehicle property Sickness and hospitalization Various liabilities (excluding vehicle compulsory) Chart F-3 shows the profit (in NIS millions) in the main non-life insurance lines for the period The chart reflects the very high level of variance in the profit secured in insurance lines over the years. A comparison of the changes in profit with the changes in premiums in certain lines (Table F-2) shows that there is not always a direct correlation between the change in premiums and the change in profit. This chart shows that all the insurance lines were profitable in In this context, it is worth noting again that the profit presented in the property insurance lines is largely on account of the activities in that year, whereas in liability insurance lines, the profit presented is on account of the outcomes of underwriting over the preceding years. In the property loss line, a significant decline in profit was recorded, at the level of some 88%, in contrast to an increase of 4.4% in premiums. In the various liabilities lines, a decline of 53% was recorded in profit, while premiums rose by 26%. In sickness and hospitalization, an increase of around 270% was recorded in profit, while premiums rose by just 6.3%. The travel abroad line has a relatively high profit rate; to date, this line was isolated for 17

18 The Capital Market, Insurance and Saving Division reporting purposes, whereas it is now reported within the framework of the sickness and hospitalization line. This would appear to be the reason for the substantial increase in profit in the sickness and hospitalization line. In addition, due to the change in the calculation of reserves in the sickness and hospitalization line, a significant release of reserves to profit can be expected over the next three years (for details on this aspect, see the Health Insurance chapter below). Table F-6 Profit Rates from Gross Premiums in Various Insurance Lines, (percent) Travel abroad 5.4% 14.4% 13.9% See note Vehicle compulsory 15.0% 31.9% 28.7% 29.1% Credit insurance 19.8% 13.0% 19.5% 20.5% Sickness and hospitalization 3.8% 7.8% 4.9% 17.1% Foreign trade risks -0.1% 2.7% 14.6% 10.8% Other liabilities -3.7% 10.9% 7.4% 9.9% Engineering insurance 9.6% 11.4% 9.1% 9.5% Third party -5.0% 10.4% 3.5% 8.5% Comprehensive residential 4.9% 8.6% 7.8% 6.9% Professional liablity 1.7% 10.2% 3.8% 5.7% Vehicle property 5.1% 3.7% 4.9% 5.4% Property other 9.7% 9.3% 9.7% 4.8% Other 2.8% 10.0% 5.5% 2.6% Personal accident -4.9% 4.4% -9.6% 1.9% Property loss 3.7% 4.8% 3.3% 0.2% Natural disasters in agriculture -1.2% -3.1% 1.1% -0.6% Employers liability -27.5% 26.2% 13.7% -2.7% Comprehensive business premises -0.5% -3.3% 4.0% -3.2% Total 6.0% 12.6% 10.8% 11.8% Note: Following a change in reporting, starting in 2005 the data of the travel abroad insurance line are reported together with the sickness and hospitalization insurance line. 18

19 Non-life Insurance The data presented above (Chart F-2) showed that, over the past four years, a real increase has been seen in profit from insurance business, while premiums have risen more moderately. Table F-6 presents the ratio of profit to gross premiums for the non-life insurance lines for the period , enabling an analysis of profitability in each separate line. In 2005, profit was recorded in all the non-life insurance lines, with the exception of comprehensive business, employer s liability, and natural damage in agriculture. The rates of profit in the employer s liability line are unstable over the years; although losses were recorded last year and in 2002, high profits were recorded in Unlike some of the liabilities insurance lines, in most of the property insurance lines it is notable that stability has been maintained in the ratio of profit to gross premiums over the years. In this context, it is important to recall that the method of reporting of profit in the property lines is different to that in the liabilities lines. The companies do not recognize profit in the liabilities lines immediately, due to the requirement to hold the profit in reserve for a period of three to five years, in light of the protracted period required for the clarification of claims. The table further shows that the most profitable line is the compulsory vehicle insurance line. Substantial increases were seen in the ratio of profit to premiums in the sickness and hospitalization line (see the explanation in Chart F-3 and in the Health Insurance chapter below). 19

20 The Capital Market, Insurance and Saving Division 60.0% Chart F-4 Market Share Comparison - Premiums versus Profits 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Vehicle prperty Vehicle compulsory Premiums Profit 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0% -2.0% Credit insurance Foreign trade risks Engineering insurance Natural disasters in agriculture Other Personal accident Other liabilities Employers liability Property other Comprehensive business premises Third party Professional liability Property loss Comprehensive residential Sickness and hospitalization Premiums Profit 20

21 Non-life Insurance Chart F-4 presents the level of premiums in each insurance line as compared to total premiums for all the non-life insurance lines, as well as the profit rate for each insurance line compared to total profit for all non-life insurance lines, for As the chart shows, and as shown below in Table F-8 (which presents the market share of profit of the insurance groups in the non-life insurance lines), the most prominent sectors are sickness and hospitalization and the vehicle lines (compulsory and property). The share of the vehicle lines out of total premiums in the non-life insurance lines is approximately 53%, and their share of total profit is 71%. The highest level of profit is in the compulsory vehicle insurance line, at 57.6% of total profit in the non-life insurance lines; premiums in this line accounted for 23.3% of total premiums. The vehicle property line yielded profit accounting for 13.5% of total profit, while the share of total premiums accounted for by this line was 29.2%. In the sickness and hospitalization line, a profit share of 16.1% of all insurance profit was recorded, while the share of premiums was 11.1%. Again, it must be recalled that the profit presented in the property insurance lines is mainly on account of the year s operations, while the profit presented in the liabilities insurance lines is on account of underwriting activities in preceding years. Chart F-5 Market Share Comparison Premiums versus Profits in Non-Life Insurance Business 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Premiums Profit -5.0% Clal Group Harel Group Phoenix Group Menorah Migdal Group Ayalom Eliahu ILD Group IDI Shirbit Agricultural Insurance AIG Shomera Natural Disasters Ezer Foreign Trade Inbal 21

22 The Capital Market, Insurance and Saving Division 30.0% 25.0% Chart F-6 Profit Rate from Premiums, by Insurance Companies, % 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Eliahu IDI Menorah Harel Group Migdal Group Ayalon Total AIG Clal Group Shirbit ILD Group Inbal Foreign Trade Insurance Agricultutal Insurance Phoenix Group Shomera Natural Disasters Fund Ezer Chart F-5 presents the share of each group out of the total premiums collected and profit from non-life insurance business, and Chart F-6 presents the ratio of profit to premiums for each insurance company. In general, the greater the share of profit in the sector enjoyed by a company, by comparison to its share of premiums, the more this suggests that the company is more efficient than other companies. I other words, income yields higher profit. It is important to recall that some companies operate in more profitable insurance lines, and hence show higher profit rates than companies that operate in all lines, including those that are not profitable. As shown in Chart F-5, the market share of profit enjoyed by the Harel group, the Migdal group, Eliahu, Ayalon, IDI, and Menorah as a portion of total profit is greater than their market share of premiums. Eliahu is particularly notable: its market share in profits from insurance business is almost three times higher than its market share in premiums. Accordingly, although it ranks seventh in terms of the share of premiums, in terms of the market share of profit it is considered the third company, after Clal and Harel. As can be seen in Chart F-6, the profit ratio of the company is also exceptional, at 27.3%. Companies whose market share of profit is smaller than their market share of premiums include the Phoenix group, the Clal group, the ILDC group, AIG, Sharbit, Agricultural Insurance, Shomera, Foreign Trade, and Natural Damages and Ezer, which recorded a loss of 0.7%. The business results of the Phoenix group are notable: in 2005, the group secured a market share of 10.9% of premiums, as compared to just 2.8% of profit. 22

23 Non-life Insurance Table F-7 Profits from Non-Life Insurance Business by Insurance Companies (in NIS millions, percent) Profits from non-life insurance business Market share (by profit) Rate of change in profit Harel % 15.3% 17.4% 15.7% 13.0% 8.4% Dikla % 5.1% 6.5% 6.3% 37.3% 17.1% Sahar-Zion % 0.0% 0.0% 0.0% 0.0% 0.0% Shiloah % 0.0% 0.0% 0.0% 0.0% 0.0% Harel Group % 20.4% 23.9% 22.1% 19.1% 10.8% Clal % 19.1% 15.4% 16.7% -3.6% 30.1% Arieh % 4.0% 3.1% 0.6% -84.3% -77.9% Clal Credit Insurance % 0.4% 0.8% 0.6% 71.0% -3.0% Clal Group % 23.5% 19.4% 18.0% -16.1% 11.3% Eliahu % 14.3% 13.4% 13.7% 4.6% 22.8% Menorah % 7.9% 7.6% 13.1% 82.4% 106.8% Migdal % 4.8% 8.4% 7.8% 79.1% 11.6% Hamagen % 3.8% 3.8% 2.7% -22.7% -14.7% Migdal Group % 8.6% 12.1% 10.5% 33.9% 3.4% Ayalon % 6.2% 8.1% 6.7% 19.0% 0.4% IDI % 5.5% 8.0% 6.6% 30.4% -0.8% Phoenix % 4.1% -4.0% 2.2% -39.9% see note Hadar % 2.5% 2.6% 1.0% -55.9% -53.0% Phoenix Group % 6.6% -1.4% 3.3% -46.0% see note ILD (Hachsharat Hayishuv) % 2.5% 2.7% 1.2% -45.4% -45.7% BSSCH % 0.5% 1.2% 0.9% 87.5% -10.2% ILD Group % 3.0% 3.9% 2.1% -22.1% -34.9% AIG % 1.8% 2.0% 2.1% 32.1% 30.8% Shirbit % 1.0% 1.7% 1.6% 79.2% 14.9% Agricultural Insurance % 0.7% 1.1% 0.7% 25.7% -20.9% Shomera % 0.3% 0.2% 0.2% -28.2% 49.2% Foreign Trade Insurance % 0.1% 0.1% 0.1% 37.2% 91.8% Inbal % 0.0% 0.0% 0.0% 20.1% 14.5% Ezer % 0.1% 0.0% -0.7% % % Total (excluding Avner) 555 1,482 1,355 1, % 100.0% 100.0% 100.0% 9.8% 20.1% Avner % -16.4% Total 1,028 2,196 1,901 2, % 9.6% Source : Insurance company annual reports and data processed by the Capital Market, Insurance and Savings Division, on the basis of the companies non-consolidated reports Note: This value is meaningless since the company went from loss to profit 23

24 The Capital Market, Insurance and Saving Division Table F-7 presents the profit of the insurance companies and their market share of profit in the non-life insurance lines. After a fall in the profitability shown by the insurance companies in 2004, the profit of the companies (excluding Avner) rose in 2005 by 20.1%, and their profits totaled approximately NIS 1.6 billion. As may be seen, all the companies, with the exception of Ezer, recorded a positive profit this year. The recovery of the Phoenix group, securing profit of approximately NIS 53 million, is particularly notable last year, the Phoenix group reported exceptional losses of about NIS 18.6 million. The two groups with the highest profit in non-life insurance, Harel and Clal, continued to show an upward trend in profit; the profit of each of these groups rose by approximately 11% in 2005 by comparison to A remarkable increase of 106.8% in profit approximately NIS 109 million was recorded by Menorah, which became the fourth largest company both in terms of profit in non-life insurance business and in terms of premiums. 24

25 Non-life Insurance Table F-8 Market Share by Profits in Non-Life Insurance Lines by Insurance Groups Employers liability Vehicle property Vehicle compulsory Comprehensive business premises Mortgage banks Comprehensive residential Engineering insurance Sickness and hospitalization Property loss Clal Group 578% 10% 21% -4% 47% 43% 13% 11% 57% Harel Group 120.4% 43.2% 12.1% 8.3% 8.1% 0.0% 9.2% 11.8% -47.9% Phoenix Group -0.2% 12.1% 25.7% 12.3% 0.9% 11.4% -0.8% 0.2% 91.9% Migdal Group 31.8% 11.9% -5.8% 6.7% 16.0% 27.9% 8.1% 4.7% -29.5% Menorah 12.0% 17.6% 24.5% 34.6% 16.6% 33.1% 4.7% 15.5% -1.8% Ayalon % 3.8% 12.7% 1.8% 0.0% 0.0% 5.4% 10.0% 27.8% ILD Group -17.2% 0.1% 2.3% -1.4% 0.0% -5.1% 1.4% 2.0% 34.2% Eliahu 29.1% 0.0% 0.7% 6.2% -1.1% 0.0% 12.4% 17.0% -63.9% IDI 0.0% 0.5% 0.0% 18.2% 9.2% 2.0% 5.0% 10.3% -1.1% AIG 6.5% 0.2% 0.2% 11.7% 3.0% 0.0% 1.1% 7.2% -0.2% Agricultural Insurance % 0.0% 4.7% 0.1% 0.0% -0.7% 1.7% 4.8% 28.8% Shirbit 0.0% 0.5% 1.8% 4.6% 0.0% -13.3% 0.1% 5.4% 0.0% Shomera 0.0% 0.1% 0.0% 0.9% 0.0% 1.3% 0.3% 0.0% 4.3% Ezer 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Foreign Trade Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Inbal 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Israel Pool for Motor Vehicle Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -16.6% 0.0% 0.0% Total profits excluding Avner 4, ,874 28,099 74,380 21,247-23, , ,159-8,615 Avner , Total profits including Avner 4, ,874 28,099 74,380 21,247-23,526 1,198, ,159-8,615 Market share by lines 0.2% 16.1% 1.3% 3.6% 1.0% -1.1% 57.6% 13.5% -0.4% the basis of the companies non-consolidated reports 25

26 The Capital Market, Insurance and Saving Division Table F-8 presents the market share of profit in the non-life insurance lines for all the insurance groups and companies. The table shows that in compulsory vehicle insurance line, the largest non-life insurance line in terms of profit, accounts for some 58% of total market profit. In 2004, the Clal and Harel groups and Eliahu held 21.5%, 16.5%, and 20.4% of total profit from compulsory vehicle insurance. In 2005, however, they lost their dominance in this line, and the distribution of profit among the companies is more balanced this year. This development reflects the fact that the distribution of the compulsory vehicle line is the most uniform of the non-life insurance lines, and competition in this line has increased in recent years as shown in Table F-6 above. Profit from property vehicle insurances account for 13.5% of total profit in the non-life insurance market. Seventeen percent of this profit is held by Eliahu and 15.5% by Menorah, although the three companies holding the largest market shares in this line in terms of premiums are Clal, Harel, and Phoenix. Last year, the two leading companies in this field in terms of profit were IDI, with a market share of profit of 19.6%, and the Clal group, at 15.8% (Table F-8, annual report for 2004). In 2005, an apparent increase was seen in the profitability of the sickness and hospitalization line; profit in this line accounted for 16.1% of all profit in the non-life insurance lines. This represents a substantial increase over the previous year, when this line accounted for just 4.7% of total profit in the sector (Table F-8, annual report for 2004). This would seem to be due, among other factors, to the accounting changes introduced in 2005, in terms of the reporting of the long-term care sector within the framework of life insurance (rather than within the framework of sickness and hospitalization); the inclusion of the travel abroad line in sickness and hospitalization (rather than as a separate line); and the change in the calculation and release of reserves (see further details in the Health Insurance chapter). 26

27 Non-life Insurance Box A Reform in the Compulsory Vehicle Insurance Line This year, insurance rates in the compulsory vehicle line continued to fall. In October 2005, after the operator of the database published a new recommendation regarding tariffs, tariffs fell by an average of 5%. Since the beginning of the reform in this line, in December 1997, the average tariff has fallen by about 40%. In calculating the tariffs of the insurance companies, the profile of the vehicle and driver were taken into account. Accordingly, careful drivers pay less than dangerous insureds. The purpose of the use of these parameters is to adjust the insurance premium to the risk presented by the insured. The following are the parameters that may be applied: 1. Engine capacity; 2. Gender of the youngest driver regularly driving the vehicle; 3. Age of the youngest driver regularly driving the vehicle; 4. Seniority of the driving license held by the youngest driver regularly driving the vehicle; 5. Number of previous claims over the past three years of all those regularly driving the vehicle; 6. Number of disqualifications of the driving license over the past three years of all those regularly driving the vehicle; 7. Presence of air bags in the vehicle. Table F-9 Use of Parameters in Setting Compulsory Vehicle Insurance Rates for Private Vehicles As of December 31, 2005 Private vehicle 'צצגםCompany Engine capacity (cc) Gender of driver Age of driver Years holding driver s license Prior accidents by vehicle s drivers Prior offenses by vehicle s drivers Air bag in vehicle AIG Ayalon Eliahu Arieh Agricultural Insurance IDI ILD (Hachsharat Hayishuv) Hamagen Phoenix/Hadar Harel Clal Migdal Menorah Shomera Shirbit 27

28 The Capital Market, Insurance and Saving Division Table F-9 describes the parameters used by each company in determining the compulsory insurance tariffs for vehicles in December The figures show that all the insurance companies use at least one parameter for determining the tariff, and several companies use most of the parameters. Table F-10 Minimum and Maximum Rates in Privately-Owned Private Vehicle Market, 2005 As of December 31, 2005 Parameters Example 1 Example 2 Example 3 Example 4 Example 5 Example 6 Engine capacity Gender of driver Male Male Female Male Female Female Age Years driving Prior accidents Prior offenses Air bags Yes Yes No Yes Yes No Minimum rate on market (in NIS) 2,085 1,684 1,502 1,412 1,095 1,119 Maximum rate on market (in NIS) 2,520 2,250 1,772 1,910 1,465 1,512 Difference (in NIS) Average rate on market (in NIS) 2,356 2,033 1,681 1,554 1,317 1,323 B. Reserves Reserves allocated by the insurance company are invested in the capital market, subject to the restrictions established in the Investment Regulations. The profits secured by the insurance companies in the capital market form part of their income, and are derived both from the level of reserves allocated and from the performance of their investments. The ratio between income from investments and insurance reserves in non-life insurance reflects the return on the money held. 28

29 Non-life Insurance Table F-11 Ratio of Income from Investments to Non-Life Insurance Reserves (in NIS millions, percent) Percentage of income from investments in average reserve Income from Net Income from Net investments reserves investments reserves AIG % 5.4% Ayalon 91 1, , % 6.6% Eliahu 110 1, , % 19.8% Arieh 83 1, , % 6.6% Foreign Trade Insurance % 2.2% New BSSCH % 6.8% Agricultural Insurance % 7.4% IDI , % 5.7% Dikla % 4.0% Hadar 86 1, , % 6.9% ILD (Hachsharat Hayishuv) , % 6.6% Hamagen % 6.8% Phoenix 76 1, , % 5.8% Harel 202 2, , % 6.9% Clal 222 3, , % 7.0% Clal Credit % 12.1% Migdal 102 1, , % 6.4% Menorah 112 1, , % 8.8% Ezer % 6.1% Inbal % 5.2% Natural Disasters Fund % 6.7% Shomera % 5.5% Shirbit % 4.9% Total excluding Avner and 1,388 22,802 1,816 24, % 6.5% Karnit Avner 284 4, , % 6.8% Karnit 176 2, , % 7.4% Total including Avner and Karnit 1,848 29,690 2,283 31, % 7.5% The insurance companies have benefited from the bullish Israeli capital market, and have managed to secure a relatively high rate of income from their investments by comparison to previous years. For the second year in succession, Clal Credit presented two-digit growth in income from investment. Eliahu 29

30 The Capital Market, Insurance and Saving Division secured a rate of 19.8% in non-life insurance. Income from investment in the market as a whole totaled about NIS 2.2 billion, a figure that is some NIS 440 million higher than income from investment in the previous year. C. Commissions Table F-12 Ratio of Insurance Agents Commissions to Gross Premiums (in NIS millions, percent) Commissions paid Ratio of commissions Rate of change in to premiums commissions Clal % 13.9% 14.8% 1.0% 2.5% Arieh % 17.5% 15.5% -8.2% -5.3% Clal Credit Insurance % 0.2% 0.3% 91.8% 88.0% Clal Group % 14.4% 14.7% -1.4% 0.6% Harel % 14.3% 15.0% 3.6% 4.8% Dikla % 1.9% 2.9% -22.7% -21.7% Harel Group % 13.0% 14.2% 3.1% 4.4% Phoenix % 19.8% 16.5% -12.8% -17.0% Hadar % 16.6% 17.0% -13.5% -1.4% Phoenix Group % 18.3% 16.7% -13.1% -10.3% Menorah % 17.0% 17.3% 18.0% 13.3% Migdal % 13.9% 13.5% -7.7% -3.6% Hamagen % 15.1% 15.5% -8.2% -6.8% Migdal Group % 14.2% 13.9% -7.8% -4.4% Ayalon % 12.3% 12.7% 3.4% 5.7% ILD (Hachsharat Hayishuv) % 14.3% 13.4% -5.2% -14.1% BSSCH % 0.0% 0.0% #DIV/0! #DIV/0! ILD Group % 13.1% 12.0% -5.2% -14.1% Eliahu % 11.6% 11.8% 1.2% 1.3% Agricultural Insurance % 12.0% 10.9% 9.0% 14.0% Shomera % 15.7% 15.2% 21.4% 4.8% Shirbit % 9.9% 8.3% 52.2% 10.7% AIG % 4.4% 4.6% 40.0% 8.9% Foreign Trade Insurance % 0.0% 0.0% #DIV/0! #DIV/0! Natural Disasters Fund % 0.0% 0.0% IDI % 1.0% 1.2% -8.3% 14.7% Inbal % 0.0% 0.0% % 0.0% Total 2,328 2,323 2, % 13.2% 13.2% 0.4% 0.6% 30

31 Non-life Insurance Table F-12 details the scope of commissions paid to insurance agents and their ratio to gross premiums in the period , by insurance company. A general overview shows that no substantial changes were seen in the scope of commissions in the market as a whole in recent years, and this remains stable at around 13% of gross premiums. As expected, the direct insurance companies (IDI and AIG) paid the lowest commissions to insurance agents; as a proportion of gross premiums in 2005, these totaled 1.2 and 4.6%, respectively. A slight increase was recorded by the two main insurance groups in the scope of commissions paid to insurance agents. Of the insurance groups, Migdal has a relatively low rate of commissions, while Menorah has the highest rate, at 17.3%. The Phoenix group also reported a high rate of commissions, at 16.7%, Although this was lower than the rate for the preceding two years. The analysis of results further shows that the Clal group paid the highest amount of commissions of all the companies, at NIS 508 million, although the ratio of commissions paid by the commission relative to gross premiums was 14.7% lower than the rate paid by other insurance companies. D. Management and General Expenses Management and general expenses in an insurance company include all the insurers indirect expenses; salary payments for headquarters staff; the holding of the insured s assets; and marketing expenses that cannot be attributed to the commissions paid to agents. An examination of the relationship between these expenses and premiums may offer an indication of the level of efficiency of the company. 31