The accompanying notes constitute an integral part of the Financial Statements.

Consolidated Statement of Financial Position Assets Note As at December 31 1022 1020 Intangible assets 4 797,997 785,585 Deferred tax assets 78 9,357 5,565 Deferred acquisition costs 5 8,535,538 949,585 Property, plant, and equipment 6 376,589 347,659 Investments in associated companies 7 833,837 863,843 Investment property for yieldcontingent contracts 8 387,458 787,537 Other investment property 8 867,557 859,675 Reinsurance assets 85,86 8,357,774 8,448,878 Current tax assets 65,569 56,789 Receivables and debt balances 9 756,778 878,868 Premiums collectible 85 584,598 574,884 Financial investments for yieldcontingent contracts 88 89,994,658 75,357,385 Other financial investments 87 Negotiable debt assets 87(A) 4,787,899 4,657,687 Nonnegotiable debt assets 87(B) 8,487,866 8,594,747 Shares 87(D) 455,745 358,455 Other 87(E) 733,784 455,387 Total other financial investments 84,454,589 83,453,756 Cash and cash equivalents for yieldcontingent contracts 83 8,776,576 656,858 Other cash and cash equivalents 13(A) 767,686 855,573 Total assets 48,478,667 45,586,644 Total assets for yieldcontingent contracts 88 78,756,573 78,347,388 The accompanying notes constitute an integral part of the Financial Statements. 3 1

Consolidated Statement of Financial Position Note As at December 31 1022 1020 Shareholders equity 84 Share capital 738,384 738,384 Capital reserves and premium on shares 856,858 856,858 Capital reserves 95,539 858,789 Capital surplus 695,555 656,687 Total equity attributed to Company shareholders 8,873,754 8,846,648 Noncontrolling interests 7,579 7,887 Total shareholders equity 8,875,733 8,848,758 Liabilities Liabilities in respect of nonyieldcontingent insurance contracts and investment contracts 85 85,533,765 84,385,884 Liabilities in respect of yieldcontingent insurance contracts and investment contracts 86 78,456,647 78,555,755 Liabilities in respect of deferred taxes 78 885,783 755,388 Liabilities in respect of employee benefits, net 77 884,657 856,685 Liabilities in respect of current taxes 3,768 8,584 Payables and credit balances 73 8,577,978 857,533 Financial liabilities 74 8,836,398 8,576,334 Total liabilities 39,653,434 38,867,886 Total shareholders equity and liabilities 48,478,667 45,586,644 The accompanying notes constitute an integral part of the Financial Statements. Omer Ziv Eyal Lapidot Dr. Moshe Bareket CFO CEO Chairman of the Board Financial Statements approved on March 27, 2012. 3 2

Consolidated Statements of Income Note For the year ended December 31 1022 1020 1007 Premiums earned, gross 75 6,785,687 6,567,647 5,478,674 Premiums earning by reinsurers 75 638,785 636,339 654,758 Premiums earned on retention 75 6,853,877 5,438,353 4,766,986 Investment gains (losses), net, and financing income 76 ) 558,943( 3,878,888 4,959,847 Management fees 77 745,456 777,877 855,555 Commissions 78 775,954 758,799 788,888 Other revenue 79 75,738 88,457 85,757 Total revenue 6,836,575 8,995,547 85,858,633 Payments and changes in liabilities in respect of insurance contracts and investment contracts, gross 4,579,778 7,476,758 8,778,747 Share of reinsurers in payments and changes in liabilities in respect of insurance contracts 343,854 457,478 437,468 Payments and changes in liabilities in respect of insurance contracts and investment contracts on retention 35 4,886,887 7,573,773 8,795,779 Commissions, marketing expenses, and other acquisition costs 38 948,878 898,987 858,383 General and administrative expenses 37 687,575 589,765 587,597 Other expenses 34 88,587 89,477 37,547 Financing expenses 35 878,774 93,537 95,853 Total expenses 5,876,654 8,674,959 9,794,854 Share in earnings (losses) of investees treated under the equity method ) 34,937( 7,678 84,795 Income before taxes on income 774,934 377,859 378,769 Taxes on income (Tax benefit) 78 854,383 889,894 89,595 Income for the year 875,558 758,685 739,679 Attributed to: Shareholders 888,383 757,535 738,558 Noncontrolling interests 7,738 8,585 8,878 Income for the year 875,558 758,685 739,679 Earnings per share attributed to shareholders (in NIS): 36 Earnings for the year per ordinary share of NIS 1 par value each (in NIS) 5.84 8.87 8.73 Earnings for the year per ordinary share of NIS 5 par value each (in NIS) 4.75 9.85 8.63 The accompanying notes constitute an integral part of the Financial Statements. 3 3

Consolidated Statements of Comprehensive Income For the year ended December 31 1022 1020 1007 Income for the year 875,558 758,685 739,679 Other comprehensive income (loss): Net change in the fair value of financial assets available for sale attributed to capital reserves ) 837,675( 875,437 738,576 Net losses from disposal of financial assets available for sale ) 36,584( ) 39,365( )68,653( Gain from impairment to financial assets available for sale transferred to statement of income 49,785 7,585 75,767 Adjustments from the translation of financial statements of foreign operations 4,654 ) 5,698( 4,488 Taxes on income related to other comprehensive income items 44,888 ) 47,765( )69,763( Other comprehensive income (loss) for the year, net ) 75,844( 85,899 877,895 Comprehensive income for the year 55,457 343,884 367,569 Attributed to: Company shareholders 48,869 347,734 368,398 Noncontrolling interests 7,738 8,585 8,878 Comprehensive income (loss) for the year 80470: 6764;47 695489< The accompanying notes constitute an integral part of the Financial Statements. 3 4

Consolidated Statements of Changes in Equity Attributed to Company shareholders Share capital Capital reserves and premium on shares Retained earnings Capital reserve in respect of a transaction with controlling shareholders Reserve from translation differences Capital reserve in respect of financial assets available for sale Total Noncontrolling interests Total equity For the year ended December 31, 2011 Balance as at January 1, 2011 112,122 604,632 Comprehensive income (loss) 434,465 226,121 22,025 ) 13,272( 2,402 214,114 ) 52,526( 2,624,422 26,247 1,225 1,116 2,626,536 30,205 Dividend paid Sharebased payment (see Note 33) Dividend paid to noncontrolling interests ) 60,000( 6,172 ) 60,000( 6,172 ) 1,114( )60,000( 6,172 )1,114( Balance as at December 31, 2011 112,122 604,632 473,000 27,222 ) 10,670( 42,266 2,611,102 1,017 2,613,111 For the year ended December 31, 2010 Balance as at January 1, 2010 112,122 604,632 Comprehensive income (loss) Equity benefit from transaction with controlling owner (see Note 47(a)) Sharebased payment (see Note 33) Dividend paid to noncontrolling interests Balance as at December 31, 2010 112,122 604,632 177,431 135,013 434,465 13,111 1,271 21,112 22,025 ) 27,574( ) 3,476( ) 13,272( 23,117 70,675 214,114 2,266,461 121,112 1,271 21,112 2,624,422 2,512 2,360 ) 2,265( 1,225 2,270,205 121,622 1,271 21,112 )2,265( 2,626,536 For the year ended December 31, 2009 Balance as at January 1, 2009 127,346 426,375 242,232 26,011 ) 12,122( ) 51,211( 727,771 2,264 712,256 Comprehensive income 116,302 2,226 226,251 142,172 2,256 141,347 Issue of share capital Sharebased payment (see Note 33) Dividend paid to noncontrolling interests 22,524 266,132 5,100 100,000 5,100 ) 720( 100,000 5,100 )720( Balance as at December 31, 2009 112,122 604,632 177,431 13,111 ) 27,574( 23,117 2,266,461 2,512 2,270,205 The accompanying notes constitute an integral part of the Financial Statements. 3 5

Consolidated Statements of Cash Flows App. Cash flows from operating activities ) A( For the year ended December 31 1022 1020 1007 414,156 ) 224,731( 217,270 Cash flows from investing activities Investment in associates ) 12,104( Cash stemming from a subsidiary consolidated for the first time (see Note 7) (B) ) 3,242( Proceeds from disposal of investment in an associate 3,235 Acquisition of property, plant, and equipment ) 21,236( Acquisition and capitalization of costs of intangible assets ) 242,227( Dividend from associate 26,206 Proceeds from disposal of property, plant, and equipment 151 Net cash used in investing activities ) 261,204( Cash flows from financing activities Issue of share capital (less issuance costs) Financial liabilities received 230,304 Financial liabilities discharged ) 121,332( Dividend paid in the year ) 60,000( Payment of contingent liability in respect of put option to noncontrolling interests ) 25,120( Dividend to noncontrolling interests in subsidiary ) 1,114( Net cash stemming from financing activities 215,224 Increase (Decrease) in cash and cash equivalents 362,166 ) 3,022( 421 ) 5,727( ) 213,457( 5,235 2,107 ) 214,341( 200,000 ) 112,564( ) 2,300( ) 2,265( 251,315 ) 60,766( )131( )12,367( )216,226( 1,543 3,350 )220,412( 100,000 300,000 )227,562( )1,204( )720( 324,651 313,517 Balance of cash and cash equivalents at the beginning of the year ) C( 2,241,212 2,321,221 2,005,451 Balance of cash and cash equivalents at the end of the year ) C( 1,021,521 2,241,212 2,321,221 The accompanying notes constitute an integral part of the Financial Statements. 3 6

Consolidated Statements of Cash Flows ) A( Appendix A Cash flows from operating activities Income (Loss) for the year 210,332 Adjustment required to present cash flows from ordinary activities: Items not involving cash flows; Share in (income) losses of associates, net 12,715 Net (gain) losses on financial investments for yieldcontingent insurance contracts and investment contracts ) 2,131,366( Net income (loss) from other financial investments: Negotiable debt assets 202,644 Nonnegotiable debt assets ) 117,106( Shares 41,741 Others 23,347 Capital gain realized on disposal of property, plant, and equipment ) 30( Capital gain from sale of investment in subsidiary ) 227( Change in the fair value of other investment property ) 6,136( Appreciation of financial liabilities 14,434 Tax expenses (benefits) on income 202,161 Salary expenses in respect of sharebased payments 6,172 Change in the fair value of investment property for yieldcontingent contracts ) 24,254( Amortization and depreciation 214,301 Changes in other balance sheet items Increase in liabilities in respect of nonyieldcontingent insurance contracts 431,062 Increase in liabilities in respect of yieldcontingent contracts 203,671 Decrease (Increase) in deferred acquisition costs ) 62,012( Decrease (Increase) in reinsurance assets 62,075 Liabilities in respect of employee benefits, net 5,725 Decrease (Increase) in receivables and debt balances ) 16,425( Decrease (Increase) in premiums collectible ) 7,562( Increase in payables and credit balances 252,201 Revaluation of loans associates 424 Financial investments and investment property for yieldcontingent insurance contracts and investment contracts Acquisitions of financial investments, net 2,524,125 Acquisition of real estate properties ) 67,123( Financial investments and other investment property: Acquisitions of financial investments, net ) 740,211( Acquisition of investment property ) 22,412( 521,771 Cash paid and received in the year for: Taxes paid ) 206,022( Taxes received 12,100 ) 64,522( Total cash flows from (used in) ordinary activities 414,156 For the year ended December 31 1022 1020 1007 136,423 ) 5,452( ) 1,223,061( ) 211,221( ) 111,324( ) 15,523( ) 50,121( ) 2,305( ) 7,421( 12,251 227,272 21,112 ) 26,714( 214,353 532,021 1,320,277 ) 33,575( ) 204,220( 1,201 15,017 ) 47,203( 216,761 2,213 ) 2,717,627( ) 22,066( ) 212,242( ) 3,321( ) 41,131( ) 56,220( 11,522 ) 32,477( ) 224,731( The accompanying notes constitute an integral part of the Financial Statements. 117,457 )22,170( )1,717,673( )122,223( )270,766( )16,221( )22,445( )524( )2,603( 22,151 67,070 5,100 )1,312( 77,623 624,207 2,721,623 13,361 )41,513( )2,012( 21,121 1,202 11,125 2,400 )164,314( )21,740( )2,114,444( )4,757( 12,752 )20,614( 216,131 75,324 217,270 3 7

Consolidated Statements of Cash Flows For the year ended December 31 (B) Acquisition of subsidiaries consolidated for the first time Assets and liabilities of the subsidiaries as at the acquisition date: 1022 1020 1007 Working capital (excluding cash and cash equivalents) 105 Property, plant, and equipment, net ) 54( Goodwill created upon acquisition ) 5,473( Financial liabilities 1,101 ) 3,242( 421 421 ) C( Cash and cash equivalents Balance of cash and cash equivalents at the beginning of the period: 633,351 Cash and cash equivalents 404,632 Cash and cash equivalents for yieldcontingent contracts 2,241,212 220,226 2,201,772 2,321,221 201,547 402,702 2,005,451 Balance of cash and cash equivalents at the end of the period: 545,464 Cash and cash equivalents 2,154,014 Cash and cash equivalents for yieldcontingent contracts 1,021,521 633,351 404,632 2,241,212 220,226 2,201,772 2,321,221 ) D( Details of amounts included in ordinary activities Interest received 267,717 Dividend received 15,244 243,010 22,162 202,013 4,116 The accompanying notes constitute an integral part of the Financial Statements. 3 8

Note 3 Operating Segments The Group operates in the following operating segments: 1. Life insurance and longterm savings The segment of life insurance and longterm savings includes life insurance, related coverage and pension and provident funds management. The segment includes longterm savings (through various types of insurance policies, pension funds, and provident funds) and insurance coverage for various risks such as death, disability, work disability, etc. According to the Commissioner s directives, the longterm savings segment is divided into life insurance, pension funds, and provident funds. 2. Health insurance segment The health insurance segment concentrates all the Group s health insurance business. The segment includes LTC (longterm care) insurance, medical expense insurance, operations, transplants, dental insurance, overseas travel, foreign workers, etc. 3. General insurance segment The general insurance segment in Israel includes the liability and property insurance businesses. According to the Commissioner of Insurance s directives, the general insurance segment in Israel is divided into mandatory auto insurance, auto property insurance, other property insurance, and other liability insurance: Mandatory auto insurance The mandatory auto insurance segment focuses on coverage, the acquisition of which by the owner of the vehicle or the driver is compulsory by law, and which provides coverage for bodily injuries (to the driver of the vehicle, the passengers in the vehicle or to pedestrians), as a result of the use of the motor vehicle. Auto property insurance The auto property insurance segment focuses on the property damage coverage for the insured vehicle and property damages caused by the insured vehicle to third parties. Other liability insurance Liability insurance is designed to cover the insured's liabilities in respect of damage caused to any third party. These segments include: third party liability, employers' liability, professional liability, and product liability. Other property insurance and others 4. Others segment These are the remaining property sectors, other than auto property insurance or liabilities, and include other insurance sectors (such as guarantees). Includes operating segments the scope of which do not satisfy the quantitative criterion for reporting (primarily operations of the consolidated insurance agencies). 3 9

Note 3 Operating Segments (cont d) A. Reportable Segment Life insurance and longterm savings Healthcare For the year ended December 31, 2011 Not attributed to General operating insurance Other segments Adjustments and offsets Total Premiums earned, gross 3,675,456 Premiums earning by reinsurers 64,787 Premiums earned on retention 3,655,689 Investment gains (losses), net, and financing income ) 743,757( 8,846,895 867,657 983,538 77,578 8,969,586 454,346 8,564,675 857,357 7,438 54,774 ) 8,769( 6,785,687 638,785 6,853,877 )558,943( Management fees 743,953 8,553 745,456 Commissions 87,587 78,946 55,539 894,538 ) 8()75,849( 775,954 Other revenue 445 89,834 756 ) 354( 75,738 Total revenue 3,873,457 Payments and changes in liabilities in respect of insurance contracts and investment contracts, gross 7,479,853 Share of reinsurers in payments and changes in liabilities in respect of insurance contracts 37,555 Payments and changes in liabilities in respect of insurance contracts and investment contracts on retention 7,448,548 Commissions, marketing expenses, and other acquisition costs 389,398 General and administrative expenses 748,665 8,545,555 755,585 56,554 649,588 894,758 75,584 8,773,556 8,345,583 749,595 8,595,488 489,888 855,475 787,799 858,867 54,485 43,754 ) 77,777( ) 67,739( ) 7,665( 6,836,575 4,579,778 343,854 4,886,887 948,878 687,575 Other expenses 8,795 9,777 88,587 Financing expenses 6,767 9,875 8,779 854,878 ) 758( 878,774 Total expenses 3,585,668 983,866 8,635,589 869,888 847,875 ) 66,867( 5,876,654 Share in earnings (losses) of investees treated under the equity method 88,877 Income (Loss) before taxes on income 53,866 Other comprehensive income before taxes on income ) 893( Comprehensive income (loss) before taxes on income 53,673 876,889 ) 8,779( 887,965 847,487 ) 78,885( 64,357 ) 46,564( 8,987 8,987 ) 93,395( ) 77,788( ) 878,883( ) 6,565( ) 6,565( )34,937( 774,934 )884,375( 885,659 (1) Stems from revenues from commissions received by agencies owned by the Group, primarily from operations in life insurance and longterm savings. 3 10

Note 3 Operating Segments (cont d) A. Reportable Segment (cont'd) Life insurance and longterm savings Healthcare For the year ended December 31, 2010 Not attributed to General operating insurance Other segments Adjustments and offsets Total Premiums earned, gross 3,565,574 Premiums earning by reinsurers 63,555 Premiums earned on retention 3,557,589 Investment gains (losses), net, and financing income 7,755,333 8,575,756 865,497 985,764 67,899 8,938,887 487,797 8,589,575 777,386 8,553 86,946 ) 8,656( 6,567,647 636,339 5,438,353 3,878,888 Management fees 778,575 8,857 777,877 Commissions 83,363 74,578 58,885 865,886 ) 8()65,783( 758,799 Other revenue 855 86,773 8,679 88,457 Total revenue 5,986,845 Payments and changes in liabilities in respect of insurance contracts and investment contracts, gross 5,364,458 Share of reinsurers in payments and changes in liabilities in respect of insurance contracts 47,434 Payments and changes in liabilities in respect of insurance contracts and investment contracts on retention 5,387,587 Commissions, marketing expenses, and other acquisition costs 365,869 General and administrative expenses 736,837 996,548 783,886 858,874 637,567 888,754 78,835 8,799,598 8,378,684 753,975 8,574,694 453,835 855,565 885,389 835,739 88,575 47,975 ) 68,889( ) 53,798( ) 7,476( 8,995,547 7,476,758 457,478 7,573,773 898,987 589,765 Other expenses 8,765 Financing expenses (income) 6,445 ) 4,375( 88,857 8,737 5 95,855 ) 635( 89,477 93,537 Total expenses 5,978,573 897,658 8,579,789 847,678 833,835 ) 56,897( 8,674,959 Share in earnings (losses) of investees treated under the equity method 85,485 Income (Loss) before taxes on income 69,777 Other comprehensive income before taxes on income 38,476 Comprehensive income (loss) before taxes on income 857,753 853,945 88,478 885,368 789,877 44,858 763,985 ) 7,739( 34,957 34,957 ) 45,765( 38,447 ) 6,883( ) 4,977( ) 4,977( 7,678 377,859 837,459 585,768 (1) Stems from revenues from commissions received by agencies owned by the Group, primarily from operations in life insurance and longterm savings. 3 11

Note 3 Operating Segments (cont d) A. Reportable Segment (cont'd) Life insurance and longterm savings Healthcare For the year ended December 31, 2009 General insurance Other Not attributed to operating segments Adjustments and offsets Total Premiums earned, gross 7,646,697 8,575,364 8,754,563 5,478,674 Premiums earning by reinsurers 68,475 Premiums earned on retention 7,578,777 Investment gains (losses), net, and financing income 4,578,857 899,579 875,785 98,699 386,754 8,367,859 775,757 565 63,633 ) 659( 654,758 4,766,986 4,959,847 Management fees 854,538 8,467 855,555 Commissions 89,764 45,775 56,936 846,654 ) 8()58,788( 788,888 Other revenue 857 86,747 8,577 ) 7,874( 85,757 Total revenue 7,379,888 Payments and changes in liabilities in respect of insurance contracts and investment contracts, gross 6,757,783 Share of reinsurers in payments and changes in liabilities in respect of insurance contracts 67,688 Payments and changes in liabilities in respect of insurance contracts and investment contracts on retention 6,644,657 Commissions, marketing expenses, and other acquisition costs 384,885 General and administrative expenses 896,558 957,759 748,648 863,663 577,978 857,855 59,895 8,655,497 8,779,393 788,894 8,568,899 369,836 93,785 864,873 875,799 64,665 47,748 ) 53,994( ) 48,493( ) 4,363( 85,858,633 8,778,747 437,468 8,795,779 858,383 587,597 Other expenses 4,978 38,973 98 37,547 Financing expenses 5,577 8,946 8,865 86,475 95,853 Total expenses 7,736,545 795,578 8,537,498 859,637 878,859 ) 57,856( 9,794,854 Share in earnings (losses) of investees treated under the equity method 3,798 Income (Loss) before taxes on income 97,834 Other comprehensive income before taxes on income 43,935 Comprehensive income (loss) before taxes on income 848,569 867,688 797 863,473 888,556 874,466 747,477 85,999 86,735 86,735 ) 64,849( 73,465 ) 45,689( ) 8,838( ) 8,838( 84,795 378,769 897,653 578,477 (1) Stems from revenues from commissions received by agencies owned by the Group, primarily from operations in life insurance and longterm savings. 3 12

Note 3 Operating Segments (cont d) B. Additional information on the life insurance and longterm savings segment For the year ended December 31, 2011 Life insurance Provident Pension Total Premiums earned, gross 3,675,456 3,675,456 Premiums earning by reinsurers 64,787 64,787 Premiums earned on retention 3,655,689 Investment gains (losses), net, and financing income ) 745,564( 868 8,858 3,655,689 )743,757( Management fees 859,778 88,778 77,954 743,953 Commissions 87,587 87,587 Total revenue 3,537,975 Payments and changes in liabilities in respect of insurance contracts and investment contracts, gross 7,479,853 88,387 74,855 3,873,457 7,479,853 Share of reinsurers in payments and changes in liabilities in respect of insurance contracts 37,555 Payments and changes in liabilities in respect of insurance contracts and investment contracts on retention 7,448,548 Commissions, marketing expenses, and other acquisition costs 343,478 4,499 48,478 37,555 7,448,548 389,398 General and administrative expenses 788,997 3,975 75,698 748,665 Other expenses 8,795 8,795 Financing expenses 6,767 6,767 Total expenses 3,555,575 8,474 67,869 3,585,668 Share in earnings of investees treated under the equity method 88,877 88,877 Income before taxes on income 44,577 Other comprehensive loss before taxes on income ) 893( Comprehensive income before taxes on income 43,879 7,958 7,958 6,936 6,936 53,866 )893( 53,673 3 13

Note 3 Operating Segments (cont d) B. Additional information on the life insurance and longterm savings segment (cont d) For the year ended December 31, 2010 Life insurance Provident Pension Total Premiums earned, gross 3,565,574 Premiums earning by reinsurers 63,555 3,565,574 63,555 Premiums earned on retention 3,557,589 3,557,589 Investment gains, net, and financing income 7,749,535 843 8,855 7,755,333 Management fees 854,559 85,643 56,388 778,575 Commissions 83,363 Other revenue 855 Total revenue 5,988,588 Payments and changes in liabilities in respect of insurance contracts and investment contracts, gross 5,364,458 85,786 57,473 83,363 855 5,986,845 5,364,458 Share of reinsurers in payments and changes in liabilities in respect of insurance contracts 47,434 Payments and changes in liabilities in respect of insurance contracts and investment contracts on retention 5,387,587 Commissions, marketing expenses, and other acquisition costs 373,837 4,543 38,794 47,434 5,387,587 365,869 General and administrative expenses 783,737 4,645 88,765 736,837 Other expenses 8,765 Financing expenses 6,478 3 78 8,765 6,445 Total expenses 5,868,767 9,886 55,575 5,978,573 Share in earnings of investees treated under the equity method 85,485 85,485 Income before taxes on income 65,779 Other comprehensive income before taxes on income 38,476 Comprehensive income before taxes on income 98,755 8,655 8,655 7,398 7,398 69,777 38,476 857,753 3 14

Note 3 Operating Segments (cont d) B. Additional information on the life insurance and longterm savings segment (cont'd) For the year ended December 31, 2009 Life insurance Pension Total Premiums earned, gross 7,646,697 7,646,697 Premiums earning by reinsurers 68,475 68,475 Premiums earned on retention 7,578,777 7,578,777 Investment gains, net, and financing income 4,577,538 8,876 4,578,857 Management fees 888,355 47,683 854,538 Commissions 89,764 89,764 Other revenue 857 857 Total revenue 7,786,579 43,859 7,379,888 Payments and changes in liabilities in respect of insurance contracts and investment contracts, gross 6,757,783 6,757,783 Share of reinsurers in payments and changes in liabilities in respect of insurance contracts 67,688 67,688 Payments and changes in liabilities in respect of insurance contracts and investment contracts on retention 6,644,657 6,644,657 Commissions, marketing expenses, and other acquisition costs 357,478 77,457 384,885 General and administrative expenses 885,975 85,583 896,558 Other expenses 4,978 4,978 Financing expenses 5,384 888 5,577 Total expenses 7,893,387 47,778 7,736,545 Share in earnings of investees treated under the equity method 3,798 3,798 Income before taxes on income 96,553 8,588 97,834 Other comprehensive income before taxes on income 43,935 43,935 Comprehensive income before taxes on income 839,988 8,588 848,569 3 15

Note 3 Operating Segments (cont d) C. Additional information on the general insurance segment For the year ended December 31, 2011 Mandatory auto Auto property Property insurance and others (*) Other liability (**) Total Premiums, gross 373,787 777,848 658,787 347,856 7,555,586 Premiums, reinsurance 83,488 377,737 97,998 478,786 Premiums, retention 365,356 Change in unearned premium balance, on retention 777 777,848 33,938 779,545 88,887 754,858 88,595 8,678,855 57,835 Premiums earned on retention 365,584 Investment gains, net, and financing income 88,876 693,985 9,737 767,658 4,986 743,588 56,573 8,564,675 857,357 Commissions 57,999 7,545 55,539 Other revenues 737 35 84 864 445 Total revenues 448,447 753,677 375,587 357,795 8,773,556 Payments and change in liabilities in respect of insurance contracts, gross 797,735 Share of reinsurers in payments and change in liabilities in respect of insurance contracts ) 84,753( Payments and change in liabilities in respect of insurance contracts and investment contracts on retention 356,433 587,945 587,945 346,798 736,838 859,965 893,877 76,967 866,855 8,345,583 749,595 8,595,488 Commissions, marketing expenses, and other acquisition costs 47,375 864,785 845,679 66,977 489,888 General and administrative expenses 75,576 38,774 79,555 88,885 855,475 Financing income 5,685 345 3,985 9,875 Total expenses 374,449 Income (Loss) before taxes on income 66,998 Other comprehensive loss before taxes on income ) 39,897( 785,999 ) 87,377( ) 7,987( 784,984 45,653 ) 3,655( 755,857 47,838 ) 77,338( 8,635,589 847,487 )78,885( Comprehensive income (loss) before taxes on income 77,858 ) 75,359( 37,553 89,857 64,357 Liabilities in respect of insurance contracts as at December 31, 2011 8,985,836 483,596 544,554 8,778,487 4,736,468 (*) Property insurance and others include, mainly, data from comprehensive homeowners insurance, comprehensive business insurance, and property loss, the operations in respect of which account for 68% of the total premiums in these sectors. (**) Other liabilities include, mainly, data from third party insurance, professional and employers liabilities, the operations in respect of which account for 87% of the premiums in these sectors. 3 16

Note 3 Operating Segments (cont d) C. Additional information on the general insurance segment (cont d) For the year ended December 31, 2010 Mandatory auto Auto property Property insurance and others(*) Other liability (**) Total Premiums, gross 388,755 668,556 563,854 379,894 8,949,859 Premiums, reinsurance 84,788 356,888 98,533 487,557 Premiums, retention 373,974 Change in unearned premium balance, on retention ) 763( 668,556 73,785 757,666 ) 8,674( 738,868 ) 3,568( 8,537,857 88,837 Premiums earned on retention 374,737 Investment gains, net, and financing income 859,957 Commissions 644,778 73,469 759,795 88,587 53,797 748,777 77,998 4,388 8,589,575 777,386 58,885 Total revenues 484,844 667,745 374,599 373,658 8,799,598 Payments and change in liabilities in respect of insurance contracts, gross 368,368 Share of reinsurers in payments and change in liabilities in respect of insurance contracts ) 6,386( Payments and change in liabilities in respect of insurance contracts and investment contracts on retention 374,684 489,765 ) 787( 489,987 784,558 889,656 94,957 755,973 75,847 885,576 8,378,684 753,975 8,574,694 Commissions, marketing expenses, and other acquisition costs 39,458 858,578 843,574 69,789 453,835 General and administrative expenses 75,788 Financing income ) 7,865( Total expenses 437,643 36,976 ) 468( 658,568 79,753 ) 787( 768,587 88,863 ) 8,537( 775,996 855,565 )4,375( 8,579,789 Income before taxes on income 58,558 Other comprehensive income before taxes on income 78,799 59,677 4,655 56,587 7,884 57,687 85,475 789,877 44,858 Comprehensive income before taxes on income 73,355 64,377 58,778 68,587 763,985 Liabilities in respect of insurance contracts as at December 31, 2010 8,977,737 485,967 559,757 8,683,678 4,586,677 (*) Property and others includes primarily data from comprehensive homeowners insurance sector, comprehensive business insurance sector, and property loss, the operations in respect of all of which accounted for 69% of the premiums in these sectors. (**) Other liability sectors includes primarily data from third party insurance, professional liability, and employer s liability sectors, the operations in respect of all of which account for 88% of the total premiums in these sectors. 3 17

Note 3 Operating Segments (cont d) C. Additional information on the general insurance segment (cont'd) For the year ended December 31, 2009 Mandatory auto Auto property Property insurance and others(*) Other liability (**) Total Premiums, gross 359,638 Premiums, reinsurance 84,376 594,973 ) 84( 543,587 796,339 337,947 97,337 8,835,633 453,538 Premiums, retention 345,755 Change in unearned premium balance, on retention 75,355 594,987 78,798 746,743 7,475 745,685 85,775 8,477,595 59,736 Premiums earned on retention 374,955 573,696 744,388 774,895 8,367,859 Investment gains, net, and financing income 888,578 Commissions 73,955 88,597 56,854 78,587 837 775,757 56,936 Total revenues 436,533 597,646 387,784 353,654 8,655,497 Payments and change in liabilities in respect of insurance contracts, gross 398,357 Share of reinsurers in payments and change in liabilities in respect of insurance contracts 74,499 Payments and change in liabilities in respect of insurance contracts and investment contracts on retention 366,853 387,795 4,547 383,743 798,575 878,877 887,753 759,776 3,376 755,955 8,779,393 788,894 8,568,899 Commissions, marketing expenses, and other acquisition costs 38,384 837,777 848,578 59,454 369,836 General and administrative expenses 87,383 Financing expenses 967 Total expenses 486,467 38,447 757 557,869 77,385 855 785,734 87,845 677 783,876 93,785 8,946 8,537,498 Income before taxes on income 75,578 Other comprehensive income before taxes on income 68,535 45,477 83,757 38,985 6,397 75,478 43,337 888,556 874,466 Comprehensive income before taxes on income 88,658 58,684 38,377 63,885 747,477 Liabilities in respect of insurance contracts as at December 31, 2009 8,897,386 399,887 495,755 8,597,687 4,389,395 (*) Property and others includes primarily data from comprehensive homeowners insurance sector, comprehensive business insurance sector, and property loss, the operations in respect of all of which accounted for 75% of the premiums in these sectors. (**) Other liability sectors includes primarily data from third party insurance, professional liability, and employer s liability sectors, the operations in respect of all of which account for 84% of the total premiums in these sectors. 3 18

Note 3 Operating Segments (cont d) D. Information on assets and liabilities of the segment For the year ended December 31, 2021 Life Not insurance attributed to and longterm General operating Adjustments savings Healthcare insurance Other segments and offsets Total Assets Intangible assets 595 735,387 567,585 797,997 Deferred acquisition costs 734,585 839,535 875,476 ) 83,935( 8,535,538 Investments in associates 858,543 37,594 833,837 Investment property for yieldcontingent contracts 387,458 387,458 Other investment property 867,557 867,557 Financial investments for yieldcontingent contracts 89,874,576 875,875 89,994,658 Other financial investments Negotiable debt assets 8,754,788 785,677 8,758,369 37,987 8,878,753 4,787,899 Nonnegotiable debt assets 6,489,858 883,474 8,547,697 3,467 753,477 8,487,866 Shares 889,783 85,857 887,995 757,975 455,745 Others 765,465 33,639 837,854 39,887 757,639 733,784 Other financial investments 8,558,547 8,577,797 3,556,985 75,566 8,785,694 84,454,589 Cash and cash equivalents for yieldcontingent contracts 8,776,576 8,776,576 Other cash and cash equivalents 793,775 37,777 848,777 35,857 753,765 767,686 Reinsurance assets 854,577 773,884 935,838 8,357,774 Premiums collectible 73,558 48,363 463,884 584,598 Other assets 65,784 7,438 94,545 79,685 387,577 ) 35,598( 657,793 Total assets 38,585,769 8,753,594 4,887,985 457,884 7,988,536 ) 44,576( 48,478,667 Total assets for yieldcontingent contracts 78,575,789 885,784 78,756,573 Liabilities: Liabilities in respect of nonyieldcontingent insurance contracts and investment contracts 9,838,755 8,858,547 4,736,468 85,533,765 Liabilities in respect of yieldcontingent insurance contracts and investment contracts 78,775,863 885,784 78,456,647 Financial liabilities 79,576 7,353 59,978 8,755,634 ) 88,543( 8,836,398 Other liabilities 479,499 54,475 487,347 66,635 396,899 ) 38,978( 8,377,874 Total liabilities 35,973,638 8,393,756 5,858,883 876,658 7,858,833 ) 43,584( 39,653,434 3 19

Note 3 Operating Segments (cont d) D. Information on assets and liabilities of the segment (cont d) Life insurance and longterm savings Healthcare For the year ended December 31, 2020 General insurance Not attributed to operating Other segments Adjustments and offsets Total Assets Intangible assets 646 775,577 484,367 785,585 Deferred acquisition costs 688,888 885,887 857,885 ) 7,875( 949,585 Investments in associates 88,788 88,475 863,843 Investment property for yieldcontingent contracts 787,537 787,537 Other investment property 859,675 859,675 Financial investments for yieldcontingent contracts 75,886,845 Other financial investments Negotiable debt assets 8,455,747 Nonnegotiable debt assets 6,577,456 Shares 78,658 Others 876,588 Other financial investments 7,733,387 Cash and cash equivalents for yieldcontingent contracts 656,858 Other cash and cash equivalents 385,993 875,545 895,536 796,854 85,387 86,598 8,583,855 55,475 8,886,489 8,858,989 85,977 64,737 3,848,837 78,735 38,487 8,685 5,648 38,745 34,765 8,548,938 859,383 838,565 736,878 8,576,637 383,685 75,357,385 4,657,687 8,594,747 358,455 455,387 83,453,756 656,858 855,573 Reinsurance assets 853,858 338,733 957,537 8,448,878 Premiums collectible 86,474 69,576 488,884 574,884 Other assets 56,989 7,463 84,885 78,798 398,483 ) 79,789( 587,554 Total assets 35,358,774 8,759,484 4,875,843 458,855 7,786,857 ) 37,594( 45,586,644 Total assets for yieldcontingent contracts 78,865,966 888,485 78,347,388 Liabilities: Liabilities in respect of nonyieldcontingent insurance contracts and investment contracts 8,658,353 Liabilities in respect of yieldcontingent insurance contracts and investment contracts 75,869,345 8,835,754 888,485 4,586,677 84,385,884 78,555,755 Financial liabilities 64,878 8,577,967 ) 88,468( 8,576,334 Other liabilities 388,998 58,553 387,854 45,498 398,995 ) 79,786( 8,865,683 Total liabilities 79,986,634 8,367,677 4,899,488 885,389 8,984,957 ) 48,877( 38,867,886 3 20

Note 14 Capital and Capital Requirements A. Composition of share capital December 31, 2011 December 31, 2010 Authorized Issued and paidin Authorized Issued and paidin Ordinary shares of NIS 1 par value each 885,555 837,798 885,555 837,798 Ordinary shares of NIS 5 par value each 75,555 8,377 75,555 8,377 755,555 848,883 755,555 848,883 B. Movements in share capital 1. No change in the Company s authorized share capital occurred during the year. 2. Issued and paidin share capital: No. of shares (in thousands) Balance as at January 1, 2010 834,456 Issue of share capital Balance as at December 31, 2010 834,456 Issue of share capital Balance as at December 31, 2011 834,456 Total par value in NIS thousands 848,883 848,883 848,883 C. Rights accompanying shares 1. Voting rights in the general meeting, right to dividends, rights upon liquidation of the Company, and right to appoint Company directors. 2. All shareholders have identical rights to dividends and bonus shares. In the matter of voting in shareholders meetings, all shareholders (who own NIS 1 par value shares or NIS 5 par value shares) have a single vote. 3 21

Note 14 Capital and Capital Requirements (cont'd) D. Capital reserve in respect of transaction with controlling shareholders Assets and liabilities involved in transactions performed between the Company and its controlling shareholder or between companies under the same control are recognized at fair value on the transaction date. The difference between the fair value and the consideration determined in the transaction is recorded in shareholders equity, less tax effects. The debit difference is essentially a dividend and therefore it reduces retained earnings. The credit difference is essentially owners investment and therefore is presented in a separate equity item, capital reserve in respect of a transaction with the controlling shareholders. E. Dividends distributed In April 2011, a dividend in the amount of NIS 80 million to Phoenix Holdings was approved and paid. F. Adjustments stemming from translation of financial statements Capital reserve from translation differences stems from changes in the exchange rates of foreign currency stemming from the translation of the financial statements of investees which constitute foreign operations, and changes in the exchange rates of foreign currency stemming from the translation of financial statements from the functional currency to the presentation currency. G. Noncontrolling interests Composition of noncontrolling interests in the statement of financial position: December 31 1022 1020 Share in net asset value (*) 7,579 2,117 (*) includes share in attributed excess cost balances. H. Capital management and capital requirements 1. The Management s policy is to maintain a strong capital base in order to preserve the Company s ability to continue its operations so that it can generate a return for its shareholders, and in order to support future business operations. The Company and other institutional entities consolidated in its financial statements are subject to the capital requirements determined by the Commissioner of Insurance. 2. Following is information on the Company s current and required capital pursuant to the Regulations of Supervision of Insurance Business Financial Services (Insurance)(Minimum Shareholders Equity Required of Insurers) 57581998 (Amendment) 57642004 (hereinafter, the Capital Regulations ) and the instructions of the Commissioner. 3 22

Note 14 Capital and Capital Requirements (cont'd) H. Capital management and capital requirements (cont'd) Minimum shareholders equity: Amount required according to the Regulations and instructions of the Commissioner )B( 7,448,457 Existing amount calculated according to the Capital Regulations: Basic Tier I capital 8,873,754 Complex Tier II capital 675,545 Subordinated Tier II capital 544,979 Total Tier II capital 8,785,469 As at December 31 1022 1020 8,988,995 8,846,648 397,378 785,597 8,857,475 Total existing capital according to the Capital Regulations 3,538,673 Excess (*) 597,778 (*) Distributions of dividend from excess capital in insurance companies are also subject to solvency requirements and the rules of the Investment Regulations, in addition to the general requirements in the Companies Law. In this matter, the amount of investments in investees that must be made available against capital excess pursuant to the Commissioner s instructions, and therefore constitutes nondistributable surplus. 335,494 7,954,888 977,878 798,577 (A) Amount required including capital requirements in respect of: Activities in general insurance/required Tier I capital 435,556 Activities in longterm care insurance 44,483 Extraordinary risks in life insurance 774,365 Deferred acquisition costs in life insurance and in insurance covering illnesses and hospitalization 755,757 Requirements in respect of incomeguaranteed plans 779 Unrecognized assets as defined in the Capital Regulations 66,649 Investment in consolidated insurance companies and managing companies 95,874 Investment assets and other assets 558,584 Catastrophe risks in general insurance 85,833 Operating risks 898,557 Total amount required under the amended Capital Regulations 7,448,457 Less difference required to be completed no later than December 31, 2011 (B) Required amount according to the Regulations and the Commissioner s instructions (B) 7,448,457 483,746 48,978 754,867 755,773 337 87,565 67,657 558,865 54,575 875,499 7,797,637 385,647 8,988,995 3 23

Note 14 Capital and Capital Requirements (cont d) H. Capital management and capital requirements (cont d) (B) In November 2009, an amendment to the Supervision of Financial Services (Minimum Shareholders Equity Required of Insurers) Regulations 57692009 (hereinafter, the Amendment ) was published. According to the Amendment, insurers are required to increase, no later than the publication date of the financial statements, shareholders equity in respect of the difference between the capital required under the Regulations, before and after the Amendment (hereinafter, the Difference ). The Difference is calculated for each reporting date. Shareholders equity should be increased on the following dates and at the following rates: By the publication date of the financial statements as at December 31, 2009 at least 30% of the Difference. By the publication date of the financial statements as at December 31, 2010 at least 60% of the Difference. By December 31, 2011, the entire Difference must be completed. 3. The Amendment also added, in addition to the existing capital requirements, capital requirements in the following categories: a) operating risks b) market and credit risks, as a proportion of the assets, according to the degree of risk typical of the various assets. c) Catastrophic risks in general insurance d) Capital requirements in respect of guarantees Furthermore, capital requirements in respect of the following categories were extended: a) Incomeguaranteed plans in life insurance, against all or a part of which there are no designated bonds. b) Capital requirements in respect of the insurer s holdings in provident fund and pension fund managing companies. The following relief was granted: Relief in the manner of calculating the required capital, due to IT development costs, subject to the Commissioner's approval. Deduction of provisions for tax created in respect of unrecognized assets held in violation of the investment regulations or in violation of the Commissioner s instructions. It was determined that the Commissioner may reduce the capital requirements, subject to conditions as he instructs, by up to 35% of the original difference, due to the acquisition of operations of a provident fund or a provident fund managing company, if the insurer s shareholders equity on the reporting date is at least the minimum shareholders equity required of it less 35% of the original difference resulting from the acquisition of operations of provident fund or a provident fund managing company. Under the Amendment, the definition of basic ownfunds was deleted, the definitions of Tier I and Tier Ii capital were amended, and a definition was added for Tier III capital. The definitions of Tier II and Tier II capital were subordinated to terms and rates which would be determined by the Commissioner. Consequently, pursuant to the regulatory agency s intention to adopt Solvency II, the European Union directive on ensuring solvency of insurers (hereinafter, the Directive )in the future, a circular was published in August 2011 on the composition of insurers recognized equity (hereinafter, the Circular ), which is applicable beginning from the financial statements for the period ended September 30, 2011. The Circular determines rules for the structure of insurers equity and a framework of principles for recognizing various capital components and their classification into the various capital tiers, as follows: 3 24

Note 14 Capital and Capital Requirements (cont d) H. Capital management and capital requirements (cont d) 1. Tier 1 capital includes basic Tier 1 capital (in the amount of equity attributed to the company s shareholders), perpetual capital notes or nonaccruing preferred shares, and complex Tier 1 capital. Complex Tier 1 capital includes financial assets available to absorb the insurer s losses by eliminating interest payments; These payments are deferred to after the settlement of all the insurer s other liabilities. The first repayment date of these instruments will be subsequent to the settlement of the latest insurancerelated liabilities or 49 years, the earlier of the two dates, but not before the elapse of 10 years from the issue date. 2. Tier 2 capital includes financial instruments available to absorb the insurer s losses by deferring interest and principal payments; These payments are deferred to after the settlement of all the insurer s other liabilities with the exception of Tier 1 capital. The first repayment date of the Tier 2 equity instruments is subsequent to the end of the period that represents the weighted average of periods to maturity of the insurancerelated liabilities and an additional two years, or 20 years, the earlier of the two dates but not before the elapse of 8 years from the issue date. 3. Tier III capital includes financial instruments available to absorb the insurer s losses by deferring payments of principal alone, repayment of which is deferred to after the settlement of all other debt, with the exception of the Tier I II debt (although it may be determined that it is not deferred to after any other Tier II or Tier II debt). The first repayment date of the Tier III instruments is not before the elapse of 5 years from the issue date. In this matter, insurancerelated liabilities include nonyieldcontingent liabilities, excluding the share of liabilities that are fully backed by designated bonds, less the share of reinsurers. The recognized shareholders equity of an insurer is the sum of the components and instruments included in the various tiers at the following rates: a. The total share of Tier I capital shall not be less than 60% of the insurer s shareholders equity. b. The total share of basic Tier I capital shall not be less than 70% of the Tier I capital. c. The total share of complex Tier I capital shall exceed 20% of the Tier I capital. d. The total share of Tier III capital shall not exceed 15% of the insurer s total shareholders equity. The Circular includes a provisional order concerning the composition of insurers shareholders equity in the period from September 30, 2011 until the Directive implementation date in Israel or any other date as notified by the Commissioner. Furthermore, the transition provisions determined that the total share of equity instruments included in subordinated Tier II capital shall not exceed 50% of the basic ownfunds, Subordinate shareholders equity is defined as the total of the following components: (1) Deferred liability certificates, either convertible into shares or not convertible into shares, issued for a period of at least five years, and whose maturity date is no earlier than two years after the reporting date, provided that they are not issued to the controlling shareholder. (2) Deferred liability certificates issued to controlling shareholders, linked, at most, to the CPI, noninterestbearing, whose maturity date is no earlier than two years after the reporting date. 3 25

Note 14 Capital and Capital Requirements (cont d) H. Capital management and capital requirements (cont d) In addition to the provision order, the Circular includes the following transition provisions: a. Subordinate Tier II capital issued no later than December 31, 2009 will be recognized until its final payment date at the terms of its recognition prior to the publication date of this Circular. b. Subordinate Tier II capital issued on or after January 1, 2010 shall not be recognized from the implementation date of the Directive in Israel, or from December 31, 2013, the earlier of the two dates. c. Complex Tier I, complex Tier II, and complex Tier III capital instruments, issued on or after January 1, 2010 and approved by the Commissioner, shall be recognized until their final payment date, at the terms of issue, pursuant to the restrictions that apply to the various tiers. d. Complex Tier I, complex Tier II, and complex Tier III capital instruments, issued from the application date of the Circular, on the terms stipulated therein, shall be recognized in full upon the implementation of the Directive in Israel, until their payment date. 4. In September 2010 and November 2011, Phoenix Capital Raising, a wholly owned subsidiary of the Company, issued NIS 400 million and NIS 361.5 million, respectively, which were recognized as Complex Tier II capital. For additional information, see Note 26. The Company s capital requirements as at December 31, 2010 were calculated pursuant to the instructions of the Third Draft and approval that was obtained from the Commissioner of Insurance dated August 22, 2010. Pursuant to a letter published by the Commissioner dated March 29, 2009, beginning from the financial statements for 2008 and until December 30, 2010, insurance companies and managing companies shall not distribute dividends without the Commissioner s prior approval. Pursuant to the letter, approval is not generally granted to distributions of dividends that exceed 25% of the distributable income. Following said letter, a clarification letter was published in March 2010, on the matter of the criteria for approving dividend distributions by insurers (hereinafter, the Clarification ). Pursuant to the Clarification, insurance companies may submit an application for the Commissioner s approval for a dividend distribution, from the publication date of the periodic financial statements for the year 2009, subject to compliance with shareholders equity requirements stated in the Clarification, and submission of annual income projections for the years 20102011, an updated debt service program approved by the Board of Directors of the holding company that owns the insurance company, an operational action plan to raise capital approved by the insurance company s Board of Directors, and a transcript of the meeting of the Board of Directors of insurance company in which the dividend distribution was approved. Nonetheless, the Clarification stipulated that a company whose total shareholders equity after distribution of the dividend exceeds 110% of the amount required in the Clarification, may distribute a dividend and is not required to obtain the Commissioner s approval to do so, provided that it gives notice to the Commissioner of the distribution and submits the required documents prior to the distribution. In December 2011, the Commissioner published a letter (hereinafter, the Second Clarification ) including the criteria noted in the Clarification, and an additional requirement to approve the debt service program by the insurance company s board of directors as well, and a requirement that, after the Commissioner s approval, the minimum ratio between existing shareholders equity after the dividend distribution and the required amount shall be 105%. Regarding distributions of dividend that do not require approval of the Commissioner in advance, the minimum ratio between shareholders equity after the dividend distribution and the amount required in the Second Clarification was amended to 115% (in lieu of 110%). In April 2011, Phoenix Insurance distributed a dividend to Phoenix Holdings in the amount of NIS 80 million. 3 26

Note 14 Capital and Capital Requirements (cont d) H. Capital management and capital requirements (cont d) 5. On July 10, 2007, the EU adopted the Solvency II Directive Proposal (hereinafter, the Directive Proposal ). The Directive Proposal constitutes a significant and comprehensive change in the regulatory control over assurance of insurers solvency and capital adequacy in EU countries. Pursuant to the circular published by the Commissioner of Insurance, it is his intention to apply the Directive Proposal to insurance companies in Israel on the date of implementation in EU member countries. The Directive Proposal is based on three pillars: quantitative requirements, qualitative requirements, and disclosure requirements. The Phoenix is studying the implications of the Circular, but at this stage cannot assess the resulting implications, as the quantitative requirements, the manner of implementation, and the precise implementation date have not yet been formulated as a final requirement. In June 2011, the results of a QIS5 study based on December 31, 2009 data were submitted to the Commissioner. 6. According to a letter published by the Commissioner on January 25, 2009, regarding relief for the capital required of insurance companies, an asset that is held in violation of investment regulations, the deviation of which is a passive investment, and was created after October 1, 2008, shall not be deemed a nonrecognized asset, as defined in the Capital Regulations, subject to approval of the Commissioner in advance. As at the end of the reporting period, the Company has passive deviations of NIS 23 million, which are not deemed a nonrecognized asset pursuant to said Commissioner s approval. 7. In June 2008, a circular was published on the manner of implementation of rules of measurement and presentation according to IFRS in calculating the required capital and recognized capital of insurance companies. The aim of the circular was to determine instructions concerning the application of the Capital Regulations to investments in investees (including insurance companies and managing companies controlled by insurance companies). According to the circular, capital requirements according to the Capital Regulations will continue to be based on separate (solo) financial statements. Recognized capital according to the Capital Regulations, insurance companies investments in controlled insurance companies or managing companies, and investments in other investees will be calculated on an equity basis fully concatenated. 8. In February 2012, Regulations of Supervision of Financial Services (Provident Funds)(Minimum Shareholders Equity Required of Managing Companies) 57722012 were published, as well as Income Tax Regulations (Rules for Approval and Management of Provident Funds)(Amendment No. 2) 57722012 (hereinafter, jointly, the New Provisions ). According to the New Provisions, the capital requirements imposed on managing companies are the greater of the initial amount of NIS 10 million in shareholders equity or the sum of the following three amounts: (1) 0.1% of the managed assets, up to a maximum amount of NIS 15 billion; (2) 0.05% of the managed assets above the maximum amount noted in (1); and (3) 25% of the annual expenses. The Commissioner of Capital Markets, Insurance, and Savings (hereinafter, the Commissioner ) may order a reduction or increase in the capital requirements, taking into consideration the risks typical of the operations of the managing company, among other things, provided that the effect of the increase in capital requirements is limited in time. By the authority vested in him, the Commissioner published a circular in February 2012 on relief in respect of the capital requirements granted to certain managing companies. Managing companies are required to make available additional capital in respect of controlled managing companies and in respect of the amount of assets held in violation of the provisions of required manners of investment of shareholders equity that are included in the new regulations. 3 27

Note 14 Capital and Capital Requirements (cont d) H. Capital management and capital requirements (cont d) Furthermore, the new regulations include a requirement to hold liquid assets in an amount equal to at least 50% of the minimum required shareholders equity. Managing companies may distribute dividends only if their shareholders equity is at least equal to the shareholders equity that it is required to maintain under the new regulations. The new regulations contain transition provisions to complete the difference between the capital required on the following dates and the capital required prior to the publication of the new regulations (hereinafter, the Difference ), no later than December 31, 2014: By the publication date of the financial statements as at March 31, 2012, at least 30% of the Difference. By the publication date of the financial statements as at December 31, 2012, at least 60% of the Difference. By the publication date of the financial statements as at December 31, 2013, at least 80% of the Difference. By December 31, 2014, the entire Difference is payable. According to a preliminary estimate as at the end of the reporting period, had the capital regulations concerning managing companies been implemented in entirety, without considering the milestones, the capital requirements of the managing company of Phoenix Pension and Provident would have decreased to NIS 58 million, mainly due to the cancellation of the capital requirement concerning deferred acquisition costs. 9. The Company undertook to complete the shareholders equity of Phoenix Pension and Provident Ltd (hereinafter, Phoenix Pension ) at any time, to the amount determined in Income Tax Regulations (Rules for Approving and Managing Provident Funds) 57241964. This undertaking is in effect as long as Phoenix Insurance directly or indirectly controls Phoenix Pension. 10. In October 2011, the Commissioner sent a letter to the directors of the insurance companies on monitoring and managing shareholders equity, in order to ensure that the manner in which shareholders equity is managed in insurance companies undergoes a constant process of review and monitoring, following the fluctuations in the financial markets. Attached to said Commissioner s letter was a file containing a report of the estimated capital position that the insurance company must satisfy and submit to the Commissioner on a monthly basis. 11. In July 2011, the Company received a letter from the Commissioner. Following the approval received by Phoenix Insurance in December 2009 regarding the internal rating model that it had developed (hereinafter, the Model ), according to which, in the matter of the provisions of section 5(a)(2) of the circular on availability of nonnegotiable credit by institutional entities, the rating determined according to the model will be recognized as a rating equivalent to ratings of the rating company, on the terms that were determined. The approval also determined that until completion of the additional validation tests and controls that are required to examine use of the model to determine the capital required due to credit risks, Phoenix Insurance may allocate capital in respect of nonnegotiable debt assets whose total amount does not exceed 3% of the assets held against nonyieldcontingent liabilities (including shareholders equity) and which were rated by the model and were not rated by an external rater, up until the periodic financial statements as at September 30, 2012, as follows: 1. Allocation of capital according to the Capital Regulations. 2. 50% reduction in the difference between the capital required according to paragraph 1 and the capital required due to the application of the model for rating purposes. The Company implemented said provisions and as a result, the capital requirements as at December 31, 2011decreased by NIS 27 million. 3 28

Note 14 Capital and Capital Requirements (cont d) H. Capital management and capital requirements (cont d) 12. From 2012 onwards, new reinsurance agreements will enter into effect, and will increase the capital requirements in respect of catastrophic risks by NIS 43 million. 13. In February 2012, the Commissioner of Insurance sent a draft to the directors of the insurance companies, containing clarifications in respect of differences that were found in the manner of implementation of several insurance companies and in respect of interpretations regarding the calculation of capital of insurance companies, as follows: 1. Capital required in respect of investment The Capital Regulations determine that the capital required in respect of assets is calculated according to the sum of the products of each asset held against the insurer s nonyieldcontingent liabilities, with the exception of assets in respect of which additional capital is required to be made available, according to the Capital Regulations, and assets held against capital surplus. In other words, capital requirements in respect of assets are not calculated in a circular manner, they are calculated on the capital required before incorporating capital requirements in respect of the assets. In order to reflect this reasoning, the reporting file was revised. Following the change in the manner of calculation, described above, the capital requirement in respect of investment assets decreased by NIS 89 million. 2. Capital required in respect of operating risks Capital requirements in respect of operating risks are derive, among other things, from the total administrative and general expenses in respect of yieldcontingent life insurance. According to the Clarification, total administrative and general expenses in respect of yieldcontingent life insurance include all three components of the administrative and general expenses: litigation expenses, acquisition expenses, and other expenses. 3. Deficit or shortage arising in profitsharing policies Pursuant to the Capital Regulations, there are no capital requirements in respect of assets held against yieldcontingent liabilities. The requirement is calculated according to the classification of the assets into the various classes of liabilities as reported on Form 106. According to the Clarification, if there is any surplus/shortage in the assets held against yieldcontingent liabilities, an addition/deduction to the capital requirements is calculated as 0.5% of the surplus/shortage amount. 4. Classification of derivative financial instruments According to the Clarification, the capital requirement in respect of derivative financial instruments is calculated only in respect of the amount of derivative financial instruments whose fair value is positive, without setting of the derivative financial instruments whose fair value is negative, with the exception of cases in which accounting rules permit a setoff. 5. Reporting on commitments to invest in investment funds According to the Clarification, the capital requirement is calculated as 7.5% of the irrevocable contractual commitments to invest in investment funds, under nonyieldcontingent liabilities. 6. External rating Capital requirements in respect of a debt asset or exposure to a reinsurer are calculated on the basis of an external rating conducted by a rating company certified by the Commissioner, or on the basis of an internal rating company approved by the Commissioner. According to the draft, beginning from the financial statements in respect of the second quarter of 2012 and onward, in the event that various external ratings were determined by several rating companies, the lowest rating will be taken into consideration. 7. Capital excess/deficit of the insurance agent due to activities between the reporting date and the publication date Any material active or passive capital activity that occurred after the reporting date (including the conversion of subordinate Tier II capital or complex capital into nonrecognized capital; issue of shares; or distribution of dividends) will affect the insurance company s capital surplus/deficit as at the publication date of the financial statements. 3 29

Note 14 Capital and Capital Requirements (cont d) H. Capital management and capital requirements (cont d) Paragraphs 1 to 5 were implemented in calculating the required amount of capital, as at the reporting date. Furthermore, discussions on the above clarifications are underway between the regulatory authority and the insurance companies. 14. In March 2012, the Finance Committee approved the Draft Regulations of Supervision of Financial Services (Provident Funds)(Investment Rules Applicable to Managing Companies and Insurers) 57722012 (hereinafter, the New Investment Regulations Draft. ). Also see Note 43. The regulations include, among other things, changes in respect of an insurer s control and holding of means of control (hereinafter, Regulation 33 ), according to which, insurers shall hold against their recognized capital surplus, their investment in other insurers, managing companies, corporate agent, or corporation whose sole business is investment management or making credit available to the insurer or other institutional entities under its control or under the control of the controlling owner of the insurer, and in another corporation. Nonetheless, investments in other insurers and managing companies can also be held against the minimum required shareholders equity that is required of the insurer or against other liabilities, provided that any nonrecognized surplus resulting from the investment in a managing company is held against the insurer s recognized capital surplus, beyond the minimum shareholder s equity required of it. However, an insurer whose controlled managing company did not assume any loans to finance the acquisition of an intangible asset from an entity other than the insurer or its controlling owner, may hold up to 50% of the nonrecognized surplus against the insurer s recognized capital surplus and against other liabilities. In this matter Nonrecognized surplus capital surplus generated to the insurer as a result of the managing company s holding of an intangible asset that was recorded in its books from January 1, 2012 onward. Intangible asset As defined in the Capital Requirements for Managing Companies. Draft No. 3 of the circular on investment rules pertaining to institutional entities, published by the Commissioner in March 2012, provides a transition provision according to which Regulation 33 applies in entirety from December 31, 2013 onward, and applies 50% until December 31, 2012. The companies and the regulatory agency are conducting discussions on the draft and the company is studying its implications as a whole. 3 30

Note 15 Liabilities in respect of nonyieldcontingent insurance contracts and investment contracts As at December 31 1022 1020 1022 1020 1022 1020 Gross Reinsurance Retention NIS thousands Life insurance and longterm savings Insurance contracts 9,855,439 8,668,533 853,494 855,955 9,546,945 8,567,583 Investment contracts 8,657 88,795 8,657 88,795 9,859,596 8,679,873 853,494 855,955 9,555,657 8,578,873 Less amounts deposited with the Company in defined benefits plan for Group employees 75,346 78,575 75,346 78,575 Total life insurance and longterm savings (see Note 18) 9,838,755 8,658,353 853,494 855,955 9,535,756 8,557,353 Insurance contracts included in the healthcare insurance sector (see Note 19) 8,858,547 8,835,754 767,455 375,858 895,597 884,396 Insurance contracts included in the general insurance sector (see Note 17) 4,736,468 4,586,677 935,838 957,537 3,856,335 3,679,595 Total liabilities in respect of nonyieldcontingent insurance contracts and investment contracts 85,533,765 84,385,884 8,796,587 8,378,845 83,737,878 83,558,339 3 31

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