35 POLICY Special edition 2023 to say the least, but it is much better than what we expected. We will elaborately discuss the effects that brought to the outcomes of 2022 in the next articles. Therefore, Q4 2022 still doesn’t indicate a change in the trend and the profitability that was created in it is far from indicating a solution for the problems that arose in 2022 in the different fields of activity. There is no doubt that part of the outcome of Q4 2022 is explained by one-time effects (including in the investment profits) and therefore we shouldn’t rejoice with the outcomes of Q4 2022. Another factor that completely changed the balances of the insurance companies in 2022 is related to the interest raise in Israel (and in the world). The effect of the change of the trend in the riskfree interest brought to a reduction in the liabilities of most of the insurance companies (a positive effect)- which contrasts with the trend of an increase in the liabilities in 2021 (a negative effect). However, the interest also has negative effects, such as the fact that the raise of the interest rate is usually simultaneous to the increase in the index (which increases the liabilities), and there is also a negative influence on the capital market, and therefore there may be a risk that the value of the real estate assets that are held by the insurance companies will decrease. The Main Factors that influenced the Outcomes in 2022 are: Changes in the profits from investments- (including another comprehensive income)- in 2022 there was a profit 122.2 million NIS compared to a profit of 2.923 billion NIS in 2021- which is a change for the worse of 2.8 billion NIS. It should be noted that Q4 2022 was better than the previous ones, and it in fact was the only one that brought profitability with it (the profits from investments and the comprehensive income). Changes in the underwriting profitability of the comprehensive motor insurance- we witnessed in 2022 a decrease of 1.15 billion NIS (an increase in the underwriting loss from 459.4 million NIS to 1,611.3 million NIS). The underwriting loss in the field of the comprehensive motor insurance reached 16.3% of the turnover. Even though the insurance companies were in 2022 in the midst of improvement process, the heavy losses derive from underwriting errors of the previous years. The effect of the risk-free interest- if we refer to the changes in the profit while neutralizing the investment profits in the compulsory motor insurance and liabilities, we will see that a significant part of the improvement compared to 2021 (1.2 billion NIS in liabilities and 0.9 in compulsory motor insurance) belongs to a sharp rise of the curve of the risk-free interest (and to changes in the difference between the fair value of the untradable assets and between their book value). This reduced the liabilities (a positive effect) compared to an increase in the liabilities because of a reduction in the interest in 2021. It turns out from the aspect of the balance that there are advantages that derive from the interest raise. The effect of the increase in the index, which resulted in an increase in the insurance liabilities- the index rose this year by 5.3% compared to 2.8% last year. The index has a negative effect that derives from the increase in the insurance liabilities. Since that rise in the index is usually simultaneous to the interest raise, it seems that the positive change following the interest raise was much larger than the index’s negative effect. The effect of the reinsurance – you can notice this year the beginning of a (negative) trend with the reinsurers, which includes a change (reduction) in the participation rate in the proportional contracts (which is mainly prevalent in the fields of motor insurance with an emphasis on the compulsory motor insurance), and inter alia, a decrease in the commissions and a reduction in the scope of the backup. About 34% of the premiums were transferred in 2022 to the reinsurers (9.2 billion NIS out of 26.6 billion NIS). It derives from the statements of the insurance companies that the reinsurers significantly contribute in certain companies to a decrease in the losses (I will address that in the report about the fields of activity in the following articles). Additional Factors that affected the Profitability An update of the best procedure model The Outcomes in the Insurance Industry in 2021 according to the Fields of Activity (in millions of NIS) The Field Compulsory Motor Insurance Comprehensive Motor Insurance Property and Other Insurances Liability and Other Insurances Total Gross Premiums 5,365 8,472 5,578 4,159 23,575 Investment Profits 1,207 437 165 1,114 2,923 The Profit when the Investment is Neutralized -1,062 -459 550 -612 -1,584 Total Comprehensive Income 145 -23 716 502 1,340 The Market Share 23% 36% 24% 18% 100% Production Comprehensive Income Q1 7,999 -731 Q2 6,252 -363 Q3 6,427 -142 Q4 5,959 667 The Outcomes in the Insurance Industry in 2022 according to Quarters (in millions of NIS) Continued on the next page
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