Migdal Insurance reported its second quarter on 17 August.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
The Quarter
| NIS millions | The quarter |
|---|---|
| Pre-tax profit | 927 |
| Taxes on income | 352 |
| Net profit | 575 |
| Attributable to shareholders | 574 |
| Non-controlling interests | 1 |
| Basic earnings per share, NIS | 0.54 |
| Total assets | 256,341 |
| Shareholders' equity | 10,862 |
Why There Is No Revenue Line Here
This is a deliberate omission, not an oversight.
The revenue line in the quarterly report stands at NIS 968 million, and that figure cannot be the top line of an insurer of this size. The proof is in the arithmetic itself: revenue of 968 against pre-tax profit of 927 requires total expenses of only NIS 41 million - at a company with a NIS 256 billion balance sheet.
A figure that does not reconcile with itself is not published here. The remaining lines of the report - pre-tax profit, tax, net profit, equity and the balance sheet - are consistent with one another and appear above.
The Structure of an Insurer
The number that defines Migdal is not the profit but the balance sheet: NIS 256.3 billion against equity of NIS 10.86 billion - a ratio of 23.6 times.
That looks like extreme leverage, and it is not leverage in the ordinary sense. At most insurers the bulk of the balance sheet is assets held against insurance and pension liabilities - savers' and policyholders' money, not money the company borrowed in order to invest.
So the right comparison is not to an industrial company with debt, but to a body that manages other people's money and charges for it.
The Return
NIS 574 million to shareholders in the quarter, on equity of NIS 10,862 million - a return of about 21.1% annualised.
That is a high level. And at an asset manager it comes from two entirely different sources: the margin on the insurance and pension activity, and the return on the company's own investment portfolio. The quarterly report does not separate them, and that separation is precisely the difference between profit that recurs and profit that depends on the market.
The Tax
NIS 352 million on pre-tax profit of NIS 927 - an effective rate of 38.0%, against a corporate rate of 23%.
That gap, of some 15 percentage points, is large. At Israeli financial institutions it usually arises from profit tax - an additional levy applying to certain financial institutions beyond the ordinary corporate tax.
But the quarterly report does not set out the tax reconciliation, so I am not asserting that this is the cause here.
What can be said: had the rate been 23%, net profit would have been about NIS 714 million instead of 575 - a gap of some NIS 139 million in a single quarter.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
The figure I read at an insurer is not the profit but where it came from.
A return on equity of 21.1% is a fact, and it follows directly from the profit and the equity. But at an insurer, the difference between underwriting profit and investment portfolio profit is the difference between a business that prices risk correctly and a business enjoying a good market. Both produce the same bottom line, and only one of them repeats in a bad year on the exchange.
So that breakdown is what I would read first, and after it the tax rate - if 38% is a fixed structure, it takes about NIS 139 million a quarter, and that is worth knowing whether it recurs.
(An important note: this is my personal opinion only, and nothing here is a recommendation to take any action.)
