Translated from the Hebrew original
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2009
WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2009
Index
Page
Independent Auditors’ report to the shareholders 2
Consolidated Statements of Financial Position 3 - 4
Consolidated Statements of Income 5
Consolidated Statements of Comprehensive Income 6
Consolidated Statements of Changes in Equity 7-9
Consolidated Statements of Cash Flows 10-13
Notes to the Financial Statements as at December 31, 2009 14-265
Appendix 266
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WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
Kost Forer Gabbay & Kasierer 3 Aminadav St. Somekh Chaikin Tel-Aviv 67067, Israel Tel: 972 (3) 6232777 Fax: 972 (3) 5633526 Independent Auditors' Report www.ey.com/il to the Shareholders of Migdal Insurance and Financial Holdings Ltd.
We have audited the accompanying consolidated statements of financial position of MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD. (hereunder - the Company) as at December 31, 2009 and 2008, and the related consolidated income statements, statements of comprehensive income, statements of changes in equity, and statements of cash flows for each of the three years ended, the last of which ended, December 31, 2009.
These financial statements are the responsibility of the Company's Board of Directors and Management. Our responsibility is to express an opinion on these financial statements based on our audits.
We did not audit the financial statements of companies treated according to the equity value method the investment in which amounted to NIS 543,777 thousand and NIS 244,709 thousand as at December 31, 2009 and 2008, respectively, and the Group’s share in its profits amounted to NIS 87,388 thousand, NIS 58,630 thousand and NIS 51,323 thousand for each of the three years, the last of which ended December 31,2009. The financial statements of those companies were reviewed by other auditors whose reports thereon were furnished to us, and our opinion, insofar as it relates to amounts emanating from the financial statements of that companies, is based solely on the said reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards in Israel, including those prescribed by the Israeli Auditors’ Regulations (Auditor's Mode of Performance), 1973. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Board of Directors and Management of the Company, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provides a reasonable basis for our opinion.
In our opinion, based on our audit and on the reports of the abovementioned other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as at December 31, 2009 and 2008, and the results of operations, changes in equity and cash flows, for each of the three years ended, the last of which ended, December 31, 2009. in conformity with the International Financial Reporting Standards (IFRS) and in accordance with the disclosure requirements as prescribed by the Regulator of Insurance according to the Supervision of Financial Services (Insurance) Law, 1981.
Furthermore, in our opinion, the financial statements referred to above are prepared in accordance with the directives of the Israeli Securities Regulations (Preparation of Annual Financial Statements), 2010, insofar as these Regulations apply to insurance companies.
Without qualifying our aforementioned opinion, we draw attention to Note 38a’ to the financial statements regarding exposure to class actions and the approval of claims as class actions.
Tel-Aviv, Israel KOST FORER GABBAY & KASIERER SOMEKH CHAIKIN March 16, 2010 Member of Ernst & Young Global Member of KPMG International Joint auditors
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS AT
December 31, 2009 2008 Assets: Note NIS in thousands
Intangible assets 4 1,184,011 1,176,397
Deferred tax assets 21g 19,631 33,909
Deferred acquisition costs 5 1,394,173 1,407,891
Fixed assets 6 424,755 408,915
Investments in affiliates 7 547,809 250,340
Investment property for yield dependent contracts 8 2,810,446 2,633,548
Other investment property 8 361,702 356,139
Reinsurance assets 15 – 16 1,081,183 1,146,733
Current tax assets 49,894 140,367
Debtors and receivables 9 260,457 367,492
Outstanding premiums 10 382,926 402,511
Financial investments for yield dependent contracts 11 39,019,893 28,085,868
Other financial investments: 12 Quoted debt assets 12a 3,664,738 3,287,449 Unquoted debt assets 12b 18,375,828 17,285,942 Shares 12d 1,147,993 617,715 Others 12e 999,880 643,583
Total other financial investments 24,188,439 21,834,689
Cash and cash equivalents for yield dependent contracts 13 1,249,035 1,382,146
Other cash and cash equivalents 13a 1,100,954 509,841
Total assets 74,075,308 60,136,786 Total assets for yield dependent contracts in an insurance subsidiary 43,165,709 32,146,037
The accompanying notes are an integral part of the consolidated financial statements.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS AT
December 31, 2009 2008 Note NIS thousands
Capital and liabilities 14
Capital:
Share capital 110,559 110,550 Share premium 273,735 273,735 Capital reserves 302,660 (37,273) Retained earnings 3,366,199 2,639,798
Total capital attributed to the Company’s shareholders 4,053,153 2,986,810
Minority interest 453 4,113
Total capital 4,053,606 2,990,923
Liabilities:
Liabilities in respect of non-yield dependent insurance contracts and investment contracts 15 24,823,443 23,298,620
Liabilities in respect of yield dependent insurance contracts and investment contracts 16 42,780,380 31,067,815
Liabilities in respect of deferred taxes 21g 442,211 181,498
Liabilities in respect of employee benefits, net 22 229,178 212,888
Liabilities in respect of current taxes 6,879 5,159
Creditors and payables 23 1,230,155 1,145,812
Financial liabilities 24 509,456 1,234,071
Total Liabilities 70,021,702 57,145,863
Total capital and liabilities 74,075,308 60,136,786
The accompanying notes are an integral part of the consolidated financial statements.
16 March, 2010 Date of approval of Aharon Fogel Yonel Cohen Eran Cserninski the financial Chairman of the Board General Manager Chief Financial Officer statements
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31 2009 2008 2007 Note NIS thousands
Gross premiums earned 7,737,409 7,506,631 6,972,417 Premiums earned by reinsurers 640,765 579,441 609,352 Premiums earned on retention 25 7,096,644 6,927,190 6,363,065 Net investment income (loss) and finance income 26 12,093,303 (4,106,338) 5,085,603 Income from management fees 27 720,676 546,070 809,079 Income from commissions 28 300,175 277,158 251,293 Other income 652 677 8,665 Total income 20,211,450 3,644,757 12,517,705 Payments and change in liabilities in respect of gross insurance contracts and investment contracts 17,596,558 2,552,482 10,393,274 Reinsurers’ share in payments and in change in liabilities in respect of insurance contracts 379,300 304,518 504,419 Payments and change in liabilities in respect of Insurance contracts and investment contracts on retention 29 17,217,258 2,247,964 9,888,855 Commissions, marketing expenses and other acquisition expenses 30 1,195,016 1,049,362 965,746 Administrative and general expenses 31 826,081 701,185 676,029 Other expenses 33 41,109 59,273 54,019 Finance expenses 34 26,093 28,910 26,977 Total expenses 19,305,557 4,086,694 11,611,626 Share in profits of investees treated according to the equity value method 85,791 57,351 51,275 Income (loss) before taxes on income 991,684 (384,586) 957,354 Taxes on income 21 277,214 (135,786) 324,414 Income (loss) for the period 714,470 (248,800) 632,940
Attributed to: Company’s shareholders 714,834(248,055 ) 633,005 Minority’s interest (364)(745 ) (65) Income (loss) for the period 714,470(248,800 ) 632,940 Earnings per share: Basic and diluted earnings (loss) per share attributed to the Company’s shareholders (in NIS) 35 0.68(0.610.24 )
The accompanying notes are an integral part of the consolidated financial statements.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year ended December 31 2009 2008 2007 Note NIS thousands
Income (loss) for the period 714,470 (248,800) 632,940
Other comprehensive income (loss)
Net change in the fair value of financial assets classified as available for sale, recognized in capital reserves 930,207 (635,897) 26,838
Net income (losses) from the realization of financial assets classified as available for sale (441,101) 135,757 (78,107)
Impairment in value of financial assets classified as available for sale, transferred to the statement of profit and loss 37,113 311,691 44,503
Transition to significant influence in company that was accounted for as available for sale --(7,830)
Business combinations - 10,512 -
Tax benefit (taxes on income) relating to components of other comprehensive income 21g (186,286) 65,362 7,154
Other comprehensive income (loss) for the period, net of tax 339,933 (112,575) (7,442)
Total comprehensive income (loss) for the period 1,054,403 (361,375) 625,498
Attributed to: Company's shareholders 1,054,767 (361,571) 625,563 Minority interest (364) 196 (65)
Comprehensive income (loss) for the period 1,054,403 (361,375) 625,498
The accompanying notes are an integral part of the consolidated financial statements.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributed to the Company’s shareholders Capital reserves in Reserve from respect of investment available revaluation Share Share for sale due to rise Retained Minority Total capital premiums assets to control earnings Total Interest capital NIS thousands
Balance as at January 1, 2009 110,550 273,735 (44,262) 6,989 2,639,798 2,986,810 4,113 2,990,923
Total comprehensive income - - 339,933 - 714,834 1,054,767 (364) 1,054,403
Issuance of share capital 9 - - - - 9 - 9
Allocation of benefit in respect of option warrants to employees - - - - 11,567 11,567 - 11,567
Dividend paid ------(822) (822)
Sale of subsidiary ------(2,474) (2,474)
Balance as at December 31, 2009 110,559 273,735 295,671 6,989 3,366,199 4,053,153 453 4,053,606
The accompanying notes are an integral part of the consolidated financial statements.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributed to the Company’s shareholders Capital reserves in Reserve from respect of investment available revaluation Share Share for sale due to rise Retained Minority Total Capital premiums assets to control earnings Total Interest capital NIS thousands
Balance as at January 1, 2008 110,550 273,735 76,243 - 2,920,768 3,381,296 4,168 3,385,464
Total comprehensive income (loss) - - (120,505) 6,989 (248,055) (361,571) 196 (361,375)
Allocation of benefit in respect of option warrants to employees - - - - 17,085 17,085 - 17,085
Dividend paid - - - - (50,000) (50,000) (665) (50,665)
Capital issue to minority in subsidiary ------414 414
Balance as at December 31, 2008 110,550 273,735 (44,262 ) 6,989 2,639,798 2,986,810 4,113 2,990,923
The accompanying notes are an integral part of the consolidated financial statements.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributed to the Company’s shareholders Capital reserves in Reserve from respect of investment available revaluation Share Share for sale due to rise Retained Minority Capital premiums assets to control earnings Total Interest NIS thousands Balance as at January 1, 2007 110,527 273,735 156,898 2,811,070 3,352,230 2,402 3,354,632
Total comprehensive income (loss) - - (80,655) 706,218 625,563 (65 ) 625,498
Issuance of share capital 23 - - - 23 - 23 Allocation of benefit in respect of option warrants to employees - - - 33,480 33,480 - 33,480 Dividend paid - - - (630,000) (630,000) (603) (630,603) Company consolidated for the first time - - - - - 2,434 2,434 Balance as at December 31, 2007 110,550 273,735 76,243 2,920,768 3,381,296 4,168 3,385,464
The accompanying notes are an integral part of the consolidated financial statements.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31 2009 2008 2007 Schedule NIS thousands
Cash flows from current activities a 1,669,135 (964,865) 2,261,591
Cash flows from investment activities Investment in investees (277,717)(7,095 ) (94,019) Cash closed out due to acquisition of subsidiary consolidated for the first time d -)(1,448 2,814 Cash closed out due to transition to full consolidation of a proportionally consolidated company e -)(253,202 - Cash added due to realization of investment in a company that exited from consolidation f 3,047 - 248 Investment in fixed assets (66,911)(44,645 ) (56,990) Investment in intangible assets (129,294)(132,214 ) (204,109) Loans to an investee (127,333) - - Settlement of loans from an investee 13,300 - - Dividend received from an investee 180,072 - 53,200 Proceeds from sale of fixed assets 2,409 2,161 4,521
(402,427) ()436,443) (294,335
Cash flows from financing activities Realization of employee options into shares 9 -23 Issue of capital to minority in a subsidiary - 414 - Receipt of loans from banks and others 345 4,117 88,554 Settlement of loans from banks and others (137,561) ()101,782) (45,336 Change in short term credit from banking institutions and others, net (655,207) 596,849 17,371 Dividends paid (822) ()50,665) (630,603
Net cash provided by (used in) financing activities (793,236) 448,933(569,991 )
Effect of exchange rate fluctuation on the balances of cash and cash equivalents (15,470) 4,335(38,389 )
Change in cash and cash equivalents 458,002 (948,040) 1,358,876
Balance of cash and cash equivalents as at the beginning of the period b 1,891,987 2,840,027 1,481,151
Balance of cash and cash equivalents as at the end of the period c 2,349,989 1,891,987 2,840,027
The accompanying notes are an integral part of the consolidated financial statements. .
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Schedule A – Cash flows from current Year ended December 31 activities before taxes on income 2009 2008 2007 NIS thousands
Income (loss) for the period 714,470 (248,800 ) 632,940 Items not involving cash flows: Company’s share in net results of affiliates treated according to the equity value method (85,791 ) (57,351) (51,275) Net profits (losses) form financial investments for insurance contracts and yield dependent investment contracts (10,715,570 ) 4,600,580 (4,218,403 )
Net profits (losses) from other financial investments: Quoted debt assets 304,345 (255,626 ) (258,314) Unquoted debt assets 588,905 (2,372,403 ) (2,143,266) Shares 296,050 200,516 (168,569 ) Other investments 162,548 2,734 16,373 Finance expenses in respect of financial liabilities 43,983 27,547 28,650
Loss (profit) from realization: Fixed assets - 778 (1,436 ) Investees (608 ) - - Change in fair value of investment property for yield dependent contracts (23,054 ) 8,480 (81,852 ) Change in fair value of other investment property (4,951 ) (31,333) (8,573) Depreciation and amortization:
Fixed assets 55,063 49,831 48,435 Intangible assets 107,844 112,166 99,958 Change in liabilities for insurance contracts and yield dependent investment contracts 1,524,823 (2,883,905) 4,845,775 Change in liabilities for insurance contracts and non-yield dependent investment contracts 11,712,565 1,550,859 1,245,194 Change in share based payment transactions 11,567 17,085 33,480 Change in reinsurance assets 65,550 144,147 82,798 Change in deferred acquisition costs 13,718 (76,953)(55,335) Income tax expenses 277,214 (135,786) 324,414 Changes in other balance sheet items: Financial investments and investment property for insurance contracts and yield dependent investment contracts: Acquisition of investment property (155,638) (1,161,400)(451,971) Proceeds from sale of investment property 1,794 271,516 170,806 Net acquisitions of financial investments (1,454,018) 3,330,879 (104,534) Financial investments and other investment property: Acquisition of investment property (11,512)(65,953) (60,292) Proceeds from sale of investment property - 26,923 151 Net acquisitions of financial investments (4,268,482) 688,188 752,417 Outstanding premiums 19,585 (53,315) (25,403) Debtors and receivables 106,592 (15,411) (53,683) Creditors and payables 100,559 12532 55,704 Liabilities for employee benefits, net 16,344 (1,380) 13,922 Total adjustments required for presenting cash flows from current activities (1,310,575 ) (2,727,813) 35,171
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Schedule A – Cash flows from current Year ended December 31 activities before taxes on income 2009 2008 2007 NIS in thousands
Interest paid (19,392) (26,311) (21,692) Interest received 2,125,461 1,862,681 1,646,876 Net income tax paid (96,315)(111564) (339,269) Dividend received 255,486 286,942 307,565 Net cash (used in) from operating activities 1,669,135 (964,865) 2,261,591
Total cash flows from current activities before taxes on income 1,669,135 (964,865) 2,261,591
(1) The cash flows from current activities include net acquisitions and sales of financial investments, mainly deriving from the activity in respect of insurance and investment contracts.
The accompanying notes are an integral part of the consolidated financial statements.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 2009 2008 2007 NIS in thousands Schedule B – Cash and cash equivalents as at the beginning of the period Cash and cash equivalents for yield dependent contracts 1,382,146 1,898,856 473,972 Other cash and cash equivalents 509,841 941,171 1,007,179 1,891,987 2,840,027 1,481,151 Schedule C – Cash and cash equivalents as at the end of the period Cash and cash equivalents for yield dependent contracts 1,249,035 1,382,146 1,898,856 Other cash and cash equivalents 1,100,954 509,841 941,171 2,349,989 1,891,987 2,840,027 Schedule D – Cash added (closed out) due to acquisition of subsidiary consolidated for the first time Intangible assets - (5,312) (2,866) Deferred tax assets - (84) (92) Fixed assets - (194) (498) Investments in affiliates - 3,997 1,243 Debtors and receivables - (774) (1,990) Financial investments - - (2,631) Minority interest - (179) 2,434 Liabilities for employee benefits, net - 182 322 Creditors and payables - 836 436 Financial liabilities - 80 6,456 - (1,448) 2,814 Schedule E – Cash closed out due to transition to full consolidation of a proportionally consolidated subsidiary Intangible assets - (357,363) - Deferred tax assets - (15,115) - Fixed assets and investment property - (3,852) - Debtors and receivables - (45,201) - Financial investments - (86,872) - Minority interest - 1,319 - Liability for deferred taxes - 6,804 - Liabilities for employee benefits, net - 3,693 - Creditors and payables - 18,475 - Financial liabilities - 224,910 - - (253,202) - Schedule F – Cash added due to realization of investment in a company that exited from consolidation Intangible assets 2,310 - 72 Fixed assets 60 - 50 Debtors and receivables 443 - 56 Financial investments 13,190 - 272 Minority interests (2,474) - - Liabilities for employee benefits, net (54) - (5) Creditors and payables (251) - (181) Financial liabilities (10,785) - (16) Capital gain 608 - - 3,047 - 248 Schedule G –Significant transactions that did not involve cash flows Acquisition of fixed assets on credit 15,883 31,848 17,931 The accompanying notes are an integral part of the consolidated financial statements.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 1:- GENERAL
a. Migdal Insurance and Financial Holdings Ltd. (hereunder - “the Company”) is a company incorporated and residing in Israel and its formal address is No. 4 Ef’al Str., Petach Tikva 49511. The consolidated financial statements of the Group as at December 31, 2009 include the statements of the Company, its subsidiaries and jointly controlled entities (together referred to hereunder as “the Group”) and investments in affiliates. The Company is controlled by Assicurazioni Generali S.p.A. The Group operates primarily in the insurance, pension, provident funds and financial services lines of business. The Company’s securities are listed for trade on the Tel Aviv Stock Exchange.
b. Definitions
Standards and interpretations that were adopted by the International Accounting Standards Board (IASB) and which include international financial reporting standards and international accounting standards (IAS) along with the interpretations to these standards of the International Financial Reporting International Financial Interpretations Committee (IFRIC) or interpretations of the Reporting Standards Standing Interpretations Committee (SIC), respectively. (hereinafter – IFRS) - The Company - Migdal Insurance and Financial Holdings Ltd.
The Group - Migdal Insurance and Financial Holdings Ltd. and its subsidiaries.
Subsidiaries - companies in which the Company has control and whose financial statements are consolidated with those of the Company.
Proportionately - consolidated companies held by a number of entities that have a contractual subsidiaries agreement for joint control and their financial statements are proportionally consolidated/on an equity basis with the Company’s financial statements.
Affiliates - companies in which the Company has material influence but they are not subsidiaries and the Company’s investment in them is included according to the equity value method in the Company’s consolidated financial statements.
subsidiaries, proportionately consolidated subsidiaries and Investees - companies which the Company's investment is stated, directly or indirectly, on the equity basis..
Parent company - Assicurazioni Generali S.p.A (hereunder – Generali)
Related parties - as defined in IAS 24.
Interested parties - as implied in paragraph (1) to the definition of “an interested party” in a corporation, under Section 1 to the Securities Law, 1968.
Controlling shareholder - as defined in the Israeli Securities Regulations (Presentation of Transactions Between a Corporation and the Controlling Shareholder Therein in the Financial Statements), 1996
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 1:- GENERAL (Cont.)
c. Definitions (Cont.)
Migdal Insurance - Migdal Insurance Company Ltd.
The Regulator - The Regulator of Insurance.
Insurance Supervision - The Supervision of Financial Services Law (Insurance), 1981. Law
Capital Regulations - Supervision of Insurance Business Regulations (Minimum Solvency Margin Required from an Insurer), 1998, as amended.
Ways of Investment - Supervision of Insurance Business Regulations (Ways of Regulations Investment of Capital and Reserves of an Insurer and Management of its Liabilities), 2001, as amended.
Financial Statement - Insurance Supervision Regulations (Financial Statement Details) Details Regulations 1998.
Insurance contracts - contracts under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.
CPI Consumer Price Index.
Investment contracts policies which are not considered to be insurance contracts.
Yield dependent contracts - insurance contracts and investment contracts in the life assurance and health insurance segments, in which the liabilities are linked to the investment portfolio’s yield (policies participating in investment income).
Assets in respect of yield - total assets held against liabilities derived from yield dependent dependent contracts contracts.
Reinsurance assets - the reinsurers share in the insurance reserves and in outstanding claims.
insurance reserves and outstanding claims in life assurance, Liabilities for insurance - general insurance, general insurance and health insurance contracts segments of activity.
Premiums - premiums including fees
Earned premiums - premiums relating to the reported period
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES
a. Basis of preparation of the financial statements
The Company’s financial statements have been prepared on a historical cost basis, except for the following assets that were reported at fair value: financial instruments at fair value through the statement of profit and loss, financial instruments classified as available for sale and investment property.
Regarding insurance liabilities and liabilities in respect of employee benefits, see Notes 2.g and 2.o.
The value of non-monetary assets and shareholders’ equity items that were measured on a historical cost basis, was adjusted to changes in the CPI up to December 31, 2003, since up to that date the economy in Israel was considered as a hyperinflation economy.
Statement of compliance with the International Financial Reporting Standards (IFRS):
The financial statements were prepared by the group in accordance with the International Financial Reporting Standards (hereunder – IFRS). The Group first adopted the IFRS in the year 2008 and therefore the transition date for reporting according to the IFRS is January 1, 2007.
Furthermore, the financial statements have been prepared in accordance with the disclosure requirements as prescribed by the Regulator of Insurance according to the Supervision of Financial Services (Insurance) Law, 1981 and in accordance with the disclosure requirements of the Israeli Securities Regulations (Preparation of Annual Financial Statements), 2010.
The accounting policies adopted in the financial statements are consistent with those of all periods presented.
b. The significant considerations, estimates and assumptions in the preparation of the financial statements
The considerations
In the process of applying the Group's accounting policies, management has considered the following issues which have the most significant effect on the amounts recognized in the financial statements:
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
b. The significant considerations, estimates and assumptions in the preparation of the financial statements (Cont.)
The considerations (Cont.)
1. Classification and designation of the financial investments
Financial assets measured at fair value through profit and loss. Investments held to maturity. Loans and debtors. Available-for-sale financial assets.
See Notes 12 - 13 below.
2. Measurement of investment property at fair value. See note 8.
Estimates and assumptions
The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the adoption of the accounting policy and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
The preparation of accounting estimates used in the preparation of the Company’s financial statements requires management to make assumptions regarding circumstances and events that involve considerable uncertainty. Management of the Company prepares the estimates on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.
The basis of the estimates and assumptions are reviewed regularly. The changes in accounting estimates are reported in the period of the change in estimate.
Critical estimates
Hereunder is information regarding critical estimates that were made during the application of the accounting policies and they have a significant effect on the financial statements:
Liabilities in respect of insurance contracts – these liabilities are based on the actuarial valuation method and on valuations regarding demographic and economic variables. The actuarial valuations and the various assumptions are based on past experience and are mainly based on the fact that past behavioral patterns and claims represent future behaviour. Change in the risk factors, frequency of events or their severity, as well as a change in the legal situation, might have a significant influence on the volume of liabilities for insurance contracts. For additional details see Note 36.b.3.
Contingent liabilities – there are legal claims against the Group, as well as requests to approve the claims as class actions. For the estimates of the chances of the legal claims that were filed against the Company and its investees, the companies relied on the opinion of their legal advisors. The legal advisors’ opinion is based on their professional judgment, taking into consideration the stages in which the legal proceedings are and the legal experience they have in all these issues. Since the results of the claims will be determined in court, the actual results could differ from these estimates. For additional information see Note 38.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
b. The significant considerations, estimates and assumptions in the preparation of the financial statements (Cont.)
2. Measurement of investment property at fair value (Cont.)
Critical estimates (Cont.)
Fair value estimates of financial instruments - the fair value of unquoted bonds, loans and deposits is calculated according to a model based on discounting the cash flows. The interest rates to be discounted are determined by the company that provides interest quotations for the various rates of risk.
For additional information see Note 12.b.
Impairment in value of assets – at each balance sheet date, the Group examines if there were any events or changes in circumstances that would indicate that there was an impairment in one or more of the assets. In the event of an impairment, an examination is performed to see if the sum in which the investment in the asset is reported, is recoverable from the anticipated capitalized cash flows from that asset, and if necessary, a provision for impairment up to the recoverable amount, is recorded. The capitalization of cash flows is calculated according to a capitalization rate that reflects the market estimates regarding the time value of the money and the specific risks that relate to the asset. The determination of the cash flows estimates is based on the past experience with this asset or similar assets, and on the Group’s estimates in connection with the economic conditions that will be during the rest of the asset’s useful life. Changes in the Group’s estimates, as detailed above, might cause material changes in the book values of the assets and the results of activities.
For additional details see Note 4.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
b. The significant considerations, estimates and assumptions in the preparation of the financial statements (Cont.)
2. Measurement of investment property at fair value (Cont.)
Critical estimates (Cont.)
Determination of the recoverability of deferred acquisition costs - acquisition expenses of life assurance policies are deferred and written-off over the policy’s term. The recoverability of deferred acquisition costs is examined once a year while using the assumptions regarding the cancellation rates, mortality and morbidity rates and other variables. . Determination of the fair value of investment property - Investment property is reported at fair value as at the balance sheet date and changes in fair value are recognized in the statement of profit and loss. The fair value is determined by independent external appraisers based on economic value estimates that include assumptions regarding estimates of anticipated future cash flows that will be generated from the asset and an estimate of the discount rate that will match these cash flows. In certain cases the fair value is determined by reference to recent in real estate transactions with similar characteristics and locations as the estimated asset. For additional information see Note 8.
c. Presentation of financial statements
As from January 1, 2009 the Group implements revised IAS 1, Presentation of Financial Statements (hereinafter – the Standard). The Standard allows the presentation of one statement of comprehensive income (a combined statement of income and of other comprehensive income) or two statements – a statement of income and a separate statement of comprehensive income.
The Group has chosen to present income and expense items and components of other comprehensive income in two separate statements- Income statement and other comprehensive income statement. Furthermore, the Group presents a statement of changes in equity immediately after the statement of comprehensive income instead of in the notes. The statement includes changes in equity resulting from transactions with shareholders in their capacity as owners (such as dividends, transactions with controlling shareholders, issuance of shares and/or options, etc.). The Standard is applied on a retrospective basis. Since the change only impacts the presentation of the financial statements, there is no impact on the Company’s results of operations.
The consolidated balance sheets, which mainly include the assets and liabilities of the consolidated insurance company, are presented by order of liquidity without separating between current and non-current assets and liabilities. This manner of presentation which provides more reliable and relevant data, is compatible with IFRS 1 “Presentation of Financial Statements”.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
d. Functional currency and foreign currency
1. Functional and presentation currencies
The financial statements are reported in New Israeli Shekels ("NIS") , and have been rounded to the nearest thousand. NIS is the Company’s functional currency and is the currency that best reflects the economic environment in which the Company operates.
2. Transactions, assets and liabilities in foreign currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on translation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
e. Consolidated financial statements
The consolidated financial statements include the financial statements of companies that are controlled by the Company (subsidiaries). Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of the controlled company so as to obtain benefits from its activities. The effects of potential voting rights that are exercisable at balance sheet date are considered when examining whether an entity has control. The consolidation of the financial statements begins from the date the control is obtained until the date that such control is discontinued.
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with affiliates and jointly controlled entities are eliminated against the investment to the extent of the Group’s interest in these investments. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
Minority interests in respect of subsidiaries represents the minority’s share in the comprehensive income of the subsidiaries and the net assets at fair value, upon the acquisition of the subsidiaries. Minority interest is reported under the Company’s equity, in a separate amount.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
The consolidated financial statements include the financial statements of a jointly controlled entity whereby the shareholders have a contractual arrangement that establishes joint control and is proportionally consolidated with the Company's financial statements. The Company combines in the consolidated financial statements its share of the assets, liabilities, income and expenses of the jointly controlled entity with similar items in its financial statements. Significant intergroup balances and transactions and gains or losses resulting from transactions between the Group and the jointly controlled entity are eliminated to the extent of the interest in the jointly controlled entity. For additional information see Note 7.e.1.
The financial statements of the Company and of the subsidiaries are prepared as of the same dates and periods. The accounting policy in the financial statements of the subsidiaries was applied consistently and uniformly with the policy applied in the financial statements of the Company.
f. Affiliates Affiliates are those entities in which the Group has significant influence, but not control, over the financial and operating policies.
Affiliates are accounted for using the equity method (equity accounted investees) and are recognized initially at cost. The investment includes goodwill measured at the date of acquisition and presented net of accumulated impairment losses. The consolidated financial statements include the Group’s share of the income and expenses of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.
g. Insurance contracts and asset management contracts
IFRS 4 which deals with insurance contracts allows the insurer to continue with the accounting policies that were utilized before the transition date to IFRS regarding insurance contracts that were issued (including related acquisition costs and related intangible assets) as well as reinsurance contracts acquired
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
g. Insurance contracts and asset management contracts (Cont.)
Hereunder is a summary of the accounting principles relating to insurance contracts:
1. Life assurance and long-term savings
a) Recognition of income - see paragraph q below.
b) Liabilities in respect of life assurance contracts:
Liabilities in respect of life assurance contracts are computed according to the Regulator’s directives (regulations and circulars), accounting principles and generally accepted actuarial methods. The liabilities are computed according to the relevant coverage data, such as: the age of the policyholder, number of years of coverage, type of insurance, amount of insurance, etc.
Liabilities in respect of life assurance contracts are determined on the basis of actuarial assessments, carried out by the Migdal Insurance appointed actuary, Mr. Leibush Ulman who is the Migdal Insurance employee. The reinsurers’ share in liabilities for life assurance contracts is determined according to the conditions of the relevant contracts.
c) Liabilities in respect of life assurance contracts linked to the index and the investments linked to the index that are utilized to cover these liabilities are included in the financial statements according to the latest published index prior to the balance sheet date, including liabilities in respect of life assurance contracts regarding policies that, according to their terms, are semi-annually linked.
d) The Regulator’s directives regarding liabilities for payment of annuities:
In circulars published by the Regulator regarding the calculation of liabilities for payment of annuities in life assurance policies, he determined updated directives for the calculation of the provisions as a result of the rate of increase in life expectancy. The instructions require monitoring the sufficiency of the reserves with respect to insurance policies which allow receipt of an annuity and their supplementation in an appropriate manner.
Accordingly, the Migdal Insurance makes an immediate supplementation of liabilities, when necessary, with respect to policies in which an annuity is being paid, when the policyholder has reached retirement age or when a group of policies is not profitable. With respect to other policies, which are expected to be profitable, there is a supplementation of the liabilities over the policy’s term, parallel to the anticipated income. For further information see note 36.b.3.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
g. Insurance contracts and asset management contracts (Cont.)
Hereunder is a summary of the accounting principles relating to insurance contracts:
1. Life assurance and long-term savings (Cont.)
e) Deferred acquisition costs re life assurance:
(1) Deferred acquisition costs of life assurance policies (hereunder – the DAC) sold from January 1, 1999 include commissions for agents and acquisition supervisors as well as administrative and general expenses relating to the acquisition of new policies. The DAC is amortized in equal annual rates over the policy’s term, but not over more than 15 years. The DAC in respect of cancelled policies are written-off at the time of cancellation.
Deferred acquisition costs in respect of policies that were issued up to December 31, 1998 are computed by the Migdal Insurance actuary based on the “Zillmer deduction” method, format a certain percentage of the premium or of the amount at risk according to the various insurance programs.
(2) Pursuant to the instructions of the Regulator of Insurance, the Migdal Insurance actuary examines the recoverability of the DAC, each year. The examination is performed in order to verify that the liabilities in respect of insurance contracts net of the DAC in respect of the policies sold since 1999 are sufficient, and that the policies are expected to produce future income that will cover the amortization of the DAC and the insurance liabilities, the operating expenses and the commissions relating to those policies. The examination is performed for each product (type of insurance) separately.
The assumptions that are utilized for this examination include assumptions regarding cancellations, operating expenses, rate of return on assets, mortality and morbidity rates, that are determined by the Migdal Insurance actuary every year based on a review of past experience and relevant up-to-date research studies.
f) Deferred acquisition costs re pension schemes:
Direct acquisition costs(commissions to agents, acquisition supervisors andpension marketing agents) that are paid for the acquisition of pension contracts are recorded as deferred acquisition costs (DAC) if they can be identified separately and can be measured reliably and if they are expected to be returned through the payment of management fees. The DAC is amortized over a period of 15 years. Migdal Insurance examines the recoverability of the DAC of the pension contracts on a portfolio basis.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
g. Insurance contracts and asset management contracts (Cont.)
Hereunder is a summary of the accounting principles relating to insurance contracts:
1. Life assurance and long-term savings (Cont.)
g) Liability Adequacy Test in respect of life assurance contracts:
The Migdal Insurance examines the sufficiency of the liabilities in respect of life assurance contracts. If it turns out from the examination that the premiums received are not sufficient to cover the expected claims, a special provision for the deficiency is recorded. The examination is made separately for the individual policies and for collective policies. In the case of individual policies, the examination is made at the product level, whereas in the case of collective policies, the examination is performed on the level of the individual collective.
The assumptions used in the abovementioned examinations include assumptions regarding cancellations, operating expenses, rate of return on assets, mortality and morbidity rates, and they are determined by the actuary every year based on examinations, past experience and other relevant research studies. Regarding collective policies, the examination is made based on the claims’ history of the individual collective and subject to the statistical reliability of this experience.
h) Outstanding claims:
Outstanding claims, net of the reinsurers’ share therein, are computed on an individual case basis, according to the estimation of the Migdal Insurance experts, on the basis of notifications regarding insurance events and sums insured. The provisions for annuity payments and the provisions for ongoing claims in payment for disability insurance, the direct and indirect expenses deriving from them, as well as the provisions for incurred but not yet reported claims (IBNR) were included under liabilities for insurance and investment contracts.
i) Investment contracts:
Receipts in respect of investment contracts are not included in the item of earned premiums, but are directly allocated to liabilities for insurance and investment contracts. Surrenders and maturities of these contracts are not allocated to the statement of profit and loss, but are deducted directly from the liabilities for insurance and investment contracts.
Investment income, change in liabilities and payments in respect of insurance contracts for the policyholders share in investment income, management fees, commissions to agents, and general and administrative expenses, are allocated to the statement of profit and loss, in respect of these contracts.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
g. Insurance contracts and asset management contracts (Cont.)
Hereunder is a summary of the accounting principles relating to insurance contracts:
1. Life assurance and long-term savings (Cont.)
j) Provision for profit participation of policyholders in group insurance:
The provision is included under the item “creditors and payables”. In addition, the change in the provision is offset from the premium income.
2. General insurance
a) Recognition of income, see paragraph q below.
b) The item of payments and change in liabilities in respect of gross and retained insurance contracts includes, among others, settlement and direct handling costs of claims paid, indirect expenses for settlement of outstanding claims that occurred during the reported period, as well as an adjustment of the provision for outstanding claims (which includes a provision for claims direct and indirect handling costs) reported in previous years.
c) Liabilities for insurance contracts and deferred acquisition costs:
The insurance reserves and the outstanding claims, included in the item liabilities in respect of insurance contracts, and the reinsurers’ share in the reserve and in outstanding claims, included in the item reinsurance assets, and deferred acquisition costs in general insurance, were computed in accordance with the Supervision of Insurance Business Regulations (Methods of Calculating Provisions for Future Claims in General Insurance),1984, as amended, the Regulator’s directives and generally accepted actuarial methods for computing outstanding claims which are applied according to the appointed actuaries’ discretion.
d) The item liabilities in respect of insurance contracts, is composed of insurance reserves and outstanding claims, as follows:
1) Provision for unearned premium reserve, reflects the insurance fees relating to the insurance period after the balance sheet date.
2) Provision for premium deficiency. This provision is recorded in the event that the unearned premium reserve (net of deferred acquisition costs) does not cover the anticipated cost in respect of insurance contracts. In the motor casco, comprehensive residential and business premises branches the provision is based on, among others, a model determined in the Regulations for Supervision of Insurance Business (Mode of Calculating Provisions for Future Claims in General Insurance), 1984 (hereunder – regulations for calculating reserves).
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
g. Insurance contracts and asset management contracts (Cont.)
2. General insurance (Cont.)
d) (Cont.)
3) Outstanding claims that are computed according to the methods detailed below:
3.1 Outstanding claims and the reinsurers’ share therein are included based on an actuarial valuation, except for the branches detailed in Section 3.2 below. Indirect expenses for the settlement of claims are included according to an actuarial valuation. The actuarial calculation for Migdal Insurance was made by the appointed actuary, Mrs. Anat Cohen Toledano, an employee of Migdal Insurance.
3.2 In the branches of comprehensive business premises, engineering insurance, contractors’ insurance, marine insurance, aviation insurance of goods in transit, travel abroad and incoming branches, the actuary determined that an actuarial model cannot be applied due to lack of statistical significance, the outstanding claims in these branches were calculated on the basis of the valuations of external experts and Migdal Insurance employees who handle the reports of ceding companies for incoming business and with the addition of IBNR when necessary.
3.3 Excess of income over expenses:
Regarding all businesses with long tail claims (branches in which the time required for issuing a notice of damage and/or determining damage and its compensation, is long and can be a number of years), such as the liability and motor act branches, the excess of income over expenses is calculated on a tri-annual cumulative basis (hereunder – the excess).
The excess is calculated, according to the regulations for calculating reserves and the Regulator’s directives, on the basis of income from premiums, net of the acquisition and claims expenses, with the addition of investment income which is calculated according to the rate of 3% per annum, in real terms (regardless of the actual yield from the investments) net of the reinsurers’ share, for each insurance branch and the respective underwriting year. The excess accumulated until its release, from the beginning of the insurance, net of the provision for unearned premium less deferred acquisition costs and net of outstanding claims calculated as aforementioned (hereunder- the fund), is included under liabilities for insurance contracts and the deficiency is imputed as an expense.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
g. Insurance contracts and asset management contracts (Cont.)
2. General insurance (Cont.)
d) (Cont.)
3.4 Claims recoveries and salvage are taken into account on the same basis of calculation as the actuarial valuations of the outstanding claims.
3.5 In the Migdal Insurance opinion the outstanding claims are sufficient, considering the fact that the outstanding claims are mainly calculated on an actuarial basis and their balance includes sufficient provisions for the IBNR, if necessary.
e) Deferred acquisition costs in general insurance include agents’ commissions and administrative and general expenses related to the acquisition of polices, in respect of the unearned insurance premiums. The acquisition costs are calculated at the lower of the actual costs or standard rates, set by the Supervision Regulations, calculated as a percentage of unearned premiums separately for each branch.
f) Business received from the Israeli pool for motor vehicle property insurance of the Association of Insurance Companies in Israel (hereunder - the Pool), from other insurance companies (including co-insurance and business from abroad) and from underwriting agencies, is reported according to the reports received up to the balance sheet date with the addition of the relevant provisions, based on Migdal Insurance rate of participation in them.
3. Health insurance
a) Revenue recognition – see q below.
b) Liabilities in respect of health insurance contracts:
The liabilities for health insurance contracts are computed according to the Regulator’s directives (Regulations and Circulars), generally accepted accounting principles and actuarial methods. The liabilities are computed according to the relevant coverage data, such as the age of the policyholder, number of years of coverage, type of insurance and amount of insurance etc.
Liabilities for health assurance contracts and the reinsurers' share therein are determined on the basis of an actuarial assessment carried out by Migdal Insurance appointed actuary, Mr. Jonathan Brody, an employee of Migdal Insurance.
c) Outstanding claims:
The provisions for prolonged payment claims with respect to long-term care (LTC) insurance, the direct and indirect expenses deriving from them, as well as the provisions for incurred but not yet reported claims (IBNR) are included under liabilities in respect of insurance contracts.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
g. Insurance contracts and asset management contracts (Cont.)
3. Health insurance (Cont.)
d) Provision for policyholders’ participation in profits in group insurance:
The provision is included under “creditors and payables”. In addition, the change in the provision was offset from premium income.
e) The unexpired risk reserve included under liabilities for insurance contracts, includes, when necessary, a provision for anticipated loss on retention (premium deficiency) calculated on the basis of an actuarial valuation based on the cash flows estimate in respect of the contract.
f) Deferred acquisition costs:
Deferred acquisition costs include commissions to agents and acquisition supervisors as well as administrative and general expenses related to acquisition of new policies. The deferred acquisition costs in health insurance are amortized at equal rates over the policy’s term, but not more than six years. Deferred acquisition costs relating to cancelled policies are written off on the cancellation date.
h. Financial instruments
1. Non-derivative financial instruments
Non-derivative financial instruments include financial assets and financial liabilities. Financial assets include financial investments (quoted debt assets, unquoted debt assets, shares and others) and other financial assets such as: outstanding premiums, other debtors and cash and cash equivalents. In addition, financial instruments include financial liabilities such as loans and credit received and suppliers’ credit and other creditors.
Initial recognition of financial assets The Group initially recognizes loans and receivables and deposits on the date that they are created. All other financial assets acquired in a regular way purchase are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables.
Derecognition of financial assets Financial assets are derecognized when the contractual rights of the Group to the cash flows from the asset expire, or the Group transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Regular way sales of financial assets are recognized on the trade date.
See (2) hereunder regarding the offset of financial assets and financial liabilities.
The Group’s classifies its financial assets according to the following categories:
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
h. Financial instruments (Cont.)
1. Non-derivative financial instruments
Cash and cash equivalents
Cash includes cash balances for immediate withdrawal or deposits that can be utilized on demand. Cash equivalents include short term investments at high liquidity level which can easily be converted to known amounts of cash and is exposed to insignificant risks of changes in value.
Held-to-maturity investments
When the Group has the explicit intention and ability to hold debt instruments to maturity, they are classified as held-to-maturity. Held-to-maturity investments are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held-to-maturity investments are measured at amortized cost using the effective interest method, less any impairment losses.
Financial assets available for sale
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or that are not classified in any of the previous categories. Upon initial recognition and in subsequent periods, these investments are measured at fair value and changes therein, other than impairment losses, foreign currency differences and the accrual of effective interest on available-for- sale monetary items, are recognized directly in other comprehensive income and presented within equity in a reserve for available-for-sale financial assets. A dividend received in respect of available-for-sale financial assets is recognized in profit or loss. When an investment is derecognized, the cumulative gain or loss in the reserve for available-for-sale financial assets is transferred to profit or loss.
Financial assets measured at fair value through profit and loss
A financial instrument is classified as measured at fair value through profit and loss if it is held for trading or is designated as such upon initial recognition.
Financial instruments are classified as held for trade if they were acquired mainly for the purpose of sale or repurchase in the near future and constitute part of the identifiable financial instruments’ portfolio managed together, in order to obtain short tem profits. Profits or losses from investments held for trade are allocated when incurred, to the statement of profit and loss.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
h. Financial instruments (Cont.)
1. Non-derivative financial instruments (Cont.)
Financial assets measured at fair value through profit and loss (Cont.)
Financial instruments are designated to be measured at fair value through profit and loss if the Group manages this type of investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s documented risk management or investment strategy, to prevent accounting mismatch or the financial instrument includes an embedded derivative . Upon initial recognition, attributable transaction costs are recognized in profit and loss when incurred. These financial instruments are measured at fair value, and changes therein are allocated to profit and loss.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.
2. Non-derivative financial liabilities
The Group initially recognizes debt securities issued on the date that they are originated. All other financial liabilities (including financial liabilities designated at fair value through profit or loss) are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. Financial liabilities are derecognized when the obligation of the Group, as specified in the agreement, expires or when it is discharged or cancelled.
Financial liabilities (other than financial liabilities at fair value through profit or loss) are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method. Financial liabilities are designated at fair value through profit or loss if the Group manages such liabilities and their performance is assessed based on their fair value in accordance with the Group’s documented risk management strategy, providing that the designation is intended to prevent an accounting mismatch, or the liability is a combined instrument including an embedded derivative.
The Group has the following non-derivative financial liabilities: loans and borrowings from banks and others, and trade and other payables.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
h. Financial instruments (Cont.)
3. Derivative financial instruments
Financial derivatives are recognized initially at fair value; attributable transaction costs are allocated to profit and loss as incurred. Subsequent to initial recognition, the financial derivatives are measured at fair value and the changes in fair value are recognized immediately in the income statementas finance income or expenses/ .
4. CPI-linked assets and liabilities not measured at fair value
The value of CPI linked assets and liabilities, that are not measured at fair value, is revaluated during each period according to the actual increase or decrease in the CPI.
The Company has made decisions to designate the financial instruments as follows:
Assets included in the investment portfolios of policies participating in investment income.
Most financial assets, that include quoted and unquoted financial assets, were designated to the group of fair value through profit and loss, based on the following reasons: These are managed portfolios, separate and identifiable whose presentation at fair value significantly reduces an accounting mismatch in measurement of financial assets and liabilities at various measurement bases. In addition, the asset management is conducted at fair value, and the portfolio performance is measured at fair value according to a documented risk management strategy, and the information regarding the financial instruments is reported to the management (the relevant investment committee) internally on the basis of fair value.
Some untraded debt instruments, included in the investment portfolios of policies participating in investment, are measured at amortized cost using the effective interest method, as possible by the temporary provision published by the Regulator.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
h. Financial instruments (Cont.)
4. The Company has made decisions to designate the financial instruments as follows: (Cont.)
Financial instruments that include embedded derivatives requiring separation – were designated to the fair value group through profit and loss.
Quoted assets that are not included in investment portfolios held against profit participating policies (Nostro) which do not include embedded derivatives or do not constitute derivatives
These instruments were classified as financial instruments available-for-sale.
Unquoted assets that are not included in investment portfolios held against profit- participating policies (Nostro) -
Assets meeting the criteria of the loans and debtors group, including Hetz debentures (life linked debentures), were classified to this group and measured at amortized cost, using the effective interest method.
Untraded equity instruments were classified as available-for-sale financial instruments
A subsidiary’s Investments in traded securities
These assets were classified to the fair value group through profit and loss since these are financial assets designated for trading.
5. Determination of fair value
The fair value of the investments traded actively in organized financial markets is determined by the market prices on the balance sheet date. For investments that do not have an active market, the fair value is determined by using evaluation methods. These methods are based on recent transactions under market conditions, reference to the present market value of another similar instrument, capitalization of cash flows or other evaluation methods. The fair value of unquoted debt instruments is calculated using a discounted cash flow model. The discount rate is based on yields of government bonds and spreads of corporate bonds as measured in the Tel Aviv Stock Exchange with an additional illiquidity spread. The discount rates are determined by a company that issues interest quotations for the different risk ratings. Fot further information, se motes 11,12 and 24.
6. Share Capital Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
h. Financial instruments (Cont.)
7. Net investment income (losses), finance income and expenses
Net investment income (losses) and finance income include income (losses) on the sale of available-for-sale financial assets, changes in the fair value of financial assets and liabilities reported at fair value through profit and loss, income (losses) from foreign currency and income (losses), linkage differences on debt instruments, from realization of investments that are calculated as the difference between the proceeds from the sale and the initial or amortized cost and are recognized at the time of the sale. Interest income in respect of amounts invested (including financial assets available for sale) and income from dividends. Interest income is recognized when accrued, using the effective interest method. Dividend income is recognized on the date the Company is granted the right to receive payment. If the dividend is received for quoted shares, the Company recognizes the income from the dividend on the ex-dividend date.
Finance expenses comprise interest expenses on loans received, changes in the time value in respect of provisions, losses from impairment in value of financial instruments recognized in profit and loss. The short term credit costs, which are not capitalized, are allocated to the statement of profit and loss when incurred.
Profits and losses from exchange rate differences and changes in the fair value of investments are reported on a net basis.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
i. Fixed assets
1. Recognition and measurement
Fixed asset items are measured at cost less accumulated depreciation and impairment loss.
The cost of a number fixed asset items was determined at their fair value as at January 1, 2007, which is the date of transition to IFRS (deemed cost).
The cost includes expenses which can be directly attributed to the purchase of the asset. The cost of software purchased, which constitutes an integral part of the operation of the related equipment, is capitalized as part of the cost of such equipment.
2. Subsequent costs
The cost of replacing part of an item of fixed asset is recognized as part of that item’s book value if it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. The book value of the replaced part is derecognized. Ongoing maintenance costs are charged to profit or loss as incurred.
3. Depreciation
Depreciation is allocated to the statement of profit and loss according to the straight-line method over the estimated useful lives of each part of the fixed assets items. Land is not depreciated.
Depreciation rates for the current and comparative periods are as follows:
Buildings 2% - 4% Leasehold improvements 10% - 17% Vehicles 15% Computers and software 17% -33% Office furniture and equipment 6%- 15%
Estimates regarding depreciation methods, useful lives and residual values are re-examined at least at the end of each reporting year.
j. Investment property
An investment property is property (land or a building – or part of a building - or both) held (by the Group as the owners or under finance lease) to earn rentals or for capital appreciation or both and not for use in the production or supply of goods or services or for administrative purposes, or for sale in the ordinary course of business.
In addition, rights in the property that are leased by the Company under operating lease are classified and treated as investment property.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
j. Investment property (Cont.)
Investment property is initially measured at cost with the addition of transaction costs. In subsequent periods the investment property is measured at fair value, and the changes in the fair value are allocated to the statement of profit and loss.
Fixed assets are transferred to investment property when there is a change in the use of the property, such as: when the owners stop using the property, the property is leased to a third party.
The transfer of asset from investment property to fixed assets is performed when there is a change in use, such as the beginning of use of the asset by the owners or the beginning of development with the intention to sell the asset.
The cost of the asset transferred from investment property to fixed assets is the fair value on the date of the transition.
When the use of a property changes from owner-occupied to investment property, which is measured at fair value, the property is remeasured to fair value and reclassified as investment property. Any gain arising on remeasurement is recognized in other comprehensive income and presented within equity in a revaluation reserve, unless the gain reverses a previous impairment loss on the specific property, in which case the gain is first recognized in profit or loss. Any loss is recognized directly in profit or loss.
For determining the fair value of investment property, the Group relies on the value assessments carried out by external independent assessors with expertise in valuation of real estate and have the necessary knowledge and experience.
For further information, see note 8.
k. Leases
The tests for classifying leases as finance or operating leases are based on the nature of the agreements and they are examined at the date of engagement according to the provisions of IAS 17.
1. Finance leases
Under finance leases, all the risks and benefits related to the ownership of the leased asset, were actually transferred to the Group. The leased property is measured at the beginning of the period of lease at the lower of the fair value of the leased property or at the present value of the minimum lease payments. The liability in respect of the lease payments is reported at its present value and the lease payments are allocated between the finance expenses and the settlement of the liabilities in respect of the lease according to the effective interest method.
2. Operating leases
Lease agreements are classified as an operating lease if all the risks and rewards that are embedded in the ownership of the leased asset, are not actually transferred. Lease payments are recognized as an expense in the statement of profit and loss on a straight-line current basis over the lease term.
Lease of land that is not in the framework of investment property that is reported at fair value, is treated as operating lease and the amount attributed to the land under capitalized lease is reported in the balance sheet as “leasing fees and prepaid expenses” included in Debtors and Receivables and is recognized as an expense in the statement of profit and loss using the straight-line method over the period of lease.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
l. Business combinations and goodwill
Business combinations prior to January 1, 2007
In the framework of the transition to reporting under IFRS, the Group chose to restate under IFRS only business combinations occurring subsequent to the transition to IFRS on January 1, 2007. Acquisitions occurring prior to January 1, 2007 reflect the goodwill recognized by the Group under Israeli GAAP which was the GAAP implemented before the transition to IFRS. Regarding these acquisitions, the accounting classification and treatment were not adjusted to IFRS for the preparation of the Group’s opening balance sheet.
Business combinations subsequent to January 1, 2007
Business combinations, except for business combinations that include entities under the same control, are treated using the acquisition method in accordance with IFRS 3. According to this method, assets and liabilities of the acquired company are identified at their fair value at the time of acquisition, and all the minority interest in the acquired company are reported according to the minority share in the net fair value of these items. The proceeds from the acquisition are measured at the fair value of the assets that were granted, the capital instruments that were issued and the liabilities that were created on the date of acquisition, plus direct acquisition costs.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
l. Business combinations and goodwill (Cont.)
Business combinations subsequent to January 1, 2007 (Cont.)
Goodwill acquired in a business combination is initially measured as the difference between the cost of the acquisition and the Group's share in the net fair value of the identifiable assets, the identifiable liabilities and the contingent liabilities of the acquired business. If the acquisition proceeds are lower than the Company’s share of the fair value of the net assets of the acquired company, the difference is recognized as a gain in the statement of profit and loss. After initial recognition, goodwill is measured at cost net of any accumulated impairment losses. Goodwill is not systematically amortized. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash- generating units. As for testing the impairment of goodwill, see paragraph n below.
Upon the sale of a cash-generating unit, the difference between the consideration and the net assets with the addition of accumulated translation differences carried to equity and the unamortized goodwill balance is recorded in the statement of profit and loss. Gains or losses from the sale of part of the cash-generating unit include the part of goodwill that is measured based on the relative value of the cash-generating unit disposed of.
Acquisitions of subsidiaries that are not business combinations
Pursuant to IFRS 3, upon the acquisition of subsidiaries and operations that do not constitute a business as defined in IFRS 3, the acquisition consideration is only allocated between the acquired business identifiable assets and liabilities based on their relative fair value on the acquisition date without attributing any amount to goodwill or to deferred taxes, whereby the minority, if any, participates at its relative share of the fair value of the net identifiable assets on the acquisition date.
m. Intangible assets
Intangible assets with indefinite useful lives are not systematically amortized and are tested for impairment annually or whenever there is an indication that the intangible asset may be impaired. The useful life of these assets is reviewed annually to determine whether their indefinite life assessment continues to be supportable. If the events and circumstances do not continue to support the assessment, as mentioned above, the change in the useful life assessment from indefinite to finite is accounted for as prospective change in accounting estimate and on that date the impairment of the asset is tested and it is amortized systematically over its useful economic life.
Intangible assets with definite useful lives are amortized over their useful life and are reviewed for impairment whenever there is an indication that the asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits from the asset are accounted for as prospective changes in accounting estimates. The amortization charge on intangible assets with finite useful lives is recognized in the statement of profit and loss.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
m. Intangible assets (Cont.)
1. Software development costs
Software development costs are only capitalized when the development costs can be measured reliably; the technical and economic feasibility of the software can be demonstrated, there is future financial reward from the development of the product and the Group has the intention and sufficient resources to complete the development and use the software. The capitalized costs include the cost of materials, direct salaries and overheads that are directly attributable to preparation of the asset for its intended use. Other software development costs are allocated to profit and loss as incurred.
Capitalized software development costs are measured at cost less accumulated amortization and impairment losses.
2. Software
The Company’s assets include computer systems comprising hardware and software. Software forming an integral part of the hardware to the extent that the hardware cannot function without the programs installed on it, is classified as fixed assets. In contrast, software that adds functionality to the hardware is classified as an intangible asset.
3. Subsequent costs
Subsequent costs are recognized as an intangible asset only when they increase the future economic benefit embedded in the asset for which these expenses were paid. All other expenditure, including expenditure related to goodwill or brands that were developed by the Company, are allocated to profit and loss as incurred.
4. Amortization
Amortization is allocated to the Income statement. Amortization is a systematic allocation of the amortizable amount of an intangible asset over its useful life, from the date the assets are available for use.
The estimated useful lives for the current and comparative periods are as follows:
a) The excess of cost resulting upon the acquisition of insurance subsidiaries that were merged with the Company, and are mainly attributable to the value of the life assurance portfolios of the above companies, as well as life assurance portfolio acquisition expenses, are amortized at equal annual rates over the period of 15 years, which in Management’s opinion, reflects the average term of the policies.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
m. (Cont.)
4. Amortization (Cont.)
The estimated useful lives for the current and comparative periods are as follows: (Cont.)
b) The excess of cost created upon the acquisition of insurance agencies or from businesses combinations acquired from insurance agencies, that are mainly attributed to commission portfolios, is amortized at equal annual rates over a period of ten years, plus specific provisions in case there is an impairment in value.
c) Future management fees – initial difference relating to future management fees anticipated from mutual funds, educational funds and portfolio management, is amortized according to the anticipated period of receiving the management fees:
In mutual funds – on a straight line basis over 2-3 years.
In educational funds – over 20 years with a variable amortization rate based on the amount of anticipated benefit from management fees in the said period.
Portfolio management – over 10 years. The amortization is not at a fixed rate and it is based on the anticipated rate of gains from the management fees during the said period.
d) Brand – amortized on a straight line basis over 5-10 years.
e) Software – amortized on a straight line basis over 3-6 years.
Estimates regarding depreciation methods and useful lives are re-examined at least at the end of each reporting year.
n. Impairment
On each balance sheet date the Group examines whether there has been an impairment in value with respect to a financial asset or a group of financial assets as follows:
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
n. Impairment (Cont.)
1. Financial investments
A financial asset not carried at fair value through profit or loss is tested for impairment when objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance of an active market for a security.
When testing for impairment available-for-sale financial assets that are equity instruments, the Group also examines the difference between the fair value of the asset and its original cost while taking into consideration the standard deviation of the instrument’s price, the length of time the fair value of the asset is lower than its original cost and changes in the technological, economic or legal environment or in the market environment in which the issuer of the instrument operates. In addition a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
The Group considers evidence of impairment of loans and receivables and held-to- maturity investments at both a specific asset and collective level. All individually significant loans, receivables and held-to-maturity investments are assessed for specific impairment. All individually significant loans, receivables and held-to- maturity investments found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans, receivables and held-to-maturity investments that are not individually significant are collectively assessed for impairment by grouping together loans, receivables and held-to-maturity investments with similar risk characteristics.
In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in a provision for loss against receivables.
Impairment losses are recognized by transferring the cumulative loss that has been recognized in a capital reserve to profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost and available-for-sale financial assets that are debt securities, the reversal is recognized in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognized directly in other comprehensive income.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
n. Impairment (Cont.)
2. Reinsurance
a. The reinsurers’ liabilities towards the Company do not release it from its liabilities towards policyholders insured under the insurance policies.
A reinsurer who does not fulfill his obligations under the reinsurance treaties may cause the Company losses.
b. The Company sets-up a provision for doubtful debts in respect of reinsurers’ debts whose collection is doubtful on the basis of individual risk estimates and based on the size of the debts.
In addition, in determining the reinsurers’ share in the insurance liabilities, the Company takes into consideration, among others, the probability of collection from the reinsurers. When the reinsurers’ share is calculated on an actuarial basis, the share of reinsurers in difficulty is calculated according to the actuary’s recommendations, which takes all the risk factors into consideration. Furthermore, when the Company sets-up the provisions, it takes into consideration, among others, the willingness of the parties to engage in cut-off agreements (termination of agreements by a final settlement of the debts) in order to reduce the exposure.
3. Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. On January 1, 2007, the date of transition to IFRSs, the Group tested for impairment goodwill, indefinite-lived intangible assets and investments in affiliates for which goodwill was recognized in the investment account. In subsequent periods the Group estimates, once a year and on the same date for each asset, or more frequently – if there are indications of impairment, the recoverable amount of goodwill and intangible assets that have indefinite useful lives or are unavailable for use.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
n. Impairment (Cont.)
3. Non-financial assets (cont’d)
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its net selling price (fair value less costs to sell). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). Subject to an operating segment ceiling test (see item U hereunder regarding the definition of an operating segment), for the purposes of goodwill impairment testing, cash- generating units to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of cash-generating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognized if the carrying amount of an asset or its cash- generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash- generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the cash-generating unit on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Goodwill that forms part of the carrying amount of an investment in an affiliate is not recognized separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an affiliate is tested for impairment as a single asset when there is objective evidence that the investment in an affiliate may be impaired.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
o. Employee benefits
The Group has several employee benefits plans.
1. Short term benefits
Short-term employee benefits include salaries, recreation, vacation and social security contributions that are measured on an undiscounted basis and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.
2. Post employment benefits
a. Defined deposit plan
The Group’s obligations for deposits to defined deposit plans are allocated as an expense in profit and loss, at the time the obligation to deposit is created.
b. Defined benefit plans
The Group’s obligation in respect of defined benefit plans regarding post retirement benefits, is calculated separately for each plan by estimating the amount of future benefit that is due to the employees in return for their service in the current and prior periods. This benefit is reported at its present value less the fair value of the plan’s assets. The discount rate is the yield at the reporting date of government bonds whose currency and maturity dates are similar to the terms of the Group’s obligations. The calculations are made by a qualified actuary using the projected unit credit method.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
o. Employee benefits (Cont.)
The Group has several employee benefits plans. (Cont.)
2. Post employment benefits (Cont.)
b. Defined benefit plans (Cont.)
When the calculation results in an asset to the Group, the asset is recognized up to the limit of the net amount of the present value of available financial benefits by way of refunds from the plan or reductions in future deposits to the plan. Economic benefit in the form of refunds or reduction in future deposits is considered as available when it can be realized during the plan’s term or after settlement of the liability. When there is an improvement in the benefits that the plan grants to the employees, the portion of the increased benefit relating to past service by employees is allocated to profit and loss according to the straight-line method over the average period until the benefits have vested. To the extent that the benefits vest immediately, the expense is immediately allocated to profit and loss.
Actuarial profits and losses are allocated to profit and loss as incurred.
The compensation component in the policies issued by Migdal Insurance does not constitute plan assets and is off-set from the liabilities in respect of the insurance contracts.
3. Other long term employee benefits
The Group's employees are entitled to benefits in respect of sick leave and anniversaries. These benefits are accounted for as other long-term benefits since the Company estimates that these benefits will be used within one year of the balance sheet date.
The Group's net obligation in respect of long-term employee benefits that do not relate to benefit plans after the completion of employment is in respect of the future benefit amount due to employees for services rendered in current and prior periods. This amount of benefits is discounted to its present value and the fair value of the assets relating to this obligation is deducted from said amount. The discount rate is determined by reference to the yields on the reporting date on Government bonds whose currency and maturity dates is consistent with the terms of the Group's obligation. The calculation is done using the projected unit credit method. Actuarial gains and losses are recognized in the income statement in the period in which they occur.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
o. Employee benefits (Cont.)
4. Severance pay and voluntary retirement benefits
Employee termination benefits are carried as an expense when the Group has committed, without realistic possibility of withdrawal, to terminate employees before the normal retirement date according to a detailed formal plan. Benefits to employees in respect of voluntary retirement are carried when the Group has offered the employees a plan that encourages voluntary redundancy, it is expected that the offer will be accepted and the number of respondents can be reliably measured.
5. Share based payment transactions
The grant date fair value of share-based payment awards granted to employees is recognized as a salary expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense in respect of share-based payment awards that are conditional upon meeting service and non-market performance conditions, is adjusted to reflect the number of awards that are expected to vest.
For share-based payment awards with non-vesting conditions or with market performance vesting conditions, the grant date fair value of the share-based payment awards is measured to reflect such conditions, and therefore the Group recognized an expense in respect of the awards whether or not the conditions have been met.
In transactions in which the parent company grants Company employees the rights to equity instruments, the Company treats the grant as a share based payment that is settled by equity instruments. In other words, the fair value of the grant is recognized directly in equity, as aforementioned.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
p. Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
Provisions are determined by capitalizing the expected future cash flow at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
1. Legal claims
A provision for claims is recognized if the Group has a present obligation (legal or constructive) as a result of a past event; it is more likely than not that the Group’s economic resources will be required in order to settle the obligation; and the obligation can be estimated reliably. When the effect of the time value is material, the provision is measured at its present value. When examining the necessity of recognition of provisions and quantifying them, the Group’s management is assisted by its legal advisors. The carrying amount of the provision is adjusted each period to reflect the time that has passed.
2. Onerous contracts
A provision for onerous contracts is recognized when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received by the Group under it. The provision is measured at the lower of the present value of the anticipated cost of exiting from the contract and the present value of the net anticipated cost of fulfilling it.
q. Recognition of income
1. Premiums:
a) Premiums in life assurance and health insurance segments, including savings premiums but excluding receipts in respect of investment contracts are recorded as income when due.
Cancellations are recorded upon receipt of notice from the policyholder or initiated by the Company due to arrears in payments, subject to legal provisions. Policyholders’ participation in profits is deducted from the premiums.
b) General insurance premiums are accounted for as income based on monthly new business reports. Insurance premiums usually refer to an insurance period of one year. Gross income from premiums and changes in unearned premium are accounted for under gross earned premiums.
Since in the motor act line of insurance, the insurance comes into effect only after payment of the insurance premium, the premium is accounted for on the date of payment.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
q. Recognition of income
1. Premiums:
b) (Cont.)
Premiums from policies that will be in force after the balance sheet date are reported as prepaid income.
Monthly new business reports, primarily in the motor casco and comprehensive residential insurance lines include an automatic renewal of all policies whose renewal date has arrived.
Income included in the financial statements is after cancellation notices received from policyholders and after the deduction of cancellations and provisions due to the non-payment of premiums, subject to legal provisions and net of the policyholders’ participation in profits, based on the agreements that are in force.
2. Management fees:
a) Management fees in respect of yield dependent insurance contracts:
Management fees are calculated in accordance with the Regulator’s directives on the basis of the yield and the accumulated savings of policyholders in the profit-participating portfolio.
Management fees include the following components:
For policies sold from January 1, 2004 – Fixed management fees only.
For policies sold up to December 31, 2003 – Fixed and variable management fees.
The fixed management fees are calculated at fixed rates from the accumulated savings and are recorded on an accrual basis.
Variable management fees are calculated as a percentage of the annual yield, in real terms (from January 1 and up to December 31) credited to the policy after deducting the fixed management fees collected from that policy. Only positive variable management fees can be collected, after deducting negative amounts accrued in previous years.
During the year the variable management fees are reported on an accumulated basis in accordance with the real monthly yield, as long as the yield is positive. During the months that the real yield is negative, the variable management fees are reduced to the amount of the cumulative variable management fees collected from the beginning of the year. Negative yields in respect of which reductions in management fees have not been made in the current year, will be deducted for the purpose of calculating management fees from positive yields in subsequent periods.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
q. Recognition of income (Cont.)
2. Management fees: (Cont.)
b) Management fees from pension and provident funds:
Income from the management of pension and provident funds is recognized on the basis of the balances of the assets managed and on the basis of member contributions, according to the Regulator’s directives.
c) Management fees from mutual funds and from management of customer’s portfolios:
Income from mutual funds management fees and income from management of investment portfolios are recognized on the basis of the balances of the managed assets.
3. Commissions:
Revenues from general insurance commissions in insurance agencies are recognized when incurred.
Revenues from life assurance commissions are recognized on the basis of entitlement dates for payment of the commissions, according to the agreements with the insurance companies, less provisions for commission refunds due to anticipated cancellations of insurance policies.
4. Net investment income (losses) and finance income:
See paragraph 2(h)(7) above.
r. Administrative and general expenses
Administrative and general expenses are classified to indirect expenses for settlement of claims (that are included under payments and change in liabilities in respect of the insurance and investment contracts), to expenses relating to acquisitions (included under commissions, marketing, and other acquisition expenses) and to the balance of administrative and general expenses that are included under this item. The classification is made according to the Group’s internal models that are based on direct expenses that were allocated and indirect expenses that were loaded.
s. Taxes on income
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. Current taxes and deferred taxes relating to a transaction or event recognized directly in equity or in other comprehensive income, are recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable (or receivable) on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
s. Taxes on income (Cont.)
Deferred taxes are recognized with respect to temporary differences between the carrying amounts of the assets and liabilities for financial reporting and their value for tax purposes. The Group does not recognize deferred taxes for the following temporary differences: Initial recognition of goodwill, initial recognition of assets and liabilities in a transaction that does not constitute a business combination and does not affect the accounting income and the income for tax purposes, and provisions deriving from investment in subsidiaries, jointly-controlled entities and affiliates, if it is not expected that they will be reversed in the foreseeable future and to the extent the Group controls the date of reversal..
Deferred taxes are measured according to the tax rates that are expected to apply to the temporary differences on the date they are realized, based on the laws applicable or effectively applicable on the balance sheet date. The Company offsets deferred tax assets and liabilities if there is a legal enforceable right that permits offsetting a current tax asset and liability and they relate to the same taxable income taxed by the same tax authority and in respect of the same assessed company, or in various companies, when they intend to dispose of current tax assets and liabilities on a net basis or if the tax assets and liabilities are settled simultaneously.
A deferred tax asset is recognized for unused tax losses, tax benefits and deductible temporary differences, to the extent that it is probable that there will be future taxable profits against which the temporary differences can be utilized. The deferred tax assets are reviewed at every balance sheet date, and are reduced to the extent that it is no longer probable that the related tax benefits will be realized.
The Group might be liable to a tax addition in the event of dividend distribution in respect of the Group companies. This tax addition was not included in the financial statements, in view of the Group companies’ policy not to give rise to dividend distribution involving additional tax to the receiving company, in the foreseeable future. In cases where an investee is expected to distribute a dividend from the profits involving an additional tax to the company, the company will create a tax reserve in respect of the tax addition that the company might be liable to in respect of the dividend distribution.
Additional taxes, resulting from distribution of dividends by the Company, are allocated to profit and loss as at the liability for payments of the related dividend is recognized.
Deferred tax in respect of intercompany transactions in the consolidated statement is recorded at the tax rate applicable to the purchasing company.
t. Earnings per share
The Company presents basic and diluted earnings per share data with respect to its ordinary shares. Basic earnings per share are calculated by dividing the profit or loss attributable to the ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period, adjusted for treasury shares. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for treasury shares, regarding the effects of all dilutive potential ordinary shares (convertible securities such as convertible debentures, option warrants and employee options).
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 2:- SIGNIFICANT ACCOUNTING PRINCIPLES (Cont.)
u. Segmental reporting
As of January 1, 2009 the group implements IFRS8 – Operating Segments. IFRS 8 state that segmental reporting is based on “management approach”, i.e. based on the internal reporting to the chief operating decision maker. An operating segment is a component of the Group that meets three conditions as follows:
1. It engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components; 2. Its operating results are reviewed regularly by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and 3. Discrete financial information is available in its respect.
For details regarding to the financial report according to segments, see Note 3.
v. New Standards not yet adopted
Revised IFRS 3 Business Combinations (2008) and Revised IAS 27 Consolidated and Separate Financial Statements (2008) (hereinafter – the Standards). The principal relevant revisions in the Standards are as follows:
a. The definition of a business has been broadened, so that more acquisitions will be treated as business combinations.
b. Transactions resulting in discontinuance of consolidation are to be accounted for at full fair value, so that the residual holding after discontinuance of the consolidation is remeasured on the date of discontinuing the consolidation, at fair value, through profit or loss.
c. Transactions resulting in the consolidation of financial statements (that were not consolidated before then) are to be accounted for at full fair value, so that the original holding before the consolidation is remeasured on the first date of consolidation, at fair value, through profit or loss.
d. The minority interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.
e. Acquisitions of additional shares or partial sales of existing shares, without the Company discontinuing consolidation of the financial statements of the companies in respect of which the transactions were performed, are to be accounted for so that all the differences deriving from the transactions are included directly in equity (including differences that in the past would have been included in profit or loss or as goodwill).
f. Transaction costs will be expensed as incurred.
g. Measurement at fair value of contingent considerations in business combinations with changes in estimates relating to a contingent consideration that is a financial liability being recognized in profit or loss.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
Note 2 - Significant Accounting Policies (cont’d) v. New standards not yet adopted (cont’d)
h. Goodwill is not to be adjusted in respect of the utilization of carry-forward tax losses that existed on the date of acquiring businesses.
i. The attribution of comprehensive income to all the shareholders.
These standards shall apply to annual periods beginning on or after January 1, 2010. The principal revisions of these standards shall be applied prospectively, meaning in respect of transactions as from the initial date of implementation.
Amendment to IFRS 2 Share-Based Payment – Group cash-settled share-based payment transactions (hereinafter – the Amendments). The Amendments provides the accounting treatment of group share-based payment transactions by the entity that receives the goods or services and by the entity that settles the transaction, and supersedes IFRIC 8 as regards the scope of IFRS 2 and IFRIC 11 as regards group and treasury share transactions. According to the Amendments, an entity that receives goods or services shall recognize an equity-settled share-based payment transaction when it grants equity instruments in the transaction or when it does not have a commitment to settle the transaction. In all other circumstances, the entity shall recognize a cash-settled share-based payment transaction. The settling entity shall recognize an equity-settled share-based payment transaction only when it settles the transaction with equity instruments, and in all other cases the entity shall recognize a cash- settled share-based payment transaction. The Amendments will be applied retrospectively, subject to the transitional provisions of IFRS 2, as from annual periods beginning on or after January 1, 2010. The initial application of the Standard is not expected to have a material affect on the Group’s results of activities and its financial position.
Amendment to IFRS 5, Non-current Assets Held for Sale and Discontinued Operations (hereinafter – the Amendment) that was made in the framework of the 2008 improvements to IFRSs project. In accordance with the Amendment, when the parent company decides on the disposal of part of its holdings in a subsidiary so that after the disposal the parent company is left with a non-controlling interest, for example rights that confer significant influence, all the assets and liabilities attributed to the subsidiary are to be classified as held for sale and the relevant instructions of IFRS 5 shall apply, including presentation as a discontinued operation. The Amendment to the standard will be implemented prospectively as from the Group’s financial statements for periods beginning on or after January 1, 2010. The initial application of the Standard is not expected to have a material affect on the Group’s results of activities and its financial position.
IFRIC 17, Distributions of Non-cash Assets to Owners (hereinafter – the Interpretation). The Interpretation provides that the obligation of a company for the distribution of non-cash assets to owners is to be accounted for as a liability for the payment of a dividend and be measured at the fair value of the assets to be distributed with any changes in fair value until the date of distribution being recognized in equity. At the time of the distribution, any difference between the carrying amount of the assets and the amount of the liability is recognized in profit or loss, as a separate line item. The Interpretation is to be applied prospectively for annual periods beginning on or after January 1, 2010. The initial application of the Standard is not expected to have a material affect on the Group’s results of activities and its financial position.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
Note 2 - Significant Accounting Policies (cont’d) v. New standards not yet adopted (cont’d)
In the framework of the 2009 Improvements to IFRSs project, in April 2009 the IASB published and approved 15 amendments to various IFRS on a wide range of accounting issues. The amendments shall apply to periods beginning on or after January 1, 2010 and permit early adoption, subject to the specific conditions of each amendment.
Presented hereunder are the amendments that may be relevant to the Group and are expected to have an effect on the financial statements:
* Amendment to IAS 17, Leases – Classification of leases of land and buildings (hereinafter – the Amendment) – In accordance with the Amendment, a lease of land does not have to be classified as an operating lease in every case that ownership is not expected to pass to the lessee at the end of the lease period. In accordance with the amended standard, a land lease is to be examined according to the regular criteria for classifying a lease as a finance lease or as an operating lease. The Amendment also provides that when a lease includes both a land component and a buildings component, the classification of each component should be based on the criteria of the standard, with the principal consideration regarding the classification of land being the fact that land normally has an indefinite useful life.
The Amendment applies to financial statements for annual periods beginning on or after January 1, 2010. The Amendment is to be implemented retrospectively, which means that the classification of land leases is to be examined on the basis of the information that was available on the date of the lease agreement, and that in the event of reclassification of the lease, the provisions of IAS 17 are to be implemented retrospectively as from the date of the lease agreement. Nevertheless, if the entity does not have the information necessary to apply the Amendment retrospectively, it should use the information available on the adoption date of the Amendment and recognize the asset and liability related to a land lease that was classified as a result of the Amendment as a finance lease according to their fair value as at that date. Any difference between the fair value of the asset and the fair value of the liability shall be recognized in retained earnings.
The Group has a land lease agreement which prepaid expenses in the amount of NIS 65 Million are presented in the statement of financial position classified as operating lease. As a result of adopting the Amendment, the Group will classify the land as being leased under a finance lease, and accordingly it will be presented as fixed assets in the statement of financial position. The application of the Standard will have a minor affect on the company’s results.
* Amendment to IAS 36, Impairment of Assets – Unit of accounting for goodwill impairment test (hereinafter – the Amendment) – In accordance with the Amendment, for purposes of impairment testing the largest cash-generating unit to which goodwill should be allocated is the operating segment level as defined in IFRS 8 before applying the aggregation criteria in Paragraph 12 of IFRS 8. The Amendment is to be applied prospectively for annual periods beginning on or after January 1, 2010. The initial application of the Standard is not expected to have a material affect on the Group’s results of activities and its financial position.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
Note 2 - Significant Accounting Policies (cont’d) v. New standards not yet adopted (cont’d)
* Amendment to IAS 39, Financial Instruments: Recognition and Measurement – Scope exemption for business combination contracts (hereinafter – the Amendment) – The Amendment clarifies that the scope exemption in IAS 39 is restricted to forward contracts between an acquirer and a seller with respect to the sale or acquisition of a controlled entity, in a business combination at a future acquisition date. In addition, the term of the forward should not be longer than the period normally necessary for obtaining the approvals required for the transaction. The Amendment is to be applied prospectively to all unexpired contracts for annual periods beginning on or after January 1, 2010. The initial application of the Standard is not expected to have a material affect on the Group’s results of activities and its financial position.
Items Eligible for Hedging, amendment to IAS 39, Financial Instruments: Recognition and Measurement (hereinafter – the Amendment). The Amendment makes clear that an entity may designate as a hedged item changes in cash flows or fair value of a one-sided risk, meaning the risk of exposure to changes above or below a specified price or other defined variable. The Amendment also clarifies that inflationary components can be designated as a separate risk, on the condition that they form a contractually specified portion of the cash flows of an inflation-linked debenture, so that they are separately identifiable and reliably measurable, and if the other cash flows of the instruments are not affected by the inflationary component.
The Amendment is effective retrospectively for annual periods beginning on or after January 1, 2010. The initial application of the Standard is not expected to have a material affect on the Group’s results of activities and its financial position.
IFRS 9, Financial Instruments (hereinafter – the Standard). This standard is the first part of a comprehensive project to replace IAS 39 Financial Instruments: Recognition and Measurement (hereinafter – IAS 39) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets. In accordance with the Standard, there are two principal categories for measuring financial assets: amortized cost and fair value, with the basis of classification for debt instruments being the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset. In accordance with the Standard, an investment in a debt instrument will be measured at amortized cost if the objective of the entity’s business model is to hold assets in order to collect contractual cash flows and the contractual terms give rise, on specific dates, to cash flows that are solely payments of principal and interest. All other financial assets are measured at fair value through profit or loss. Furthermore, embedded derivatives are no longer separated from hybrid contracts that have a financial asset host. Instead, the entire hybrid contract is assessed for classification using the principles above. In addition, investments in equity instruments are measured at fair value with changes in fair value being recognized in profit or loss. Nevertheless, the Standard allows an entity on the initial recognition of an equity instrument not held for trading to elect irrevocably to present fair value changes in the equity instrument in other comprehensive income where no amount so recognized is ever classified to profit or loss at a later date. Dividends on equity instruments measured through other comprehensive income are recognized in profit or loss unless they clearly constitute a return on an initial investment. The Standard removes financial liabilities from its scope.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
Note 2 - Significant Accounting Policies (cont’d) v. New standards not yet adopted (cont’d)
The Standard is effective for annual periods beginning on or after January 1, 2013 but may be applied earlier, subject to providing disclosure and at the same time adopting other IFRS amendments as specified in the Standard. The Standard is to be applied retrospectively other than in a number of exceptions as indicated in the transitional provisions included in the Standard. In particular, if an entity adopts the Standard for reporting periods beginning before January 1, 2012 it is not required to restate prior periods. At this stage it is not possible to estimate the affect on the Group’s results of activities and its financial position.
IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments (hereinafter – the Interpretation). The Interpretation provides the accounting treatment of debt for equity swap transactions. Equity instruments issued to extinguish all or part of a financial liability are “consideration paid”, for the purpose of calculating the gain or loss from the extinguishment of the financial liability. Equity instruments shall be initially measured at fair value, unless fair value cannot be reliably measured, in which case the issued instruments will be measured at the fair value of the financial liability extinguished. Any difference between the amortized cost of the financial liability and the initial measurement amount of the equity instruments issued shall be recognized in profit or loss. The Interpretation is applicable for annual periods beginning on or after July 1, 2010 on a prospective basis. Early application is permitted. The initial application of the Standard is not expected to have a material affect on the Group’s results of activities and its financial position. w. Below are changes in the CPI and exchange rate of the dollar:
Consumer Price Index Exchange Index in Known rate of respect of index the USD % % % For the year ended as at December 31, 2009 3.9 3.8 (0.7) For the year ended as at December 31, 2008 3.8 4.5 (1.1) For the year ended as at December 31, 2007 3.4 2.8 (9.0)
a. General -
The Company operates in the following segments of activity:
1. The segment of life assurance and long term savings
The segment of life assurance and long term savings includes the lines of life assurance, pension and provident funds and it focuses mainly on long term savings (in the framework of various types of insurance policies, pension and provident funds including educational fund), as well as insurance coverages for various risks such as: death, disability, disability income insurance, etc. According to the Regulator’s directives the segment of life assurance and long term savings is detailed into life assurance, pension and provident funds.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS
2. Health insurance segment
The health insurance segment concentrates all the Group’s activities in heal insurance – the segment includes long term care insurance, medical expense insurance, operations, transplants, dental insurance, etc.
3. General insurance segment
The general insurance segment includes the liability and property branches. Pursuant to the Regulator of Insurance’s directives, the general insurance segment is detailed according to the lines of motor act, motor casco, other property branches, other liability branches.
● The motor act insurance line of insurance
The motor act insurance line of business focuses on coverages that their acquisition by the owner of the vehicle or the driver is compulsory by law and it provides a coverage for bodily injuries (to the driver of the vehicle, the passengers in the vehicle or to the pedestrians), as a result of the use of the motor vehicle.
The motor casco line of insurance
The motor casco line of business focuses on the property damage coverage for the insured vehicle and property damages that the insured vehicle will cause to a third party.
Other liability branches
The liability branches are intended for the coverage of the policyholders’ liabilities for any damage that he will cause to a third party. These lines of business include: third party liability, employers’ liability, professional liability and product warranty.
Property and other branches
The other general insurance branches that are not vehicles and liabilities, including property loss, comprehensive business premises, comprehensive residential, mortgage banks, personal accidents, cargo in transit, engineering insurance, other risks and disease and hospitalization.
4. Financial services segment
This segment mainly includes financial assets management services and marketing for investments (mainly management of mutual funds and portfolio management), stock exchange brokerage in arranged markets, underwriting services, market making with various securities as well as other services.
5. Other segments of activity include mainly results from insurance agencies’ activities.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS (Cont.)
b. Reportable segment Year ended as at December 31, 2009 Life assurance Not and long Other attributed Adjustments term General Financial business to business and savings Health insurance services segments segments offsets Total NIS in thousands
Gross premiums earned 5,703,966 511,721 1,521,722 ---- 7,737,409 Premiums earned by reinsurers 132,144 39,272 469,349 ---- 640,765 Premiums earned on retention 5,571,822 472,449 1,052,373 ---- 7,096,644 Net investment income (losses) and finance income 11,339,978 216,585 360,067 104,552 4,385 116,240 (48,504 ) 12,093,303 Income from management fees 595,790 - - 128,141 - -(3,255 ) 720,676 Income from commissions 35,762 9,487 53,205 52,372 323,410 -(* (174,061 ) 300,175 Other income - - - 608 - 44 - 652 Total income 17,543,352 698,521 1,465,645 285,673 327,795 116,284 (225,820 ) 20,211,450 Payments and change in liabilities in respect of gross insurance and investment contracts 15,978,438 440,298 1,177,822 ---- 17,596,558 Reinsurers’ share in payments and change in liabilities in respect of insurance contracts 88,699 23,184 267,417 ---- 379,300 Payments and change in liabilities in respect of insurance and investment contracts on retention 15,889,739 417,114 910,405 ---- 17,217,258 Commissions, marketing expenses and other acquisition expenses 732,893 111,159 322,675 65,184 132,096 -(168,991 ) 1,195,016 Administrative and general expenses 439,925 32,745 44,386 126,691 161,874 23,715 (3,255 ) 826,081 Other expenses 14,340 - - 5,256 21,513 - - 41,109 Finance expenses 30,407 - 9,038 5,762 2,371 27,019 (48,504 ) 26,093 Total expenses 17,107,304 561,018 1,286,504 202,893 317,854 50,734 (220,750 ) 19,305,557 Share in investees profits treated according to the equity value method 39,107 - 6,515 - 155 40,014 - 85,791 Income (loss) before taxes on income 475,155 137,503 185,656 82,780 10,096 105,564 (5,070 ) 991,684 Other comprehensive income before taxes on income 328,895 11,156 161,351 - 855 23,962 - 526,219 Total comprehensive income (loss) for the period before taxes on income 804,050 148,659 347,007 82,780 10,951 129,526 (5,070 ) 1,517,903
*) Derived from income from commissions received from agencies owned by the Group, from activities in the life assurance area and long term savings in the amount of NIS 147,839 thousand, in the health area in the amount of NIS 6,862 thousand and in the general area in the amount of NIS 19,360 thousand.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS (Cont.)
b. Reportable segment (cont.) Year ended as at December 31, 2008 Life assurance Not and long Other attributed Adjustments term General Financial business to business and savings Health insurance services segments segments offsets Total NIS in thousands
Gross premiums earned 5,534,880 481,281 1,490,470 - - - - 7,506,631 Premiums earned by reinsurers 103,791 36,468 439,182 - - - - 579,441 Premiums earned on retention 5,431,089 444,813 1,051,288 - - - - 6,927,190 Net investment income (losses) and finance income (3,984,905) (112,090) 6,469 (53,221) 3,314 61,885 (27,790 ) (4,106,338) Income from management fees 466,474 - - 79,596 - - - 546,070 Income from commissions 41,229 12,060 52,237 27,400 317,386 -(* (173,154 ) 277,158 Other income - - - - 101 576 - 677 Total income 1,953,887 344,783 1,109,994 53,775 320,801 62,461 (200,944 ) 3,644,757 Payments and change in liabilities in respect of gross insurance and investment contracts 1,192,519 258,396 1,101,567 - - - - 2,552,482 Reinsurers’ share in payments and change in liabilities in respect of insurance contracts 54,146 16,086 234,286 - - - - 304,518 Payments and change in liabilities in respect of insurance and investment contracts on retention 1,138,373 242,310 867,281 - - - - 2,247,964 Commissions, marketing expenses and other acquisition expenses 651,165 91,740 317,128 44,484 107,808 -(162,963 ) 1,049,362 Administrative and general expenses 379,831 27,605 46,743 51,305 172,514 23,187 - 701,185 Other expenses 7,852 - - 30,583 20,891 250 (303 ) 59,273 Finance expenses 17,573 - 8,538 1,783 2,342 26,464 (27,790 ) 28,910
Total expenses 2,194,794 361,655 1,239,690 128,155 303,555 49,901 (191,056 ) 4,086,694 Share in investees profits treated according to the equity value method 25,538 - - - 213 31,600 - 57,351
Income (loss) before taxes on income (215,369) (16,872) (129,696) (74,380) 17,459 44,160 (9,888 ) (384,586) Other comprehensive income (loss) before taxes on income (133,314) (4,579) (52,081) 7,694 (72) 4,415 (177,937) Total comprehensive income for the period before taxes on income (348,683) (21,451) (181,777) (66,686) 17,387 48,575 (9,888 ) (562,523) *) Derived from income from commissions received from agencies owned by the Group, from activities in the life assurance area and long term savings in the amount of NIS 142,617 thousand, in the health area in the amount of NIS 8,402 thousand and in the general area in the amount of NIS 22,135 thousand. - 57 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS (Cont.)
b. Reportable segment (cont.) Year ended as at December 31, 2007 Life assurance Not and long Other attributed Adjustments term General Financial business to business and savings Health insurance services segments segments offsets Total NIS in thousands
Gross premiums earned 5,037,866 443,721 1,490,830 - - - - 6,972,417 Premiums earned by reinsurers 111,424 32,484 465,444 - - - - 609,352 Premiums earned on retention 4,926,442 411,237 1,025,386 - - - - 6,363,065 Net investment income (losses) and finance income 4,707,649 75,212 187,442 6,515 4,280 109,519 (5,014 ) 5,085,603 Income from management fees 696,303 - - 112,776 - - - 809,079 Income from commissions 47,368 7,017 50,502 24,995 289,918 -(* (168,507 ) 251,293 Other income - - - - - 8,665 - 8,665 Total income 10,377,762 493,466 1,263,330 144,286 294,198 118,184 (173,521 ) 12,517,705 Payments and change in liabilities in respect of gross insurance and investment contracts 8,877,053 300,363 1,215,858 - - - - 10,393,274 Reinsurers’ share in payments and change in liabilities in respect of insurance contracts 42,626 13,297 448,496 - - - - 504,419 Payments and change in liabilities in respect of insurance and investment contracts on retention 8,834,427 287,066 767,362 - - - - 9,888,855 Commissions, marketing expenses and other acquisition expenses 590,925 89,669 308,995 45,988 92,051 -(161,882 ) 965,746 Administrative and general expenses 351,536 28,100 49,046 57,866 158,113 31,368 - 676,029 Other expenses 20,812 - - 11,582 21,625 - - 54,019 Finance expenses 9,092 - 3,790 2,853 327 15,929 (5,014 ) 26,977 Total expenses 9,806,792 404,835 1,129,193 118,289 272,116 47,297 (166,896 ) 11,611,626 Share in investees profits treated according to the equity value method 22,344 - - - 40 28,891 - 51,275 Income (loss) before taxes on income 593,314 88,631 134,137 25,997 22,122 99,778 (6,625 ) 957,354 Other comprehensive income (loss) before taxes on income 9,611 314 (-164,173) (-20,364) (14,596) Total comprehensive income for the period before taxes on income 602,925 88,945 129,964 25,997 22,138 79,414 (6,625 ) 942,758 *) Derived from income from commissions received from agencies owned by the Group, from activities in the life assurance area and long term savings in the amount of NIS 146,231 thousand, in the health area in the amount of NIS 4,572 thousand and in the general area in the amount of NIS 17,704 thousand. - 58 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD. NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS (Cont.)
c. Additional information regarding the life assurance and long term savings segment
Year ended December 31, 2009 Provident Life funds Pension assurance Total NIS in thousands
Gross premiums earned 5,703,966 - - 5,703,966 Premiums earned by reinsurers 132,144 - - 132,144
Premiums earned on retention 5,571,822 - - 5,571,822
Investment income, net and finance income 11,329,583 10,058 337 11,339,978 Income from management fees 273,370 190,522 131,898 595,790 Income from commission 35,762 - - 35,762
Total income 17,210,537 200,580 132,235 17,543,352
Payments and change in gross liabilities for insurance and investment contracts 15,978,438 - - 15,978,438 Reinsurers’ share in payments and change in liabilities for insurance contracts 88,699 - - 88,699 Payments and change in liabilities for insurance and investment contracts on retention 15,889,739 - - 15,889,739 Commissions, marketing expenses and other acquisition expenses 626,325 72,891 33,677 732,893 Administrative and general expenses 298,893 79,578 61,454 439,925 Other expenses - - 14,340 14,340 Finance expenses 21,555 - 8,852 30,407
Total expenses 16,836,512 152,469 118,323 17,107,304
The Group’s share in profits of investees treated according to the equity method 39,107 - - 39,107
Profit (loss) before taxes on income 413,132 48,111 13,912 475,155
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS (Cont.)
c. Additional information regarding the life assurance and long term savings segment (cont.)
Year ended December 31, 2008 Provident Life funds Pension assurance Total NIS in thousands
Gross premiums earned 5,534,880 - - 5,534,880 Premiums earned by reinsurers 103,791 - - 103,791
Premiums earned on retention 5,431,089 - - 5,431,089
Investment losses, net and finance income (3,986,683 ) 1,778 - (3,984,905) Income from management fees 214,411 177,530 74,533 466,474 Income from commission 41,229 - - 41,229
Total income 1,700,046 179,308 74,533 1,953,887
Payments and change in gross liabilities for insurance and investment contracts 1,192,519 - - 1,192,519 Reinsurers’ share in payments and change in liabilities for insurance contracts 54,146 - - 54,146 Payments and change in liabilities for insurance and investment contracts on retention 1,138,373 - - 1,138,373 Commissions, marketing expenses and other acquisition expenses 564,573 68,381 18,211 651,165 Administrative and general expenses 270,627 77,079 32,125 379,831 Other expenses - 287 7,565 7,852 Finance expenses 11,347 - 6,226 17,573
Total expenses 1,984,920 145,747 64,127 2,194,794
The Group’s share in profits of investees treated according to the equity method 25,538 - - 25,538
Profit (loss) before taxes on income (259,336) 33,561 10,406 (215,369 )
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS (Cont.)
c. Additional information regarding the life assurance and long term savings segment (Cont.)
Year ended December 31, 2007 Provident Life funds Pension assurance Total NIS in thousands
Gross premium earned 5,037,866 - - 5,037,866 Premium earned by reinsurers 111,424 - - 111,424
Premiums earned on retention 4,926,442 - - 4,926,442
Investment income, net and finance income 4,704,254 3,395 - 4,707,649 Income from management fees 524,669 146,600 25,034 696,303 Income from commission 47,368 - - 47,368
Total income 10,202,733 149,995 25,034 10,377,762
Payments and gross change in liabilities for insurance and investment contracts 8,877,053 - - 8,877,053 Reinsurers’ share in payments and in change in liabilities for insurance contracts 42,626 - - 42,626
Payments and change in liabilities for insurance contracts on retention 8,834,427 - - 8,834,427 Commissions, marketing expenses and other acquisition expenses 536,349 47,230 7,346 590,925 Administrative and general expenses 266,314 72,380 12,842 351,536 Other expenses 17,747 - 3,065 20,812 Finance expenses 4,427 - 4,665 9,092
Total expenses 9,659,264 119,610 27,918 9,806,792
The Group’s share in profits of investees treated according to the equity value method 22,344 - - 22,344
Profit before taxes on income 565,813 30,385 (2,884 ) 593,314
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS (Cont.)
d. Additional information regarding the general insurance segment
For the year ended as at December 31, 2009 Property Other Motor Motor and other liability act casco branches (*) branches (*) Total NIS in thousands
Gross premiums 312,01 399,29 491,456 251,109 1,453,874 Reinsurance premiums 7,39 97 353,259 83,388 445,013 Premiums on retention 304,62 398,32 138,197 167,721 1,008,861 Change in unearned premium balance, on retention 14,38 25,03 1,929 2,160 43,512
Earned premium on retention 319,01 423,35 140,126 169,881 1,052,373
Investment income, net and finance income 191,70 20,19 13,605 134,563 360,067 Income from commission 43,960 9,245 53,205
Total income 510,71 443,54 197,691 313,689 1,465,645
Payments and change in liabilities for gross insurance contracts 318,93 345,68 275,370 237,830 1,177,822 Reinsurers share in payments and change in liabilities for insurance Contracts 4,62 (16 210,513 52,444 267,417 Payments and change in liabilities for insurance contracts on retention 314,31 345,85 64,857 185,386 910,405 Commission, marketing expenses and other acquisition expenses 37,56 107,68 125,814 51,605 322,675 Administrative and general expenses 16,08 9,27 11,789 7,240 44,386 Finance expenses 3,00 48 3,410 2,137 9,038
Total expenses 370,97 463,29 205,870 246,368 1,286,504 Share in profits of investees treated according to the equity value method 3,46 36 246 2,435 6,515 Income (loss) before taxes on income 143,21 (7,93319,38 ( 69,756 185,656
Liabilities in respect of gross insurance contracts as at December 31, 2009 1,418,56 254,13 566,513 1,420,680 3,659,887 *) Property and other branches mainly include the results of comprehensive residential, comprehensive business premises and cargo in transit insurance branches whose activities constitute 88% of the total premiums in these branches.
Other liability branches mainly include the results of employers’ liability and third party insurance branches whose activities constitute 64% of the total premiums in these branches.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS (cont.)
d. Additional information regarding the general insurance segment (cont.)
For the year ended as at December 31, 2008 Property Other Motor Motor and other liability Act casco branches (*) branches (*) Total NIS in thousands
Gross premiums 316,31 443,37 521,059 246,779 1,527,528 Reinsurance premiums 6,07 71 369,299 79,893 455,979 Premiums on retention 310,24 442,65 151,760 166,886 1,071,549 Change in unearned premium
balance, on retention (11,54 (11,20 2,984 (20,26496 ( 1
Earned premium on retention 298,69 431,45 154,744 166,390 1,051,288
Investment income, net and finance income 1,90 37 2,901 1,290 6,469 Income from commission 41,973 10,264 52,237
Total income 300,59 431,83 199,618 177,944 1,109,994
Payments and change in liabilities for gross insurance contracts 288,87 326,47 202,844 283,369 1,101,567 Reinsurers share in payments and change in liabilities for insurance contracts 13,36 1,22 136,750 82,950 234,286 Payments and change in liabilities for insurance contracts on retention 275,51 325,25 66,094 200,419 867,281 Commission, marketing expenses and other acquisition expenses 35,56 112,43 120,856 48,266 317,128 Administrative and general expenses 13,43 9,61 17,612 6,079 46,743 Finance expenses 3,00 50 2,969 2,061 8,538
Total expenses 327,51 447,81 207,531 256,825 1,239,690
Loss before taxes on income (26,91 (15,98 (7,913 (78,881 ( 129,696
Liabilities in respect of gross insurance contracts as at December 31, 2008 1,392,21 272,31 763,757 1,286,087 3,714,376
*) Property and other branches mainly include the results of comprehensive residential, comprehensive business premises and cargo in transit insurance branches whose activities constitute 81% of the total premiums in these branches.
Other liability branches mainly include the results of employers’ liability and third party insurance branches whose activities constitute 55% of the total premiums in these branches.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS (cont.)
d. Additional information regarding the general insurance segment (Cont.)
For the year ended as at December 31, 2007 Property Other Motor Motor and other liability Act casco branches (*) branches (*) Total NIS in thousands
Gross premiums 293,45 420,104 534,052 253,542 1,501,157 Reinsurance premiums 6,96 797 367,449 88,776 463,986 Premiums on retention 286,49 419,307 166,603 164,766 1,037,171 Change in unearned premium balance, on retention 1,86 (23,212 3,441 6,118 (11,785
Earned premium on retention 288,36 396,095 170,044 170,884 1,025,386
Investment income, net and finance income 99,78 11,578 7,957 68,127 187,442 Income from commission 41,708 8,794 50,502
Total income 388,14 407,673 219,709 247,805 1,263,330
Payments and change in liabilities for gross insurance contracts 248,15 286,992 422,808 257,900 1,215,858 Reinsurers share in payments and change in liabilities for insurance contracts 4,10 444 353,080 90,870 448,496 Payments and change in liabilities for insurance contracts on retention 244,05 286,548 69,728 167,030 767,362 Commission, marketing expenses and other acquisition expenses 35,50 97,654 126,785 49,050 308,995 Administrative and general expenses 13,68 11,152 17,518 6,691 49,046 Finance expenses 1,97 228 861 722 3,790
Total expenses 295,22 395,582 214,892 223,493 1,129,193
Income before taxes on income 92,91 12,091 4,817 24,312 134,137
Liabilities in respect of gross insurance contracts as at December 31, 2007 1,330,06 250,782 859,081 1,287,121 3,727,045
*) Property and other branches mainly include the results of comprehensive residential, comprehensive business premises and cargo in transit insurance branches whose activities constitute 81% of the total premiums in these branches.
Other liability branches mainly include the results of employers’ liability and third party insurance branches whose activities constitute 54% of the total premiums in these branches.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS (Cont.) e. Details on segment assets and liabilities December 31, 2009 Life Not assurance Other attributed to Adjustments and long General Financial business business and term savings Health insurance services segments segments offsets Total NIS in thousands
Assets Intangible assets 437,603 402,355 118,139 225,914 - 1,184,011 Deferred acquisition costs 1,107,764 235,054 106,999 - - (55,644) 1,394,173 Investments in affiliates 298,726 89,662 924 158,497 - 547,809 Financial investments for yield dependent contracts 38,226,120 793,773 - - - 39,019,893 Other financial investments 20,180,276 244,322 2,217,782 360,621 25,175 1,564,488 (404,225 ) 24,188,439 Reinsurance assets 86,910 4,991 989,282 - - - 1,081,183 Outstanding premiums 124,280 11,148 238,227 9,271 - - 382,926 Other assets 5,399,316 49,798 274,109 70,746 151,611 598,297 (267,003 ) 6,276,874
Total assets 65,860,995 1,339,086 3,916,061 833,722 305,120 2,547,196 (726,872 ) 74,075,308
Total assets for yield dependent contracts 42,325,878 839,831 - - - 43,165,709
Liabilities: Liability due to insurance contracts and non-yield dependent investment contracts 20,899,817 263,739 3,659,887 - - - 24,823,443 Liability due to insurance contracts and yield dependent investment contracts 41,992,325 788,055 - - - 42,780,380 Other liabilities 1,658,985 52,238 256,174 771,406 305,120 62,721 (688,765 ) 2,417,879
Total liabilities 64,551,127 1,104,032 3,916,061 771,406 305,120 62,721 (688,765 ) 70,021,702
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 3:- BUSINESS SEGMENTS (Cont.) e. Details on segment assets and liabilities (cont.)
December 31, 2008 Life Not assurance Other attributed to Adjustments and long General Financial business business and term savings Health insurance services segments segments offsets Total NIS in thousands
Assets Intangible assets 452,288 410,457 123,967 189,685 - 1,176,397 Deferred acquisition costs 1,089,454 247,748 121,363 - - (50,674) 1,407,891 Investments in affiliates 109,682 1,025 139,633 - 250,340 Financial investments for yield dependent contracts 27,422,346 663,522 - - - 28,085,868 Other financial investments 18,558,425 189,773 2,055,146 191,777 20,400 1,130,836 (311,668 ) 21,834,689 Reinsurance assets 82,460 951 1,063,322 - - - 1,146,733 Outstanding premiums 108,167 6,802 278,811 8,731 - - 402,511 Other assets 4,808,273 128,304 390,789 204,982 147,242 629,661 (476,894 ) 5,832,357
Total assets 52,631,095 1,237,100 3,909,431 807,216 301,365 2,089,815 (839,236 ) 60,136,786
Total assets for yield dependent contracts 31,402,572 743,465 - - - 32,146,037
Liabilities: Liability due to insurance contracts and non-yield dependent investment contracts 19,396,242 188,002 3,714,376 - - - 23,298,620 Liability due to insurance contracts and yield dependent investment contracts 30,421,944 645,871 - - - 31,067,815 Other liabilities 1,505,163 155,479 195,055 740,186 301,365 688,686 (806,506 ) 2,779,428
Total liabilities 51,323,349 989,352 3,909,431 740,186 301,365 688,686 (806,506 ) 57,145,863
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 4:- INTANGIBLE ASSETS
a. Composition: Initial difference relating to value Future of insurance management Brand Computer Goodwill portfolios fees name software Other Total NIS in thousands Cost Balance as at January 1, 2008 584,755 701,886 96,916 5,163 402,139 2,225 1,793,084 Acquisitions in the framework of a business combinations (1) 290,021 831 116,707 5,163 2,287 2,702 417,711 Acquisitions and independent development (2) - - - - 113,309 - 113,309 Balance as at December 31, 2008 874,776 702,717 213,623 10,326 517,735 4,927 2,324,104 176 11,476 - - - - 11,652 Acquisitions and additions in the framework of a business combinations (3) - - - - 106,116 - 106,116 Acquisitions and independent development (2) - - - - - (2,310) (2,310) Balance as at December 31, 2009 874,952 714,193 213,623 10,326 623,851 2,617 2,439,562 Accumulated amortization and accumulated impairment losses Balance as at January 1, 2008 86,071 615,284 20,983 777 266,705 219 990,039 Amortization recognized during the year 20,578 17,031 616 55,880 871 94,976 Impairment (3) 13,214 - 2,500 787 - - 16,501 Acquisitions and additions in the framework of a business combinations (1) 6,714 - 36,023 2,047 1,188 219 46,191 Balance as at December 31, 2008 105,999 635,862 76,537 4,227 323,773 1,309 1,147,707
Amortization recognized during the year - 21,138 19,265 649 66,252 540 107,844 Balance as at December 31, 2009 105,999 657,000 95,802 4,876 390,025 1,849 1,255,551 Net book value As at December 31, 2009 768,953 57,193 117,821 5,450 233,826 768 1,184,011 As at December 31, 2008 768,777 66,855 137,086 6,099 193,962 3,618 1,176,397
(1) Resulting mainly from the acquisition of 50% of the shares of Migdal Capital Markets. (2) The amounts of NIS 81 million and NIS 73 million were included in 2009 and 2008, respectively, in respect of the independent development of computer software. (3) In 2008 impairment was recorded in respect of the intangible assets relating to the mutual fund activity as the result of a decrease in average management fees that is due to the decrease in managed assets in 2008.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 4:- INTANGIBLE ASSETS (Cont.)
b. Examination of recoverability of intangible assets with an indefinite term
In order to examine the recoverability of goodwill as at December 31, 2009, the goodwill was allocated to the following cash generating units:
Pension Provident funds Financial services Other
Hereunder is the carrying amount of the goodwill that was allocated to each of the following cash generating units:
As at December 31 2009 2008
Pension 190,866 190,866 Provident funds 139,949 139,949 Financial services 382,482 382,306 Other (mainly insurance agencies) 55,656 55,656
Total 768,953 768,777
In order to examine the recoverability of the goodwill, the recoverable amount of the cash generating unit to which the goodwill was allocated, is examined in relation to its carrying amount. If the carrying amount of the cash generating unit is higher than its carrying amount, the value of the unit and the assets allocated to it will be considered undamaged.
The recoverable amount of the pension unit is determined on the basis of the calculation of the embedded value as at December 31, 2009. The recoverable amount is significantly higher than the carrying amount of the unit.
The recoverable amount of the provident fund and financial services units is determined on the basis of the future cash flows estimate deriving from the activities of each of the units. The recoverable amount of each one of these units is significantly higher than the carrying amount of each of the units.
The key assumptions used for the calculation of the value in use
The calculation of the recoverability of the provident funds segment is based on the following main assumptions:
The discount interest rate – 11.5%. This rate was determined using the W.A.C.C. model, on the basis of parameters characteristic of this type of activity. The long term growth rate – 1.75%. The rate was determined on the basis of the average long- term growth rate accepted for this type of activity. Average management fees in the long term provident funds – 1.12%. This rate was determined on the basis of the management fees currently accepted on the market.
The calculation of the recoverability of the financial services segment is based on the following main assumptions:
The discount interest rate – 11.5%. This rate was determined using the W.A.C.C. model, on the basis of parameters characteristic of this type of activity. The long term growth rate – 1.75%. The rate was determined on the basis of the average long- term growth rate accepted for this type of activity. Average management fees in the long term mutual funds – 0.98%. This rate was determined on the basis of the management fees currently accepted on the market.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 5:- DEFERRED ACQUISITION COSTS
a. Composition:
As at December 31 2009 2008 NIS in thousands
Life assurance and long term savings (*) 1,052,120 1,038,780 Health insurance 235,054 247,748 General insurance 106,999 121,363
1,394,173 1,407,891
*) Including deferred acquisition costs in respect of pension funds.
b. The movement in deferred acquisition costs in life assurance and long term savings and in health insurance:
Life assurance and long term savings Health Total NIS in thousands
Balance as at January 1, 2008 976,971 236,035 1,213,006 Additions: Acquisition commissions 170,963 38,766 209,729 Other acquisition expenses 80,566 6,636 87,202 Total additions 251,529 45,402 296,931 Current amortization 115,846 27,807 143,653 Amortization due to cancellations 73,874 5,882 79,756
Balance as at December 31, 2008 1,038,780 247,748 1,286,528 Additions: Acquisition commissions 158,426 24,472 182,898 Other acquisition expenses 90,367 8,400 98,767 Total additions 248,793 32,872 281,665 Current amortization 124,807 36,196 161,003 Amortization due to cancellations 110,646 9,370 120,016
Balance as at December 31, 2009 1,052,120 235,054 1,287,174
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 6:- FIXED ASSETS
a. Composition and movement:
Year 2009
Land and Office office Computers furniture buildings and and Leasehold (*) Software Vehicles equipment improvements Total NIS in thousands
Cost
Balance as at January 1, 2009 360,791 204,389 2,534 124,806 30,022 722,542 Additions during the year 18,360 9,969 17,546 11,654 4,943 62,472 Company consolidated for the first time - (2,257 ) (553) (39) (2,652) (5,501) Disposals during the year - (112 ) - (9) (33) (154) Transfer from investment property 10,900 - - - - 10,900
Balance as at December 31, 2009 390,051 211,989 19,527 136,412 32,280 790,259
Accumulated depreciation
Balance as at January 1, 2009 82,722 136,053 1,272 79,032 14,548 313,627 Additions during the year 15,187 25,800 1,343 7,721 5,012 55,063 A company consolidated for the first time - (15 ) (400) (26) (2,651) (3,092) Disposals during the year - (72) - (5) (17) (94)
Balance as at December 31, 2009 97,909 161,766 2,215 86,722 16,892 365,504
Balance of amortized cost as at December 31, 2009 292,142 50,223 17,312 49,690 15,388 424,755
Annual amortization rates 2%-4% 17%-33% 15% 6%-15% 10%-17%
*) The land is wholly owned by the Group.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 6:- FIXED ASSETS
a. Composition and movement: Year 2008
Land and Office office Computers furniture buildings and and Leasehold (*) Software Vehicles equipment improvements Total NIS in thousands
Cost
Balance as at January 1, 2008 322,732 197,183 2,744 138,115 26,092 686,866 Additions during the year 11,225 32,984 669 8,538 5,686 59,102 Company consolidated for the first time - 4,425 90 1,935 667 7,117 Disposals during the year (2,079 ) (30,203) (969) (23,782) (2,423) (59,456) Transfer from investment property 28,913 - - - - 28,913
Balance as at December 31, 2008 360,791 204,389 2,534 124,806 30,022 722,542
Accumulated depreciation
Balance as at January 1, 2008 72,260 135,719 1,604 94,356 12,409 316,348 Additions during the year 11,871 27,507 344 7,586 2,893 50,201 A company consolidated for the first time - 2,819 30 448 298 3,595 Disposals during the year (1,409 ) (29,992) (706) (23,358) (1,052) (56,517)
Balance as at December 31, 2008 82,722 136,053 1,272 79,032 14,548 313,627
Balance of amortized cost as at December 31, 2008 278,069 68,336 1,262 45,774 15,474 408,915
Annual amortization rates 2%-4% 17%-33% 15% 6%-15% 10%-17%
*) The land is wholly owned by the Group.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 7:- INVESTMENTS IN INVESTEES
a. Details in respect of affiliated companies and subsidiaries held by the Company
1. Affiliated companies
2009 Loans and capital notes granted by the Amount of Company to investment in County of Ownership affiliated affiliated incorporation interest companies (2) companies % NIS in thousands Principal affiliated companies: Ramat Aviv Mall Ltd. Israel 26.6 114,033 159,832 Amot Investments Ltd. Israel (1) 16.1 - 268,987 114,033 428,819 Other affiliated companies - 4,957 Total affiliated companies 114,033 433,776
(1) Migdal Insurance has a director in Amot Investments Ltd. (hereinafter – Amot) and the right to appoint another director in Amot. Therefore, the potential voting power in Amot, including the aforementioned right, is 20%. (2) In June 2009 Migdal Insurance provided the amount of NIS 142 million to Ramat Aviv Mall Ltd. as follows: A. A capital note in the amount of NIS 75,810 thousand, issued for a minimum period of 5 years, and bearing no interest and no linkage. B. Redeemable shares in the amount of NIS 66,500 thousand that bear no interest and no linkage. On February 25, 2010 the board of directors of the affiliated company decided to redeem NIS 45,220 thousand of the redeemable shares. The capital note and shares are presented in the financial statements at their present value.
2008 Amount of Ownership investment in County of and voting affiliated incorporation interest companies NIS in % thousands
Principal affiliated companies: Ramat Aviv Mall Ltd. Israel 26.6 243,684 Other affiliated companies 6,656
Total affiliated companies 250,340
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 7:- INVESTMENTS IN INVESTEES (Cont.)
a. Details in respect of affiliated companies and subsidiaries held by the Company (Cont.)
2. Subsidiaries directly held by the Company
2009
Loans and capital notes granted by the Amount of County of Ownership Company to investment in incorporation interest subsidiaries subsidiaries % NIS in thousands Migdal Insurance Company Ltd. (Migdal Insurance) Israel 100 102,577 3,359,167 Migdal Investments Management 2001 Ltd. (Migdal Investments) Israel 100 129,004 431,150 Total 231,581 3,790,317
2008
Loans and capital notes granted by the Amount of County of Ownership Company to investment in incorporation interest subsidiaries subsidiaries % NIS in thousands Migdal Insurance Company Ltd. (Migdal Insurance) Israel 100 98,631 2,372,594 Migdal Investments Management 2001 Ltd. (Migdal Investments) Israel 100 103,207 356,601 Total 201,838 2,729,195
b. Summary financial data for affiliated companies treated according to the equity value method
The data are presented according to the percentage of holding in the affiliated companies:
Year ended December 31 2009 2008 NIS in thousands
Assets (*) 1,312,788 434,020 Liabilities 879,012 183,680
Net assets 433,776 250,340 (*) Including balances of initial differences and goodwill.
The Group’s share of the operating results of affiliated companies. The data are presented according to the percentage of holding in the affiliated companies:
Year ended December 31 2009 2008 2007 NIS in thousands Revenues 189,898 90,348 72,841
Net income 85,791 57,351 51,275
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 7:- INVESTMENTS IN INVESTEES (Cont.)
c. Summary financial data from the financial statements of companies consolidated by the proportionate consolidation method
The Group’s share of the operating results of the companies according to the rate of holding therein during the period: (*)
Year ended December 31 2009 2008 2007 NIS in thousands Income - 102,265 161,914
Expenses - 124,679 133,343
Profit (loss) for the period - (27,413) 15,443
(*) The operating data for 2008 relate to the period in which Migdal Capital Markets was proportionately consolidated and include amortizations of initial differences. For further detail see Paragraph e.1 hereunder.
d. Dividends received or receivable by the Company from affiliated companies
Year ended December 31 2009 2008 2007 NIS in thousands From affiliated companies 180,072 - 53,301
From subsidiaries - - 704,250
In February 2010 the board of directors of Migdal Insurance approved the distribution of a dividend in the amount of NIS 240 million, for further details see Note 39A on subsequent events.
e. Additional information regarding investees
1. In August 2008 an agreement was signed between BSAM (“the seller”), Bear Stearns Companies Inc.(parent company of BSAM), JP Morgan Chase & Co. (“JPMC”) (the new controlling shareholder in BSAM), Migdal Investment Management (“the purchaser”), the Company and Migdal Capital Markets, whereby Migdal Investments undertook to acquire, subject to receipt of approval from the authorities and all the other suspending conditions as determined in the agreement, all the seller’s (BSAM) rights in the share capital of Migdal Capital Markets (about 50%) and in the shareholders’ loans provided to Migdal Capital Markets in consideration for about U.S. $ 70 million.
In October 2008, after receipt of approvals from the authorities and fulfillment of the remaining suspending conditions determined in the acquisition agreement, the share acquisition transaction was completed. From this date the Company once again held, through Migdal Investment Management, all of Migdal Capital Markets’ share capital. The consideration is from the Company’s own resources.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 7:- INVESTMENTS IN INVESTEES (Cont.)
e. Additional information regarding investees (cont’d)
The consolidated financial statements include 50% of the operating results of Migdal Capital Markets until the date full control was obtained in October 2008 (until that date Migdal Capital Markets was proportionately consolidated). As from that date the consolidated financial statements include the full (100%) operating results of the Migdal Capital Markets.
2. In July 2007 a transaction was completed through Migdal Platinum Provident Ltd. (hereunder – “Migdal Platinum”), a subsidiary wholly owned by Migdal Capital Markets, for the acquisition of goodwill, management rights, additional rights and the means of control of Bank Leumi LeIsrael Ltd. and Bank Discount Ltd. (hereunder – “the Banks”) in Kahal Study Funds for Employees Ltd. (hereunder “Kahal”) and the acquisition of goodwill, activities, assets and liabilities in connection with the management of study funds under the management of the Kahal - Management of Study Funds (1996) Ltd. (hereunder – “Kahal Management”). In return Migdal Platinum paid the banks and Kahal the amount of about NIS 264 million. From this amount, the sum of NIS 131 million was attributed to goodwill.
Before concluding the aforementioned transaction, Migdal Platinum and Kahal signed the following agreements:
(1) Distribution agreements with banks regarding the study funds it manages and regarding the study funds sold, according to which the banks will market the study funds in return for distribution commission at the maximum rate determined by the Supervision of Financial Services Regulations (Provident Funds) (Distribution Commissions), 2006 (0.25%). The distribution agreements will be for a period of 10 years.
(2) An agreement to receive operating services from Leumi Gemel Ltd. regarding the study funds sold, for a period of 5 years that may be shortened if certain conditions are fulfilled. In return for the operating services, the maximum commission (0.1%) as prescribed in the circular published by the Ministry of Finance Supervisor of the Capital Market, Insurance and Savings will be paid. In December 2007 Kahal - Study Funds for Employees Ltd. completed the restructure process, under which the Study Fund was separated from its corporate envelope, and transferred to management in trust (as a plan) by Migdal Platinum.
3. Migdal Agencies concentrates the Group’s investments in insurance agencies, which include, among others, the subsidiaries’: Mivtach Simon, Ihud, Sagi Yogev, Shaham and Peltours. It is noted that the long term saving activities is concentrated in Mivtach Simon, Ihud, Sagi Yogev and Shaham and the general insurance business is concentrated in Peltours.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 7:- INVESTMENTS IN INVESTEES (Cont.)
3. (cont’d)
Following the Group’s decision to perform a reorganization in the insurance agencies, a decision was made in December 2007 to merge the activities of a number of subsidiaries with Mivtach Simon. A final approval of the merger was received on March 8, 2009 and the merger became effective as from December 31, 2007.
4. In September 2009 Migdal Insurance invested the amount of NIS 250 million in shares of Amot Investments Ltd. (hereinafter – Amot). This investment grants Migdal Insurance significant influence in Amot. The investment was made in cash in consideration for a private allotment of shares to Migdal Insurance, out of money for non-yield dependent liabilities. The allotted shares constitute 16.1% of the issued and paid-in share capital of Amot immediately after the allotment. As at December 31, 2009 the fair value of these share on the Tel Aviv Stock Exchange is NIS 314 million.
5. Decision on concentrating the provident fund activity of the Group (including educational funds) – The Group’s provident fund activity is executed through three provident fund managing companies by means of a managing company owned by the parent company.
Following an amendment to the provident fund law that allows a managing company of a pension fund to manage also provident funds, on August 17, 2009 the Company’s Board of Directors approved a reorganization in the provident fund activity of the Group, pursuant to which the activity of all the Group’s provident funds (including educational funds) will be concentrated by one managing company – Migdal Makefet, which presently manages the activity of the Group’s new pension funds.
It is planned to execute the said reorganization until December 31, 2010. The provident fund reorganization is subject to various approvals and procedures in the Group, including deciding on the final shape of the reorganization. The reorganization will also be contingent on, inter alia, receiving approvals from the Regulator, the tax authorities, the court (if the Group chooses to execute a merger in accordance with Section 350 of the Companies Law), or any other court approval, as necessary according to the detailed merger plan that is approved, and other related approvals deriving from the detailed merger plan and the conditions of the aforesaid approvals.
6. In March 2010 the Group entered into a transaction with Bituach Haklai Central Cooperative Society Ltd. (hereinafter – Bituach Haklai) with respect to the acquisition of 50% of the participation units in Bituach Haklai. For further details see Note 39B regarding subsequent events.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 7:- INVESTMENTS IN INVESTEES (Cont.)
f. Management and capital requirements in insurance subsidiary
1. Management's policy is to maintain a strong capital base in order to preserve the Company's ability to continue its operations in order to generate yields for its shareholders and in order to support future business activities. Migdal Insurance and other institutional entities that are consolidated in the financial statements are subject to capital requirements laid down by the Regulator of Insurance.
2. Hereunder are details with respect to the required and existing capital of Migdal Insurance pursuant to the Supervision of Financial Services (Insurance) Law (Minimum Solvency Margin Required from an Insurer), 1998 as amended in 2004 (hereunder – the capital regulations), and the Regulator's directives.
December 31 2009 2008(d) NIS in thousands
Amount required as per the amended capital regulations(a) 3,284,688 - Amount required as per the capital regulations prior to issuance of the amendment 2,254,772 -
Difference (b) 1,029,916 - Amount required per the capital regulations and the Regulator’s directives 2,563,747 2,197,389 Total existing amount calculated as per the capital regulations: Primary capital 3,370,027 2,380,881 Subordinated loan capital (c) 102,577 98,631 Total existing amount as at December 31, 2009 calculated as per the capital regulations 3,472,604 2,479,512
Surplus 908,857 282,123
Apart from the general requirements in the Companies Law, the distribution of dividends from surplus capital in insurance companies is also subject to liquidity requirements and compliance with the investment regulations. In this respect, the investment that should be provided against surplus capital in accordance with the Regulator's directives, and hence comprise non-distributable surplus 10,127 9,187
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 7:- INVESTMENTS IN INVESTEES
f. (cont’d)
(a) The required amount includes, among others, capital requirements in respect of:
December 31 2009 2008 NIS in thousands
Activity in general insurance/required primary capital 328,709 304,678 Long-term care insurance activity 18,706 17,585 Extraordinary risks in life assurance 324,308 323,256 Deferred acquisition costs in life assurance and insurance for diseases and hospitalization 1,310,460 1,303,226 Requirements in respect of yield-guaranteed plans 21,713 35,281 Inadmissible assets as defined in the capital regulations 22,607 19,535 Investment in insurance subsidiaries and consolidated managing companies 217,041 193,828 Investment assets and other assets 719,581 - Catastrophe risks in general insurance 83,914 - Operating risks 229,882 - Guarantees 7,767 - Total amount required according to the amended capital regulations 3,284,688 2,197,389
(b) In November 2009, an amendment to the Supervision of Financial Services Regulations (Minimum Solvency Margin Required from an Insurer) (Amendment), 2009 (hereunder – the amendment) was published.
According to the amendment, until the date of issuance of the financial statements, an insurer will be obligated to increase its capital in respect of the difference between the capital required according to the regulations before and after the amendment (hereinafter – the difference). The difference will be calculated at each reporting date. The capital will be increased on the dates and according to the rates specified hereunder:
- Until the date of issuing the financial statements for December 31, 2009 at least 30% of the difference; - Until the date of issuing the financial statements for December 31, 2010 at least 60% of the difference; - Until December 31, 2011 the remaining balance of the difference.
The aforementioned rates will increase by 15% on the dates of issuing the semi- annual financial statements following the dates of issuing the aforementioned financial statements.
(c) Present value of a capital note in the amount of NIS 120,000 thousand that was issued by Migdal Insurance to the Company.
(d) The amounts presented with respect to December 31, 2008 are based on the capital regulations that were in effect at that time.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 7:- INVESTMENTS IN INVESTEES (cont’d)
f. (cont’d)
3. The amendment added capital requirements to the existing capital requirements in respect of the following categories:
a. Operating risks.
b. Market and credit risks as a percentage of assets based on the level of risk that characterizes the various assets.
c. Risks of a catastrophe in general insurance.
d. Capital requirements in respect of guarantees.
In addition, the capital requirements were expanded in respect of the following categories:
a. Yield guaranteeing life assurance programs which are not backed by or part of them are not backed by designated bonds.
b. Capital requirements for the insurer's holding of provident fund and pension fund managing companies.
The amendment also provided the following alleviations:
- An alleviation in the manner of calculating the required capital with respect to information system development expenses, subject to the approval of the Regulator.
- Deduction of a tax provision created in respect of inadmissible assets held contrary to investment regulations or contrary to the directives of the Regulator.
- It was provided that the Regulator will be permitted to allow, subject to conditions to be determined by the Regulator, a reduction in the capital requirements, in the amount of up to 35% of the original difference, due to the acquisition of provident fund operations or a company managing provident funds, if its shareholders’ equity at the reporting date is no less than the minimum required shareholders’ equity less 35% of the original difference due to the acquisition of the provident fund operations or a company managing provident funds.
The amendment eliminated the definition of basic capital, changed the definitions of primary capital and subordinated loan capital and added a definition of tier 3 capital. The definitions of subordinated loan capital and tier 3 capital are subject to the conditions and rates provided by the Regulator. Furthermore, and according to the intention of the Regulator to adopt in the future the European Union Solvency II directive for securing insurers’ solvency, a second draft was issued in March 2010 regarding the composition of an insurer’s capital (hereinafter – the second draft).The second draft provides rules regarding the recognized capital of an insurer, as well as a framework of principles for recognizing various capital components and classifying them to the various tiers of capital.
The second draft includes a temporary order regarding the composition of an insurer’s capital between April 1, 2010 and such date announced by the Regulator pursuant to which the provisions of the second draft will come into effect gradually.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 7:- INVESTMENTS IN INVESTEES (cont’d)
4. In accordance with a letter that was published by the Regulator on March 29, 2009, commencing from the financial statements for the year 2008 and up to December 30, 2010, an insurance company and a managing company will not distribute dividends, unless they obtain the Regulator's prior approval. According to the letter, it will generally not be allowed to distribute a dividend higher than 25% of the profit that is allowable for distribution.
Further to the aforesaid letter, a clarification was issued in March 2010 with respect to the criteria for allowing a dividend distribution by an insurer (hereinafter – the clarification).
According to the clarification, an insurance company will be allowed to request the Regulator’s approval to a dividend distribution from the date of issuing the periodic reports for 2009, subject to the amount of capital being as specified in the clarification and it providing an annual forecast of profits for the years 2010 and 2011, an updated debt service plan that received the approval of the board of directors of the holding company that holds the insurance company, an operative plan for raising capital that received the approval of the board of directors of the insurance company, and minutes of the meeting held by the board of directors of the insurance company in which the dividend distribution was approved.
Nevertheless, the clarification states that a company whose capital, after the dividend distribution, is 110% higher than the amount required in the clarification, is allowed to distribute a dividend without obtaining the prior approval of the Regulator, providing that before the dividend distribution it gave to the Regulator notice of this and the required documents.
5. On July 10, 2007, the European Union adopted the proposed version of the Solvency II Directive (hereunder – the proposed Directive). The proposed Directive forms a fundamental and comprehensive change in the Regulations relating to guaranteeing the redemption ability and the capital solvency of the insurance companies who are members of the European Union. According to the schedule that was set by the European Union, the implementation of the proposed Directive in the European Union states is expected to be in the second half of the year 2012.
According to a circular that was published by the Regulator of Insurance, he intends to apply the provisions of the proposed Directive with respect to insurance companies in Israel when this Directive is applied in the countries who are members the European Union. The proposed Directive is based on three levels: quantitative requirements, qualitative requirements and disclosure requirements. The Company began to prepare for the application of the proposed Directive according to the determined schedule.
6. In June 2008, a circular was published with respect to the mode of application of the principles of measurement and presentation under IFRS, for the calculation of the required capital and the admissible capital of insurance companies. The purpose of the circular was to set directives regarding the mode of application of the capital regulations with respect to investments in investees (including insurance companies and managing companies controlled by insurance companies). According to the circular the capital requirements pursuant to the capital regulations will continue to be based on separate financial statements. In order to calculate the admissible capital according to the capital regulations, the investment of an insurance company in another insurance company or in a controlled managing company, as well as in other investees, will be calculated on an equity basis along the chain of control.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 7:- INVESTMENTS IN INVESTEES (cont’d)
7. In June 2009, a draft of the Supervision of Financial Services Regulations (Provident Funds) (Minimum Shareholders' Equity required from a Management Company), 2009 as well as a draft circular regarding the capital requirements of managing companies (hereinafter – “the directives”).
In accordance with the directives, it is proposed to expand the capital requirements from managing companies. The new capital requirements will include capital requirements according to the volume and method of holding the managed assets, but not less than an initial shareholders' equity of NIS 10 million. Furthermore, it was provided that if the company should consider it appropriate to hold the capital in its accounts (and not in a trust account), it will be required to provide additional capital in the amount of the deferred acquisition costs, the balance of the original difference relating to acquisition of an operation and controlled companies and assets held contrary to the investment rules.
In accordance with the directives, a managing company whose shareholders' equity on the date of publication of the regulations is lower than the minimum shareholders' equity required in the regulations will have to increase its shareholders' equity at least by half of the required amount up to March 31, 2010 and the balance of the amount up to December 31, 2010.
In the opinion of the Company, if the aforementioned directives are adopted in the present form, the capital required from Migdal Insurance as a result thereto will increase by NIS 50 million.
8. Migdal Insurance undertook to supplement the required shareholders’ equity (“the equity”) of its following wholly owned entities: Makefet, Yozma, Migdal Provident and Makefet Provident. This undertaking will be realized only when the equity of the abovementioned institutional entities will be negative, and in the amount of the negative equity, provided that the supplementation will not exceed the said liability ceiling and it is valid as long as Migdal Insurance is the controlling shareholder in these institutional entities.
Migdal Investment Management 2001 Ltd. (hereinafter – “Migdal Investments”), a company wholly owned by the Company, undertook to supplement the required shareholders’ equity of Migdal Platinum up to the amount prescribed in the Income Tax Regulations (Rules for Approval and Management of Provident Funds), 1964 or any other regulation or law that will replace them and it will be in force as long as Migdal Investments is the controlling shareholder in Migdal Platinum.
9. One of the subsidiaries (hereinafter – the subsidiary) of Migdal Capital Markets (1965) Ltd., which is wholly owned by the Company, is a member of the stock exchange. The stock exchange is advancing a new model for financial stability of the stock exchange members that are not banks (hereinafter – “non-banking members”). In the framework of this model it is planned to amend the stock exchange’s articles, including adjustment of the equity and liquidity requirements and the rules for providing credit to customers by non-banking members. The new model will probably require increasing the equity of the non-banking members (in some cases very significantly). According to the assessments of the subsidiary, which are based on the most recent draft of the stock exchange’s proposal and trading data current for 2009, the subsidiary will be required to increase its shareholders’ equity by an amount of NIS 70 million.
As at the date of the financial statements, the version of the amendment that will be brought before the board of directors of the stock exchange for its approval is as yet unclear.
10. In February 2010 the board of directors of Migdal Insurance approved the distribution of a dividend in the amount of NIS 240 million. For further details see Note 39A.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 8:- INVESTMENT PROPERTY
a. Composition and movement
For yield dependent contracts Other 2009 2008 2009 2008 NIS in thousands
Balance as at January 1 2,633,548 1,752,144 356,139 314,165
Additions during the year
Acquisitions and additions to existing assets 153,282 1,154,116 11,330 65,890 Capitalized costs and expenses 2,356 7,284 182 571
Total additions 155,638 1,161,400 11,512 66,461
Disposals during the year
Realizations (1,794) (271,516) - (23,244) Transfer to fixed assets - - (10,900 ) (28,913)
Total disposals (1,794) (271,516) (10,900) (52,157)
Adjustment of fair value 23,054 (8,480) 4,951 27,670
Balance as at December 31 2,810,446 2,633,548 361,702 356,139
b. The fair value of investment property is determined based on valuations performed by independent external appraisers who hold recognized and relevant professional qualifications and who have up-to-date experience regarding the location and type of the property being valued.
The fair value was determined with reference to recent real estate transactions for similar property in the same location as the property owned by the Group, if there are such transactions and based on the capitalized expected future cash flows from the property. For calculating the fair value, the appraiser used the discount rates of 7% to 10% per annum, taking into consideration the type of property, its designation, its location and the nature of the lessees.
The investment property is mostly comprised of office buildings and commercial centers.
c. Regarding engagements for the acquisition of investment property, see Note 38.b .1.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 8:- INVESTMENT PROPERTY (Cont.)
d. Details regarding rights in real estate utilized by the Group as investment property:
As at December 31 2009 2008 NIS in thousands
Ownership (a) 1,333,597 1,283,064 Capitalized lease (b) 1,838,551 1,706,623
3,172,148 2,989,687
Assets owned in the amount of NIS 813,923 thousand have yet to be registered in the name of the Group companies with the Land Registry Office mainly due to incomplete registration procedures and registration of rights in condominiums or technical problems.
Assets in capitalized lease in the amount of NIS 114,358 thousand are leased for the period of 16 years.
Assets in capitalized lease in the amount of NIS 723,843 thousand are leased for the period of 25 - 50 years.
Assets in capitalized lease in the amount of NIS 1,000,350 thousand are leased for the period of over 50 years.
An asset in the amount of about NIS 513,900 thousand is at this stage according to a development agreement. Subsidiaries have the option to extend the leasing period for an additional 49 years.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 9:- DEBTORS AND RECEIVABLES
a. Composition:
December 31 2009 2008 NIS in thousands
Institutions and government authorities 5,773 53,451 Debtors relating to the sale of real estate 602 45,377 Income receivable 43,775 40,501 Leasing fees and prepaid expenses 90,625 92,943 Employees 22,939 12,500 Affiliates 761 2,842 Advances to suppliers 3,800 6,421 Debtors in respect of Stock exchange clearing house and securities 9,016 939 Advances on account of commissions to insurance agents 727 7,202 Insurance companies and insurance brokers: Deposits - 1,241 Other accounts 49,571 65,019 Total insurance companies and insurance brokers 49,571 66,260
Others 41,896 43,605
Net of provision for doubtful debts (9,028) (4,549 )
Total debtors and receivables 260,457 367,492
See Note 36g for details of assets and liabilities according to linkage bases.
b. Hereunder is the movement in provision for doubtful debts:
December 31 2009 2008 NIS in thousands
Balance as at January 1 (4,549) (216)
Change in provision for the period (4,479) (4,333)
Balance as December 31 (9,028) (4,549)
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 10:- OUTSTANDING PREMIUMS
a. Composition:
December 31 2009 2008 NIS in thousands Outstanding premiums (*) 386,803 406,415 Less provision for doubtful debts (3,877) (3,904) Total outstanding premiums 382,926 402,511 (*) including checks receivable and standing orders 199,905 198,155
Regarding the outstanding premiums’ linkage terms, see Note 36.c.
b. Aging
December 31 2009 2008 NIS in thousands Outstanding premium whose value did not deteriorate not including arrears 222,546 258,738 In arrears (*): Less than 90 days 62,638 67,492 Between 90 – 180 days 33,159 31,700 Over 180 days 59,677 40,693 Total outstanding premiums whose value did not deteriorate 378,020 398,623 Outstanding premium whose value deteriorated 4,906 3,888 Total outstanding premium 382,926 402,511
(*) Includes mainly debts in arrears in the life assurance segment. These debts are mainly backed by the policy’s redemption value.
c. Hereunder is the movement in provision for doubtful debts in respect of outstanding premiums:
2009 2008 NIS in thousands Balance as at January 1 (3,904) (7,028) Change in provision for the period 27 3,124 Balance as at December 31 (3,877) (3,904)
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 11:- ASSETS FOR YIELD DEPENDENT CONTRACTS
a. Details of assets at fair value through profit or loss:
December 31, 2009 2008 NIS in thousands Investment property 2,810,446 2,633,548 Financial investments Quoted debt assets 10,314,493 12,645,278 Unquoted debt assets *) 8,054,567 6,689,507 Shares 6,984,685 3,728,481 Other financial investments 13,666,148 5,022,602 Total financial investments 39,019,893 28,085,868 Cash and cash equivalents 1,249,035 1,382,146 Other 86,335 44,475 Total assets for yield dependent contracts 43,165,709 32,146,037
*) Including NIS 936,176 thousand measured at adjusted cost (last year – NIS 30,023 thousand) the fair value of which is NIS 1,039,715 thousand (last year – NIS 30,268 thousand). Concerning the exposure in respect of profit participating policy assets see Note 36.b.1. Concerning details regarding interest and linkage of debt assets see Note 36.d.
b. Fair value levels of financial assets
The table below analyses assets held against insurance contracts and investment contracts that are presented at fair value through profit or loss. The different levels have been defined as follows: Level 1: fair value is measured using quoted prices (unadjusted) in active markets for identical instruments Level 2: fair value is measured using inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly Level 3: fair value is measured using inputs that are not based on observable market data (unobservable inputs).
December 31, 2009 Level 1 Level 2 Level 3 Total NIS in thousands Financial investments: Quoted debt assets 10,314,493 - - 10,314,493 Unquoted debt assets - 7,046,970 71,421 7,118,391 Shares 6,489,526 - 495,159 6,984,685 Other financial investments 11,460,890 1,478,931 726,327 13,666,148 Total financial investments 28,264,909 8,525,901 1,292,907 38,083,717
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 11:- ASSETS FOR YIELD DEPENDENT CONTRACTS (cont’d)
c. Level 3 assets carried at fair value
Fair value at reporting date Financial assets at fair value through profit or loss Other Quoted Unquoted financial debt assets debt assets Shares liabilities Total NIS in thousands
Balance as at January 1, 2009 - 78,339 529,123 742,886 1,350,348 Total gains (losses) recognized in: Profit or loss -)()6,918 (34,296 (85,858) (127,072 ) Purchases - - 94,396 128,818 223,214 Sales --(94,064 ) (59,519) (153,583 ) Balance as at December 31, 2009 - 71,421 495,159 726,327 1,292,907 Total gains (losses) for the period included in profit or loss for assets held as at December 31, 2009 -)()6,918 (31,308 30,670 (7,556 )
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 12:- DETAILS OF OTHER FINANCIAL INVESTMENTS
December 31, 2009 Reported at fair value through profit or Available Loans and loss*) for sale debtors**) Total NIS in thousands Quoted debt assets (a) 88,428 3,576,310 - 3,664,738 Unquoted debt assets (b) - - 18,375,828 18,375,828 Shares (d) 3,964 1,144,029 - 1,147,993 Other (e) 114,108 885,772 - 999,880 Total 206,500 5,606,111 18,375,828 24,188,439
December 31, 2008 Reported at fair value through profit or Available Loans and loss*) for sale debtors**) Total NIS in thousands Quoted debt assets (a) 80,150 3,207,299 - 3,287,449 Unquoted debt assets (b) - - 17,285,942 17,285,942 Shares (d) 14,635 603,080 - 617,715 Other (e) 42,133 601,450 - 643,583 Total 136,918 4,411,829 17,285,942 21,834,689
*) In a subsidiary, Migdal Capital Markets, all the assets in the amount of NIS 85,022 thousand (last year – NIS 78,985 thousand) are presented at fair value through profit or loss due to them being classified as held for trading. Therefore, their forecasted date of realization is within no more than two years. **) In a subsidiary, Migdal Capital Markets, unquoted debt assets in the amount of NIS 150,986 thousand (last year – NIS 80,547 thousand) are used in the current operations of the subsidiary.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 12:- DETAILS OF OTHER FINANCIAL INVESTMENTS (Cont.)
a. Quoted debt assets
Composition: December 31 2009 2008 NIS in thousands Government bonds Reported at fair value through profit and loss held for trade 39,288 31,544 Available for sale 2,644,447 2,424,600
Total government bonds 2,683,735 2,456,144
Other debt assets: Unconvertible Reported at fair value through profit and loss held for trade 45,734 47,441 Available for sale 931,863 782,699
Total other unconvertible debt assets 977,597 830,140
Convertible Reported at fair value through profit and loss designated at the time of initial recognition 3,406 1,165
Total quoted debt assets 3,664,738 3,287,449
Impairment allocated to profit and loss (accumulated) 22,487 44,982
b. Unquoted debt assets
Composition
Carrying amount Fair value 2009 2008 2009 2008 NIS in thousands Government bonds Reported as loans and 14,679,573 13,746,880 17,152,578(*) 15,429,073 receivables: Other debt assets: Unconvertible Reported as loans and debtors, including deposits with banks 3,696,255 3,539,062 4,051,323 3,449,977 Total unquoted debt assets 18,375,828 17,285,942 21,203,901 18,879,050 Impairment allocated to profit and loss (accumulated) 81,605 116,517
*) Calculated according to the contractual settlement date.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 12:- DETAILS OF OTHER FINANCIAL INVESTMENTS (Cont.)
c. Details regarding interest and linkage in respect of debt assets (effective interest)
December 31 2009 2008 Percentage Quoted debt assets Linkage basis
Linked to the CPI 3.6 5.9 In NIS 3.5 4.1 Linked to foreign currency 7.7 7.8
Unquoted debt assets Linkage basis
Linked to the CPI 5.2 5.1 In NIS 3.8 4.1 Linked to foreign currency 5.8 6.5
d. Shares
December 31 2009 2008 NIS in thousands
Quoted Reported at fair value through profit and loss 3,076 3,836 held for trade Available for sale 1,124,206 533,795
Total quoted shares 1,127,282 537,631
Unquoted Reported at fair value through profit and loss 888 10,799 Available for sale 19,823 69,285
Total unquoted shares 20,711 80,084
Total shares 1,147,993 617,715
Impairment allocated to profit and loss (accumulated) 33,881 228,301
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 12:- DETAILS OF OTHER FINANCIAL INVESTMENTS (Cont.)
e. Other financial investments
Other financial investments mainly include investments in basket certificates, participation certificates in mutual funds, investment funds, financial derivatives, future contracts, options and structured products.
December 31 2009 2008 NIS in thousands
Quoted
Reported at fair value through profit and loss held for trade 2,056 2,040 Available for sale 569,073 239,192 Derivative instruments (e1) 498 1,782
Total quoted financial investments 571,627 243,014
Unquoted
Reported at fair value through profit or loss 81,908 23,334 Available for sale 316,699 362,258 Derivative instruments (e1) 29,646 14,977
Total unquoted financial investments 428,253 400,569
Total other financial investments 999,880 643,583
Impairment allocated to profit and loss (accumulated) 85,754 82,911
(e1) Derivative instruments
Hereunder is the amount of net exposure of the base asset, reported in Delta terms of financial transactions performed as at the date of the financial statements:
December 31 2009 2008 NIS in thousands
Shares - 65,485 CPI 264,757 - Commodities 234,604 - Foreign currency 29,031 406,214
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 12:- DETAILS OF OTHER FINANCIAL INVESTMENTS (Cont.)
f. The interest rates used for determining fair value
The fair value of the unquoted debt assets that are measured at fair value through profit and loss and the unquoted financial debt assets for which information regarding the fair value is given for Note purposes only is determined through the capitalized estimate of the anticipated cash flows in their respect. The capitalization rates are based on the yields of the government bonds and the corporate bonds’ margins, as measured in the Tel-Aviv Stock Exchange, with the addition of premium in respect of non-negotiability. The interest rate used for capitalization is determined by a company which provides interest quotes in relation to various risk rates. The reported interest rates were calculated based on the average term of the rating range.
December 31 2009 2008 Percentage
For unquoted debt assets – in Israel, according to local rating (*): Designated bonds 1.9 2.7 Other debt assets: AA and above 3.1 5.9 BBB to A 5.9 20.4 Lower than BBB 17.6 - Not rated 44.1 52.3
(*) The sources for the level of rating in Israel are the rating company “Ma’a lot”, “Midroog” and internal rating. The data from ”Midroog” was transferred to the rating categories according to the generally accepted conversion co-efficients. Each rating includes all the ranges: for example, rate A includes A- up to A+.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 12:- DETAILS OF OTHER FINANCIAL INVESTMENTS (Cont.)
g. Fair value levels of financial assets
The table below analyses assets that are presented at fair value. The different levels have been defined as follows: Level 1: fair value is measured using quoted prices (unadjusted) in active markets for identical instruments Level 2: fair value is measured using inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly Level 3: fair value is measured using inputs that are not based on observable market data (unobservable inputs).
The carrying amounts of cash and cash equivalents, outstanding premiums, trade receivables, debtors and receivables, current tax assets are the same or proximate to their fair value.
December 31, 2009 Level 1 Level 2 Level 3 Total NIS in thousands
Quoted debt assets 3,664,738 - - 3,664,738 Unquoted debt assets - - - - Shares 1,127,282 - 20,711 1,147,993 Other 571,627 106,877 321,376 999,880 5,363,647 106,877 342,087 5,812,611
Level 3 assets carried at fair value
Fair value at reporting date Available-for-sale financial assets Quoted Unquoted Other debt debt financial assets assets Shares liabilities Total NIS in thousands
Balance as at January 1, 2009 - - 22,675 319,288 341,963 Total gains (losses) recognized in: Other comprehensive income - - 1,024 (13,210 ) (12,186 ) Profit or loss --(5,183 ) (5,297 ) (10,480 ) Purchases - - 2,245 48,570 50,815 Sales --(50 ) (27,975 ) (28,025 ) Balance as at December 31, 2009 - - 20,711 321,376 342,087
Total gains (losses) for the period included in profit or loss for assets held as at December 31, 2009 --(4,592 ) 879 (3,713 )
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 13:- CASH AND CASH EQUIVALENTS FOR YIELD DEPENDENT CONTRACTS
December 31 2009 2008 Percentage
Cash and deposits for immediate withdrawal 287,250 535,966 Short term deposits 961,785 846,180
Cash and cash equivalents 1,249,035 1,382,146
The cash in the banking corporations as at the balance sheet date, bear current interest based on the interest rate in respect of the daily bank deposits 1.09% - (previous year 2.49%).
Short term deposits deposited in banking corporations are for the periods of between one week to three months. The deposits bear interest at the rate of 1.39% (previous year 2.86%).
Regarding the linkage terms of the cash and short term deposits, see Note 36.d.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 13a:- OTHER CASH AND CASH EQUIVALENTS
December 31 2009 2008 Percentage
Cash and deposits for immediate withdrawal 312,345 311,802 Short term deposits 788,609 198,039
Cash and cash equivalents 1,100,954 509,841
The cash in the banking corporations as at the balance sheet date, bear current interest based on the interest rate in respect of the daily bank deposits 1.09% - (previous year 2.49%).
Short term deposits deposited in banking corporations are for the periods of between one week to three months. The deposits bear interest at the rate of 1.39% (previous year 2.86%).
Regarding the linkage terms of the cash and short term deposits, see Note 36.c.
NOTE 14:- SHAREHOLDERS’ EQUITY
a. Composition of share capital
December 31, 2009 December 31, 2008 Issued and Issued and Authorized paid up Authorized paid up NIS in thousands Ordinary shares of NIS 0.01 nominal value each 15,000 10,469*) 15,000 10,460*)
*) In nominal values.
b. Movement in share capital
1. There was no change in the Company’s authorized share capital during the year.
2. The issued and paid up capital: NIS in thousands in Number of nominal shares values
Balance as at January 1, 2007 1,043,692,282 10,437 Realization of options to employee 2,319,009 23
Balance as at December 31, 2008 and 2007 1,046,011,291 10,460 Realization of options to employee 863,106 9
Balance as at December 31, 2009 1,046,874,397 10,469
Regarding share-based payments, see note 32.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 14:- SHAREHOLDERS’ EQUITY (Cont.)
c. Rights attached to the shares
1. Voting rights in the general assembly, right to receive dividends, rights when the company is liquidated and right to appoint the company’s Directors.
2. Traded on the Tel-Aviv Stock Exchange.
d. Declared dividend
The following dividends were declared and paid for by the Company:
Year ended December 31, 2009 2008 2007 NIS in thousands
Year 2008: NIS 0.048 per share (2007 NIS 0.602 per share) - 50,000 630,000 During the month of March, 2010, the board of directors approved a dividend distrobution of 240 million NIS. For further detail, see note 39.a regarding events after the balance sheet date.
e. Minority interests
Composition of minority interests in the balance sheet:
December 31, 2009 2008 NIS in thousands
Portion in equity value 453 3,291
Preferred shares - 822
453 4,113
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 15:- LIABILITIES IN RESPECT OF NON-YIELD DEPENDENT INSURANCE CONTRACTS AND INVESTMENT CONTRACTS
December 31 2009 2008 2009 2008 2009 2008 Gross Reinsurance On retention NIS in thousands
Life assurance and long term savings:
Insurance contracts 20,296,165 18,831,195 82,984 79,182 20,213,181 18,752,013 Investment contracts 713,545 663,418 - - 713,545 663,418
21,009,710 19,494,613 82,984 79,182 20,926,726 19,415,431 Less amounts deposited in the Company under the defined benefit plan for the Group’s employees 109,893 98,371 - - 109,893 98,371
Total life assurance and long term savings 20,899,817 19,396,242 82,984 79,182 20,816,833 19,317,060
Insurance contracts included in the health insurance segment 263,739 188,002 3,840 951 259,899 187,051
Insurance contracts included in the general insurance segment 3,659,887 3,714,376 989,282 1,063,322 2,670,605 2,651,054
Total liabilities in respect of non-yield insurance contracts and investment contracts 24,823,443 23,298,620 1,076,106 1,143,455 23,747,337 22,155,165
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 16:- LIABILITIES IN RESPECT OF YIELD DEPENDENT INSURANCE CONTRACTS AND INVESTMENT CONTRACTS
December 31 2009 2008 2009 2008 2009 2008 Gross Reinsurance On retention NIS in thousands
Life assurance and long term savings:
Insurance contracts 42,057,538 30,480,074 3,926 3,278 42,053,612 30,476,796
Net of amounts deposited in the Group under the defined benefit plan for the Group’s employees 65,213 58,130 - - 65,213 58,130
Total life assurance and long term savings 41,992,325 30,421,944 3,926 3,278 41,988,399 30,418,666
Insurance contracts included in the health insurance segment 788,055 645,871 1,151 - 786,904 645,871
Total liabilities in respect of yield dependent insurance contracts and investment contracts 42,780,380 31,067,815 5,077 3,278 42,775,303 31,064,537
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 17:- LIABILITIES IN RESPECT OF INSURANCE CONTRACTS INCLUDED IN THE GENERAL INSURANCE SEGMENT
a(1) Liabilities in respect of insurance contracts included in the general insurance segment according to type:
December 31 2009 2008 2009 2008 2009 2008 Gross Reinsurance On retention NIS in thousands Motor act and liability branches Provision for unearned premium 200,430 223,520 30,739 37,282 169,691 186,238 Excess of income over expenses (accruals) 151,259 224,292 113,139 137,656 38,120 86,636 Outstanding claims and provision for insufficient premium*) 2,487,553 2,374,025 407,759 396,746 2,079,794 1,977,279 Total motor act and liability branches (see b.1 below) 2,839,242 2,821,837 551,637 571,684 2,287,605 2,250,153 Including liabilities in respect of the motor act branch (see c.2 below) 1,418,562 1,392,213 76,358 81,746 1,342,204 1,310,467
Property and other branches: Provision for unearned premium 333,417 378,175 143,588 161,381 189,829 216,794
Provision for insufficient premium 8,434 4,075 - - 8,434 4,075 Outstanding claims 478,794 510,289 294,057 330,257 184,737 180,032 Total assets and others branches (see b’2 below) 820,645 892,539 437,645 491,638 383,000 400,901 Total liabilities in respect of insurance contracts included in the general insurance segment 3,659,887 3,714,376 989,282 1,063,322 2,670,605 2,651,054 Deferred acquisition costs: Motor act and liability branches 26,181 29,636 5,024 6,557 21,157 23,079 Property and other branches 80,818 91,727 32,282 36,493 48,536 55,234 Total 106,999 121,363 37,306 43,050 69,693 78,313 Liabilities in respect of general insurance contracts net of deferred acquisition costs: Motor act and liability branches 1,406,715 1,378,927 76,358 81,746 1,330,357 1,297,181 Property and other 1,406,346 1,413,274 470,255 483,381 936,091 929,893 branches 739,827 800,812 405,363 455,145 334,464 345,667 Total liabilities due to general insurance contracts net of deferred acquisition costs 3,552,888 3,593,013 951,976 1,020,272 2,600,912 2,572,741
*) Motor act and liability branches – including all the branches for which a surplus reserve is calculated.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 17:- LIABILITIES IN RESPECT OF INSURANCE CONTRACTS INCLUDED IN THE GENERAL INSURANCE SEGMENT (Cont.)
2. Liabilities in respect of insurance contracts included in the general insurance segment according to their calculation method:
December 31 2009 2008 2009 2008 2009 2008 Gross Reinsurance On retention NIS in thousands
Actuarial valuations:
Ms. Anat Cohen Toledano – general insurance actuary 2,673,339 2,550,453 434,785 424,260 2,238,554 2,126,193
Provisions on the basis of other valuations:
Claims department valuation in respect of known outstanding claims 294,930 328,716 262,844 295,532 32,086 33,184
Addition to outstanding claims due to claims incurred but not yet reported (IBNR) 6,512 9,220 4,186 7,211 2,326 2,009
Provision for unearned premium 533,847 601,695 174,328 198,663 359,519 403,032
Excess of income over expenses (accruals) 151,259 224,292 113,139 137,656 38,120 86,636
Total insurance liabilities in respect of insurance contracts included in the general insurance segment 3,659,887 3,714,376 989,282 1,063,322 2,670,605 2,651,054
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 17:- LIABILITIES IN RESPECT OF INSURANCE CONTRACTS INCLUDED IN THE GENERAL INSURANCE SEGMENT (Cont.)
b. Movement in liabilities in respect of insurance contracts included in the general insurance segment, net of deferred acquisition costs:
1. Motor act and liability branches Year ended December 31 2009 2008 2009 2008 2009 2008 Gross Reinsurance On retention NIS in thousands Balance as at the beginning of the year 2,792,201 2,606,208 565,127 499,924 2,227,074 2,106,284 Accumulated claims cost in respect of the current underwriting year 470,467 471,749 62,531 58,234 407,936 413,515 Change in balances as at the beginning of the year as a result of linkage to the index and investment income according to the capitalization assumption embedded in the liabilities 88,332 99,282 14,971 16,259 73,361 83,023 Change in accumulated claims cost estimate in respect of previous underwriting years (5) 51,378 5,003 (921) 11,240 52,299 (6,237) Total change in accumulated claims cost 610,177 576,034 76,581 85,733 533,596 490,301 Payments for settlement of claims during the year In respect of current underwriting year 8,648 10,564 60 716 8,588 9,848 In respect of previous underwriting years (6) 507,636 393,744 70,518 35,443 437,118 358,301 Total payments for the period 516,284 404,308 70,578 36,159 445,706 368,149 Accruals in respect of current underwriting year (7) 23,860 48,507 12,918 27,895 10,942 20,612 Accruals allocated to profit in respect of the released underwriting year (105,942) (86,177) (59,285) (34,040) (46,657) (52,137) Balance of change in accruals (7) 9,049 51,937 21,850 21,774 (12,801) 30,163 Total change in the accruals for the period (73,033) 14,267 (24,517) 15,629 (48,516) (1,362) Balance as at the end of the year 2,813,061 2,792,201 546,613 565,127 2,266,448 2,227,074 Comments:
1. The opening and closing balances include: outstanding claims, provision for insufficient premium, accruals and unearned premium, net of deferred acquisition costs.
2. The ultimate claims cost is: outstanding claims balance (without accruals), provision for insufficient premium, unearned premium net of deferred acquisition costs with the addition of the total claims payments including direct or indirect expenses for claims settlement.
3. The payments include indirect expenses for the settlement of claims relating to the respective underwriting years.
4. Accumulated claims cost is updated based on the model in light of the actual claims run-off.
5. The change in 2009 in the accumulated claims cost estimate in respect of previous underwriting years is mainly due to the third party branch. The effect is for the most part reflected in the retention.
6. The increase in gross payments in 2009 derives from all the liability branches. The increase in reinsurance payments is explained mainly by the profession liability and third party branches.
7. The accrual in 2009 is significantly lower than in 2008, as a result of updates to claim assessments. - 101 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 17:- LIABILITIES IN RESPECT OF INSURANCE CONTRACTS INCLUDED IN THE GENERAL INSURANCE SEGMENT (Cont.)
b. Movement in liabilities in respect of insurance contracts included in the general insurance segment, net of deferred acquisition costs: (Cont.)
2. Assets and other branches
Year ended December 31 2009 2008 2009 2008 2009 2008 Gross Reinsurance On retention NIS in thousands Balance as at the beginning of the year 800,812 1,002,905 455,145 666,980 345,667 335,925 Accumulated claims cost in respect of events during the reported year 620,722 680,800 215,586 285,145 405,136 395,655 Change in accumulated claims cost in respect of events prior to the reported year (5) (4,028) (157,288) (5,242) (151,123) 1,214 (6,165)
Payment to settle claims during the year In respect of events during the reported year 391,609 416,845 97,380 132,471 294,229 284,374 In respect of events prior to the reported year 256,580 330,140 149,164 226,510 107,416 103,630
Total payments 648,189 746,985 246,544 358,981 401,645 388,004
Change in provision for unearned premium, net of deferred acquisition costs (33,849) 19,877 (13,582) 13,124 (20,267) 6,753
Change in provision for insufficient premium 4,359 1,503 - - 4,359 1,503
Balance as at the end of the year 739,827 800,812 405,363 455,145 334,464 345,667
Comments:
1. The opening and closing balances include: outstanding claims with the addition of provision for insufficient premium and, unearned premium, net of deferred acquisition costs.
2. The accumulated claims cost in respect of events during the reported year includes the outstanding claims balance as at the end of the reported year plus the total claims payments during the reported period, including direct and indirect expenses for settlement of claims.
3. The payments for claims settlement during the year include payments in respect of events prior to the reporting year with the addition of changes in the balance of outstanding claims in respect of events prior to the reported year.
4. Payments for claims settlement include direct and indirect expenses for claims settlement relating to the respective years of damage.
5. The explanation for the decrease in the accumulated claims cost in respect of events prior to the reported year in the year ended December 31, 2008 derives mainly from a large claim regarding property and loss of profits that was insured by full reinsurance that was estimated, in the initial stage, at a sizable amount. Later on it turned out that the claim was significantly lower.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009 NOTE 17:- LIABILITIES IN RESPECT OF INSURANCE CONTRACTS INCLUDED IN THE GENERAL INSURANCE SEGMENT (Cont.) c (1). Examination of run-off of valuation of liabilities in respect of insurance contracts net of gross deferred acquisition costs, in the motor act and liability branches (*):
December 31, 2009 Underwriting year 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total NIS in thousands adjusted to the CPI of November 2008 (**) Claims paid (accumulated) as at the end of the year: After the first year 9,672 7,855 11,200 10,630 8,615 10,475 10,026 11,016 8,788 After two years 45,481 58,346 68,248 56,226 53,352 62,276 58,517 72,975 After three years 86,555 101,878 121,959 123,644 112,980 110,831 120,813 After four years 129,492 142,385 190,888 188,846 165,346 162,724 After five years 168,445 186,873 249,537 244,395 237,777 After six years 210,616 225,150 309,510 310,469 After seven years 235,374 251,465 371,415 After eight years 267,963 287,806 After nine years 291,580 Estimate of accumulated claims (including payments) at the end of the year: After the first year 436,348 460,963 547,278 568,267 523,367 506,036 478,650 489,805 470,607 After two years 408,434 432,404 524,940 565,018 517,039 502,439 477,764 508,575 After three years 379,498 436,448 528,535 552,131 530,418 484,345 487,412 After four years 364,713 422,043 508,088 537,428 515,710 481,249 After five years 353,210 392,314 504,041 517,503 506,050 After six years 343,373 380,923 513,205 505,530 After seven years 349,721 373,669 530,758 After eight years 358,629 370,458 After nine years 368,724 Excess (deficiency) after release of fund (***) (4,012) 51,585 (22,670 ) 31,898 9,660 66,461 Deviation rate after release of fund in percentage (1.10%) 12.22%(4.46% ) 5.94% 1.87% 2.83% Accumulated claims cost as at December 31, 2009 368,724 370,458 530,758 505,530 506,050 481,249 487,412 508,575 470,607 4,229,363 Accumulated payments up to December 31, 2009 291,580 287,806 371,415 310,469 237,777 162,724 120,813 72,975 8,788 1,864,347 Outstanding claims balance 77,144 82,652 159,343 195,061 268,273 318,525 366,599 435,600 461,819 2,365,016 Outstanding claims in respect of the years up to and including the underwriting year 2000 296,786 Total liability in respect of insurance contracts in the motor act and liability branches net of deferred acquisition costs as at December 2009(2) 2,661,802 (*) According to an examination the Company performed in the property and other branches, the uncertainty regarding the amount and timing of the claims costs is usually solved within a year. Therefore no information regarding claims run-off in these branches was provided. (**) The above amounts are adjusted to inflation to make it possible to examine the claims run-off on the basis of real values. (***) Surplus between the accumulated claims valuation in the fourth year (the first after the release of the fund) and the accumulated claims valuation as at the balance sheet date. Comments: 1. The accumulated claims estimate at the end of the first year includes the reserve for unearned premium net of deferred acquisition costs. 2. The data does not include the accumulated amounts (excess of income over expenses). 3. The actuary estimates that the comprehensive significance of the total underwriting years is higher than each underwriting year separately.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009 NOTE 17:- LIABILITIES IN RESPECT OF INSURANCE CONTRACTS INCLUDED IN THE GENERAL INSURANCE SEGMENT (Cont.) c (2). Examination of run-off of valuations of liabilities in respect of insurance contracts net of deferred acquisition costs, on retention, in the motor act and liability branches:
December 31, 2009 Underwriting year 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total NIS in thousands adjusted to the CPI of November 2008 (**) Claims paid (accumulated) at the end of the year: After the first year 6,239 7,781 11,155 10,489 8,507 10,389 9,997 10,272 8,728 After two years 28,679 49,448 67,569 55,660 52,009 59,758 56,023 57,188 After three years 50,000 92,542 121,068 122,726 110,799 107,837 115,130 After four years 79,580 130,411 189,722 187,017 161,364 159,315 After five years 105,252 174,435 247,336 241,771 222,273 After six years 134,732 211,793 306,466 306,950 After seven years 151,615 237,178 364,918 After eight years 175,775 273,146 After nine years 192,546 Estimate of accumulated claims (including payments) at the end of the year: After the first year 277,238 432,810 497,728 525,210 477,562 448,758 419,061 429,347 408,076 After two years 266,343 408,987 484,073 522,594 481,096 453,427 425,758 451,286 After three years 252,053 409,853 491,259 512,227 491,165 434,538 434,773 After four years 244,829 394,571 468,394 498,641 474,818 436,735 After five years 239,043 364,432 463,502 483,902 467,875 After six years 229,980 355,873 474,011 472,136 After seven years 228,913 345,394 486,601 After eight years 234,309 342,874 After nine years 239,556 Excess (deficiency) after release of accruals (***) 5,273 51,697 (18,207 ) 2 26,505 6,943 72,211 Deviation rate after release of accumulation in percentage 2.15% 13.10% (3.89%) 5.32% 1.46% 3.47%
Accumulated claims cost as at December 31, 2009 239,556 342,874 486,601 472,136 467,875 436,735 434,773 451,286 408,076 3,739,912
Accumulated payments up to December 31, 2009 192,546 273,146 364,918 306,950 222,273 159,315 115,130 57,188 8,728 1,700,194 Outstanding claims balance 47,010 69,728 121,683 165,186 245,602 277,420 319,643 394,098 399,348 2,039,718 Outstanding claims in respect of the years up to and including the underwriting year 2000 188,610 Total liability in respect of insurance contracts in the motor act and liability branches net of deferred costs as at December 2009(2) 2,228,328 (*) According to an examination the Company performed in the property and other branches, the uncertainty regarding the amount and timing of the claims costs is usually solved within a year. Therefore no information regarding claims run-off in these branches was provided. (**) The above amounts are adjusted to inflation to make it possible to examine the claims run-off on the basis of real values. (***) Surplus between the accumulated claims valuation in the fourth year (the first after the release of the fund) and the accumulated claims valuation as at the balance sheet date. The actuary estimates that the comprehensive significance of the total underwriting years is higher than each underwriting year separately. Comments: 1. The accumulated claims estimate at the end of the first year includes the reserve for unearned premium net of deferred acquisition costs. 2. The data does not include the accumulated amounts (excess of income over expenses).
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009 NOTE 17:- LIABILITIES IN RESPECT OF INSURANCE CONTRACTS INCLUDED IN THE GENERAL INSURANCE SEGMENT (Cont.) c (3). Examination of run-off of valuation of liabilities in respect of insurance contracts net of gross deferred acquisition costs, in the motor act and liability branches (*):
December 31, 2009 Underwriting year 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total NIS in thousands adjusted to the CPI of November 2008 (**) Claims paid (accumulated) as at the end of the year: After the first year 6,495 6,166 9,554 8,615 6,536 8,772 8,031 7,873 6,504 After two years 32,402 38,693 57,397 45,019 41,572 50,150 44,951 39,410 After three years 61,303 67,149 97,921 99,260 84,792 86,570 85,032 After four years 89,309 91,823 151,404 144,135 119,281 125,661 After five years 113,203 123,949 189,218 183,608 157,685 After six years 139,578 147,525 229,212 232,273 After seven years 156,088 161,185 263,767 After eight years 173,083 179,822 After nine years 185,340 Estimate of accumulated claims (including payments) at the end of the year: After the first year 293,148 311,673 375,747 390,461 346,680 337,189 296,932 313,327 287,073 After two years 265,593 289,156 353,699 385,234 342,533 330,026 292,060 311,880 After three years 235,436 280,354 354,536 377,964 330,252 315,372 290,020 After four years 221,314 264,277 336,186 357,522 305,691 310,872 After five years 208,240 243,900 335,373 344,380 300,740 After six years 201,792 236,839 341,174 337,342 After seven years 201,854 226,965 350,279 After eight years 200,666 221,089 After nine years 201,240 Excess (deficiency) after release of fund (***) 20,074 43,188 (14,093) 20,180 4,951 74,300 Deviation rate after release of fund in percentage 9.07% 16.34% (4.19%)5 5.64% 1.62% 5.00% Accumulated claims cost as at December 31, 2009 201,240 221,089 350,279 337,342 300,740 310,872 290,020 311,880 287,073 2,610,535 Accumulated payments up to December 31, 2009 185,340 179,822 263,767 232,273 157,685 125,661 85,032 39,410 6,504 1,275,494 Outstanding claims balance 15,900 41,267 86,512 105,069 143,055 185,211 204,988 272,470 280,569 1,335,041 Outstanding claims in respect of the years up to and including the underwriting year 2000 47,803 Total liability in respect of insurance contracts in the motor act and liability branches net of deferred acquisition costs as at December 2009(2) 1,382,844 (*) According to an examination the Company performed in the property and other branches, the uncertainty regarding the amount and timing of the claims costs is usually solved within a year. Therefore no information regarding claims run-off in these branches was provided. (**) The above amounts are adjusted to inflation to make it possible to examine the claims run-off on the basis of real values. (***) Surplus between the accumulated claims valuation in the fourth year (the first after the release of the fund) and the accumulated claims valuation as at the balance sheet date. The actuary estimates that the comprehensive significance of the total underwriting years is higher than each underwriting year separately. Comments: 1. The accumulated claims estimate at the end of the first year includes the reserve for unearned premium net of deferred acquisition costs. 2. The data does not include the accumulated amounts (excess of income over expenses).
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009 NOTE 17:- LIABILITIES IN RESPECT OF INSURANCE CONTRACTS INCLUDED IN THE GENERAL INSURANCE SEGMENT (Cont.) c (4). Examination of run-off of valuation of liabilities in respect of insurance contracts net of gross deferred acquisition costs, in the motor act and liability branches (*):
December 31, 2009 Underwriting year 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total NIS in thousands adjusted to the CPI of November 2008 (**) Claims paid (accumulated) as at the end of the year: After the first year 3,228 6,166 9,554 8,615 6,536 8,772 8,031 7,873 6,504 After two years 16,265 37,656 57,397 45,019 41,572 50,150 44,951 39,410 After three years 25,745 66,112 97,921 99,260 84,792 86,570 85,032 After four years 40,548 89,262 151,404 144,135 119,281 125,661 After five years 51,778 121,387 189,218 183,608 157,685 After six years 65,712 144,963 229,212 232,273 After seven years 74,775 158,624 263,767 After eight years 84,097 177,260 After nine years 90,285 Estimate of accumulated claims (including payments) at the end of the year: After the first year 146,795 298,385 361,144 381,982 337,924 3 328,064 289,578 306,618 280,780 After two years 129,970 276,581 339,185 374,933 330,908 322,466 284,967 305,970 After three years 113,220 267,023 341,491 364,102 321,038 307,920 283,673 After four years 105,612 252,917 326,837 346,981 297,543 304,137 After five years 99,196 233,939 327,115 337,392 293,322 After six years 95,683 227,151 335,178 330,521 After seven years 98,089 217,909 345,609 After eight years 96,591 213,678 After nine years 96,233 Excess (deficiency) after release of fund (***) 9,379 39,239 (18,772 ) 16,460 4,221 50,527 Deviation rate after release of fund in percentage 8.88% 15.51%(5.74% ) 4.74% 1.42% 3.80% Accumulated claims cost as at December 31, 2009 96,233 213,678 345,609 330,521 293,322 304,137 283,673 305,970 280,780 2,453,923 Accumulated payments up to December 31, 2009 90,285 177,260 263,767 232,273 157,685 125,661 85,032 39,410 6,504 1,177,877 Outstanding claims balance 5,948 36,418 81,842 98,248 135,637 178,476 198,641 266,560 274,276 1,276,046 Outstanding claims in respect of the years up to and including the underwriting year 2000 32,765 Total liability in respect of insurance contracts in the motor act and liability branches net of deferred acquisition costs as at December 2009(2) 1,308,811 (*) According to an examination the Company performed in the property and other branches, the uncertainty regarding the amount and timing of the claims costs is usually solved within a year. Therefore no information regarding claims run-off in these branches was provided. (**) The above amounts are adjusted to inflation to make it possible to examine the claims run-off on the basis of real values. (***) Surplus between the accumulated claims valuation in the fourth year (the first after the release of the fund) and the accumulated claims valuation as at the balance sheet date. The actuary estimates that the comprehensive significance of the total underwriting years is higher than each underwriting year separately. Comments: 1. The accumulated claims estimate at the end of the first year includes the reserve for unearned premium net of deferred acquisition costs. 2. The data does not include the accumulated amounts (excess of income over expenses).
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 18:- ADDITIONAL INFORMATION REGARDING LIFE ASSURANCE SEGMENT AND LONG TERM SAVINGS
a. Details of the liabilities in respect of insurance contracts and investment contracts according to exposure
Data as at December 31, 2009 Policies including savings component (including riders) Policies not including according policy’s date of issue savings component Total Risk sold as separate From the year 2004 policy Up to Up to Non-yield Yield 1990 (*) 2003 dependent dependent Individual Group NIS in thousands
(a) According to insurance exposure:
Liabilities in respect of insurance contracts Annuity without secured coefficients ------Annuity with secured coefficients: Up to May 2001 12,742,474 27,272,726 - - - - 40,015,200 From June 2001 - 5,857,060 180,536 5,795,139 - - 11,832,735 Annuity in payment 983,957 274,438 191,549 - - - 1,449,944 Capital (without annuity option) 5,535,489 1,404,333 - 9,791 - - 6,949,613 Other risk components 430,828 986,602 - 226,091 243,487 219,203 2,106,211
Total in respect of insurance contracts 19,692,748 35,795,159 372,085 6,031,021 243,487 219,203 62,353,703
Liabilities in respect of investment contracts - 349,112 364,433 - - - 713,545
Total 19,692,748 36,144,271 736,518 6,031,021 243,487 219,203 63,067,248
(b) According to financial exposure: Yield dependent 545,210 35,461,021 - 5,925,868 125,439 - 42,057,538 Guarantees yield 18,719,444 351,348 736,518 5,828 - - 19,813,138 Other 428,094 331,902 - 99,325 118,048 219,203 1,196,572
Total 19,692,748 36,144,271 736,518 6,031,021 243,487 219,203 63,067,248
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 18:- ADDITIONAL INFORMATION REGARDING LIFE ASSURANCE SEGMENT AND LONG TERM SAVINGS (Cont.)
a. Details of the liabilities in respect of insurance contracts and investment contracts according to exposure (Cont.)
Data as at December 31, 2008 Policies including savings component (including riders) Policies not including according policy’s date of issue savings component Total Risk sold as separate From the year 2004 policy Up to Up to Non-yield Yield 1990 (*) 2003 dependent dependent Individual Group NIS in thousands
(a) According to insurance exposure:
Liabilities in respect of insurance contracts Annuity without secured coefficients ------Annuity with secured coefficients: Up to May 2001 11,826,715 20,316,950 - - - - 32,143,665 From June 2001 - 4,299,013 172,211 3,223,995 - - 7,695,219 Annuity in payment 730,693 150,313 137,325 - - - 1,018,331 Capital (without annuity option) 5,406,230 1,131,198 - 8,417 - - 6,545,845 Other risk components 434,099 890,859 - 157,106 225,448 200,697 1,908,209
Total in respect of insurance contracts 18,397,737 26,788,333 309,536 3,389,518 225,448 200,697 49,311,269
Liabilities in respect of investment contracts - 315,261 348,157 - - - 663,418
Total 18,397,737 27,103,594 657,693 3,389,518 225,448 200,697 49,974,687
(b) According to financial exposure: Yield dependent 509,722 26,504,627 - 3,271,149 194,576 - 30,480,074 Guarantees yield 17,456,115 480,293 657,693 106,722 - - 18,700,823 Other 431,900 118,674 - 11,647 30,872 200,697 793,790
Total 18,397,737 27,103,594 657,693 3,389,518 225,448 200,697 49,974,687
(*) The products issued up to the year 1990 (including their increases) were mainly guaranteed yield and are mainly/partially backed up by designated bonds.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 18:- ADDITIONAL INFORMATION REGARDING LIFE ASSURANCE SEGMENT AND LONG TERM SAVINGS (Cont.)
b. Details of the results according to policy type
Data for the year ended December 31, 2009 Policies including savings component (including riders) Policies not including according policy’s date of issue savings component Total Risk sold as separate From the year 2004 policy Up to Up to Non-yield Yield 1990 (*) 2003 dependent dependent Individual Group NIS in thousands Gross premiums: Traditional/Endowment 113,537 75,172 - - - - 188,709 Savings component 342,688 2,084,071 51,870 1,853,527 - - 4,332,156 Other 93,945 396,159 - 295,042 254,244 144,057 1,183,447 Total 550,170 2,555,402 51,870 2,148,569 254,244 144,057 5,704,312 Receipts in respect of investment contracts allocated directly to insurance reserves - -36,709 - - - 36,709 Financial margin including management fees 360,373 228,382 (36,886) 49,861 - - 601,730 Income (loss) from life assurance business 349,800 123,075 (30,625) (148,403) 139,070 (19,785 ) 413,132 Profit from pension and provident 62,023 Total loss from life assurance and long term savings 475,155 Annualized premium in respect of insurance contracts – new business 12 45 - 523,006 54,104 - 577,167 One time premium in respect of insurance contracts 1,832 32,610 51,870 386,682 - - 472,994 Annualized premium in respect of investment contracts – new business ------One time premium in respect of investment contracts - -36,709 - - - 36,709
1. The products issued up to the year 1990 (including their increases) were mainly guaranteed yield and are mainly/partially backed up by designated bonds. 2. Increases in existing policies are not included in the framework of the annualized premium in respect of new business, but in the framework of the original policy’s activity results. 3. The financial margin does not include additional income of the Company which are collected as a percentage of the premium and it is calculated before deduction of investment management expenses. The financial margin in policies with a guaranteed yield, is based on actual investment income for the reported year, net of the multiplication of the guaranteed rate of yield for the year, multiplied by the average reserve for the year, in various insurance reserves. In respect of profit participating policies, the financial margin is the total of the fixed and variable management fees calculated on the basis of the yield and the average balance of the insurance reserves.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 18:- ADDITIONAL INFORMATION REGARDING LIFE ASSURANCE SEGMENT AND LONG TERM SAVINGS (Cont.)
c. Details of the results according to policy type
Data for the year ended December 31, 2008 Policies including savings component (including riders) Policies not including according policy’s date of issue savings component Total Risk sold as separate From the year 2004 policy Up to Up to Non-yield Yield 1990 (*) 2003 dependent dependent Individual Group NIS in thousands Gross premiums: Traditional/Endowment 122,682 84,258 - - - - 206,940 Savings component 333,231 2,196,316 117,591 1,499,725 - - 4,146,863 Other 97,895 426,144 - 263,451 220,698 172,889 1,181,077 Total 553,808 2,706,718 117,591 1,763,176 220,698 172,889 5,534,880 Receipts in respect of investment contracts allocated directly to insurance reserves - - 150,788 - - 150,788 Financial margin including management fees (89,308 ) 174,555 (22,388) 33,335 - - 96,194 Income (loss) from life assurance business (89,614 ) (104,284) (15,197) (106,312) 43,786 12,285 (259,336) Profit from pension and provident 43,967 Total profit from life assurance and long term savings (215,369 ) Annualized premium in respect of insurance contracts – new business 13 34 - 591,722 35,418 - 627,187 One time premium in respect of insurance contracts 2,317 43,625 117,591 240,362 - - 403,895 Annualized premium in respect of investment contracts – new business ------One time premium in respect of investment contracts - - 150,788 - - - 150,788
1. The products issued up to the year 1990 (including their increases) were mainly guaranteed yield and are mainly/partially backed up by designated bonds. 2. Increases in existing policies are not included in the framework of the annualized premium in respect of new business, but in the framework of the original policy’s activity results. 3. The financial margin does not include additional income of the Company which are collected as a percentage of the premium and it is calculated before deduction of investment management expenses. The financial margin in policies with a guaranteed yield, is based on actual investment income for the reported year, net of the multiplication of the guaranteed rate of yield for the year, multiplied by the average reserve for the year, in various insurance reserves. In respect of profit participating policies, the financial margin is the total of the fixed and variable management fees calculated on the basis of the yield and the average balance of the insurance reserves.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 18:- ADDITIONAL INFORMATION REGARDING LIFE ASSURANCE SEGMENT AND LONG TERM SAVINGS (Cont.)
d. Details of the results according to policy type
Data for the year ended December 31, 2007 Policies including savings component (including riders) Policies not including according policy’s date of issue savings component Total Risk sold as separate From the year 2004 policy Up to Up to Non-yield Yield 1990 (*) 2003 dependent dependent Individual Group NIS in thousands Gross premiums: Traditional/Endowment 131,051 90,032 - - - - 221,083
Savings component 332,315 2,190,437 103,514 1,065,041 - - 3,691,307
Other 101,217 443,665 - 195,075 199,536 185,983 1,125,476 Total 564,583 2,724,134 103,514 1,260,116 199,536 185,983 5,037,866 Receipts in respect of investment contracts allocated directly to insurance reserves - - 78,244 - - - 78,244 Financial margin including management fees 264,980 481,709 (1,004) 22,821 - - 768,506 Income (loss) from life assurance business 267,577 330,965 (6,904) (89,202) 66,293 (2,916) 565,813 Profit from pension and provident 27,501 Total profit from life assurance and long term savings 593,314 Annualized premium in respect of insurance contracts – new business - 60 - 550,989 22,608 - 573,657 One time premium in respect of insurance contracts 3,637 60,552 103,514 151,822 - - 319,525 Annualized premium in respect of investment contracts – new business ------One time premium in respect of investment contracts - - 78,244 - - - 78,244
1. The products issued up to the year 1990 (including their increases) were mainly guaranteed yield and are mainly/partially backed up by designated bonds. 2. Increases in existing policies are not included in the framework of the annualized premium in respect of new business, but in the framework of the original policy’s activity results. 3. The financial margin does not include additional income of the Company which are collected as a percentage of the premium and it is calculated before deduction of investment management expenses. The financial margin in policies with a guaranteed yield, is based on actual investment income for the reported year, net of the multiplication of the guaranteed rate of yield for the year, multiplied by the average reserve for the year, in various insurance reserves. In respect of profit participating policies, the financial margin is the total of the fixed and variable management fees calculated on the basis of the yield and the average balance of the insurance reserves.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 18:- ADDITIONAL INFORMATION REGARDING LIFE ASSURANCE SEGMENT AND LONG TERM SAVINGS (Cont.)
c. Additional information regarding yield dependent liabilities
December 31, 2009 Year ended December 31, 2009 Yield dependent liabilities Premiums Claims Surrenders NIS in thousands In respect of policies issued up to 2003: “Het” Fund (Fund No. 8) 29,659 1,104 1,007 1,349 “Tet” Fund (Fund No. 9) 1,541,603 59,246 22,573 24,932 “Yud” Fund (Fund No. 10) 33,836,747 2,592,034 418,394 782,654 In respect of policies issued from the year 2004 5,336,809 1,815,844 102,050 237,466 Investment baskets 1,312,720 482,787 28,368 96,526 Total 42,057,538 4,951,015 572,392 1,142,927
December 31, 2008 Year ended December 31, 2008 Yield dependent liabilities Premiums Claims Surrenders NIS in thousands In respect of policies issued up to 2003: “Het” Fund (Fund No. 8) 26,142 1,135 897 904 “Tet” Fund (Fund No. 9) 1,273,349 60,643 22,898 23,554 “Yud” Fund (Fund No. 10) 25,560,394 2,743,022 386,918 797,080 In respect of policies issued from the year 2004 3,111,220 1,623,178 82,289 151,676 Investment baskets 508,969 255,716 12,183 49,823 Total 30,480,074 4,683,694 505,185 1,023,037
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 18:- ADDITIONAL INFORMATION REGARDING LIFE ASSURANCE SEGMENT AND LONG TERM SAVINGS (Cont.)
c. Additional information regarding yield dependent liabilities (cont’d)
December 31, 2007 Year ended December 31, 2007 Yield dependent liabilities Premiums Claims Surrenders NIS in thousands In respect of policies issued up to 2003: “Het” Fund (Fund No. 8) 26,751 1,127 1,331 693 “Tet” Fund (Fund No. 9) 1,354,999 60,115 22,153 33,652 “Yud” Fund (Fund No. 10) 29,288,585 2,756,966 383,394 846,096 In respect of policies issued from the year 2004 2,410,611 1,211,417 74,281 115,134 Investment baskets 333,341 148,056 9,137 17,624 Total 33,414,287 4,177,681 490,296 1,013,199
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 18:- ADDITIONAL INFORMATION REGARDING LIFE ASSURANCE SEGMENT AND LONG TERM SAVINGS (Cont.)
d. Information regarding yield and management fees in respect of yield dependent liabilities
Management fees for the year ended Annual average nominal December 31, Annual gross nominal yield yield 5 years 2008 Before After management management 2009 2008 2007 2006 2005 fees fees NIS In percentage in thousands
“Yud” Fund (Fund No. 10) 30.53 (16.36) 11.51 8.39 14.94 8.69 7.21 192,657
General track for policies beginning from the year 2004 30.29 (14.43) 11.64 8.65 12.01 8.66 7.31 49,773
Other 30,940
Total 273,370
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 19:- DETAILS OF THE INSURANCE LIABILITIES INCLUDED IN THE HEALTH INSURANCE SEGMENT:
a.1 Details of the insurance liabilities in respect of insurance contracts according to financial exposure:
Data as at December 31, 2009 Long term care Individual Group Other Total NIS in thousands Yield dependent 606,345 - 181,710 788,055 Other 29,392 18,502 215,845 263,739 Total insurance liabilities 635,737 18,502 397,555 1,051,794
Data as at December 31, 2008 Long term care Individual Group Other Total NIS in thousands Yield dependent 456,879 - 188,992 645,871 Other 20,382 20,323 147,297 188,002 Total insurance liabilities 477,261 20,323 336,289 833,873
a.2 Details of the liabilities in respect of insurance contracts according to insurance exposure:
Data as at December 31, 2009 Long term care Individual Group Other Total NIS in thousands Annuity being paid 38,648 18,350 - 56,998 Other risk components 597,089 152 397,555 994,796 Total 635,737 18,502 397,555 1,051,794
Data as at December 31, 2008 Long term care Individual Group Other Total NIS in thousands Annuity being paid 34,076 20,151 - 54,227 Other risk components 443,185 172 336,289 779,646 Total 477,261 20,323 336,289 833,873
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 19:- DETAILS OF THE INSURANCE LIABILITIES INCLUDED IN THE HEALTH INSURANCE SEGMENT:
b. Details of the results according to policy type
Data for the year ended as at December 31, 2009 Long term care Individual Group Other Total NIS in thousands Gross premiums 137,958 9,682 (*) 364,081 511,721 Profit (loss) from health insurance business 59,166 1,017 77,320 137,503 Annualized premium - new 17,833 - 39,224 57,057
*) Of this individual premiums in the amount of NIS 332,819 thousand and collective premiums in the amount of NIS 31,262 thousand.
Data for the year ended as at December 31, 2008 Long term care Individual Group Other Total NIS in thousands Gross premiums 128,197 9,771 (*)343,313 481,281 Profit from health insurance business (74,514) (1,993) 59,635 (16,872) Annualized premium - new 12,256 - 29,023 41,280
*) Of this individual premiums in the amount of NIS 315,511 thousand and collective premiums in the amount of NIS 27,802 thousand.
Data for the year ended as at December 31, 2007 Long term care Individual Group Other Total NIS in thousands Gross premiums 113,453 10,496 (*) 319,772 443,721 Profit from health insurance business 4,147 4,036 80,448 88,631 Annualized premium - new 17,396 - 26,191 43,587
*) Of this individual premiums in the amount of NIS 294,162 thousand and collective premiums in the amount of NIS 25,610 thousand.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 20:- MOVEMENT IN LIABILITIES IN REPSECT OF LIFE ASSURANCE CONTRACTS, INVESTMENT CONTRACTS AND HEALTH INSURANCE
Life assurance and long term savings Insurance Investment Health contracts contracts Total insurance NIS in thousands Balance as at January 1, 2008 50,834,663 516,680 51,351,343 779,482 Interest, linkage differences and investment income (1) (4,204,282 ) 51,135 (4,153,147) (38,566) Increase in respect of premiums and deposits allocated to liabilities (2) 4,228,137 150,788 4,378,925 106,006 Decrease in respect of claims, surrenders and maturity (1,840,412 ) (55,185) (1,895,597) (21,403) Other changes (3) 293,163 - 293,163 8,354 Balance as at December 31, 2008 49,311,269 663,418 49,974,687 833,873 Interest, linkage differences and investment income (1) 10,258,696 52,834 10,311,530 119,119 Increase in respect of premiums and deposits allocated to liabilities (2) 4,420,871 36,709 4,457,580 111,400 Decrease in respect of claims, surrenders and maturity Change in assumptions (*) (2,203,273 ) (70,082) (2,273,355) (28,345) Other changes (3) 566,140 30,666 596,806 15,747 Balance as at December 31, 2009 62,353,703 713,545 63,067,248 1,051,794
1. Interest, linkage differences and investment income – this paragraph includes interest, linkage differences and investment income in respect of the balance as at the beginning of the year, with the addition of interest, linkage differences and investment income in respect of premiums for savings only recorded during the reported period.
2. Increase in respect of premiums allocated to liabilities – this premium does not include all the premium recorded as income in the Company. The premium includes the premium for savings and part of the premium in products with fixed premium.
3. Other changes – the paragraph includes changes in reserve in respect of outstanding claims, reserve for future claims, IBNR, annuities in payment, etc. (according to assumptions used at the end of the previous year). In addition, the paragraph includes the interest effect, linkage differences and investment income not included in the “interest, linkage differences and investment income” item, 6such as: interest, linkage differences and investment income for claims payment and non saving premiums.
(*) For additional details see Note 36(b)(3)b)(5)
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 21:- TAXES ON INCOME
a. Details regarding the tax environment of the Group
1. General
The income of the Company and all other Group companies are subject to corporate tax according to the Income Tax Ordinance (“the Ordinance”). Furthermore, the income of Group companies classified as “financial institutions” as defined in the Value Added Tax Law are subject to profit and salary tax. It is noted that the activity of companies classified as financial institutions in the insurance, pension and finance branches constitute the major part of the Group’s operations.
2. Income Tax Law (Adjustments for Inflation), 1985
The Income Tax Law (Adjustments for Inflation), 1985 was applicable to the Company and the subsidiaries until the end of 2007. According to the law, the results for tax purposes were measured adjusted to the changes in the CPI. In February 2008 the Knesset passed an amendment to the Income Tax (Adjustments for Inflation), 1985 which prescribed that the applicability of the adjustments law will be terminated in the 2007 tax year, and as of the 2008 tax year the provisions of the said law shall no longer be applicable. As a result, as from 2008 results are measured for tax purposes in nominal values.
3. Calculation of profit tax
Amendment No. 35 to the Value Added Tax Law provides that as from 2009 salary tax that was paid can be deducted in the calculation of the profit tax applicable to financial institutions. A temporary provision for 2008 provides that only half of the salary tax paid can be deducted. Furthermore, it was provided that as from 2009 salary tax will be paid also on the employer’s share of national insurance. As regards 2008, salary tax will be paid on half of the employer’s share of national insurance.
4. Non-application of IFRS
In accordance with Amendment 174 to the Income Tax Ordinance (Temporary Order for Tax Years 2007, 2008 and 2009) - 2010 that was passed by the Knesset on January 25, 2010 and published on the official gazette on February 4, 2010 (hereinafter – “the Amendment to the Ordinance”), Accounting Standard No. 29 of the Israel Accounting Standards Board shall not apply when determining the taxable income for the 2007, 2008 and 2009 tax years, even if it was applied when preparing the financial statements for such years.
The meaning of the Amendment to the Ordinance is actually that IFRS do not apply when calculating the reported profit for tax purposes in respect of the aforementioned tax years. In the opinion of the Company, the Amendment to the Ordinance does not have a material effect on the tax expenses reported in the financial statements.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 21:- TAXES ON INCOME
a. Details regarding the tax environment of the Group (cont’d)
5. Tax arrangements that are unique to the insurance industry
There is an industry agreement between the insurance companies association and the Tax Authorities that arranges the unique issues of the insurance business, and provides mainly as follows:
a) Deferred acquisition costs (DAC) – Direct expenses of insurance companies for the acquisition of life assurance policies are deductible for tax purposes in equal portions over a period of four years. DAC in diseases and hospitalization insurance are amortized over a period of 6 years, like the period of amortization on the books. b) Allocation of expenses to preferred income – Expenses will be allocated to income that is subject to reduced tax rates and to the tax exempt income of insurance companies (“the preferred income”), which means that part of the preferred income becomes income subject to the full rate of tax, according to the rate of allocation. The rate of allocation provided in the agreement depends on the source of the money creating the preferred income. c) Taxation of investments in profit participating policies – In order to prevent possible tax distortions it was agreed that the taxation of profits from quoted securities and of profits from the revaluation and realization of real estate will cause a matching of income to expenses. d) The tax applicable to the cancellation of the reserve for extraordinary risks in life assurance – The Arrangements in the State Economy Law (Legislative Amendments for Attaining the Budget Goals and the Economic Policy for the Fiscal Year 2007), 2007, dated January 11, 2007, prescribed regulations for the tax applicable due to the cancellation of the reserve for extraordinary risks in life assurance that was included in the financial statements as at December 31, 2006. According to the regulations, a portion of the reserve which is calculated at the rate of 0.17% of the insurance risk amount, on retention, in life assurance and for which the capital requirement was defined, will be exempt from tax. In the branch taxation agreement it was noted that the basis of the exempt is the capital requirement which is expressed as mentioned above, and in the event of a cancellation or decrease in the capital requirement, the parties will discuss the consequent tax implications, if any. The balance of the reserve which is higher than 0.17% of the insurance amount at risk, on retention, as mentioned, will be taxable in four equal portions in the years 2007 up to the year 2010. e) Effect of the transition to international standards – It was agreed that the non- recurring effect on the date of transition to international standards will be amortized over three years from 2008 until and including 2010. Nevertheless, it was agreed that if and when the tax authority forms a position on the matter that contradicts the principles of the agreement, the parties will discuss the resulting tax effects. f) Cancellation of the Adjustments Law – It was agreed that the effect of the transitional provisions in the Adjustments Law with respect to quoted securities will be amortized for tax purposes over three years from 2008 until and including 2010.
The existing agreement is in effect up to and including 2008. The agreement for 2009 has not yet been signed. The tax provision in the financial statements for 2009 was prepared in accordance with the principles of the agreement for 2008.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 21:- TAXES ON INCOME
b. Amortization of acquisition of intangible assets
On August 2, 2009 the Israeli Tax Authority published the report of the committee that examined the tax effects of implementing the recommendations of the Bachar Committee (hereinafter – the committee and the report). The committee included in its recommendations a number of basic principles that will serve as a foundation for the position of the Tax Authority with respect to taxation of the sale transactions that were executed following the recommendations of the Bachar Committee. In accordance with the recommendations of the committee, 80%-85% of the excess cost created from the acquisition of the operation of provident fund management companies is to be allocated to goodwill and to the contractual right to jointly manage accounts (according to the details provided in the report). The remaining excess cost (15%-20%) will be allocated to other intangible assets that cannot be amortized for tax purposes by the buyer (such as the customer base, brands, and so forth).
As regards transactions in which shares were acquired and not an operation and other assets (transactions structured as a sale of shares), the committee decided that the sellers will be subject to tax like in an ordinary sale of shares and that the buyers will not be entitled to any amortization of the cost of acquisition.
The effect on the financial statements of implementing the report’s recommendations is immaterial.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 21:- TAXES ON INCOME (Cont.)
4. Tax arrangements that are unique to the insurance industry (Cont.)
c. Tax rates applicable to the income of the Group companies
The statutory tax rate applicable to financial institutions, which constitute the Group’s main activities is comprised of corporate tax and profit tax. Amendment 147 to the Ordinance from August 10, 2005 provides for a reduction in the corporate tax rate over the years 2006 through 2010. In addition, the Economic Efficiency Law that was published in July 2009 provides for an additional gradual reduction, so that the tax rate will be gradually reduced each year until the final rate of 18% in 2016.
In accordance with an order that was issued by the Minister of Finance, a temporary order raising the rate of VAT from 15.5% to 16.5% for one year and a half came into effect as from July 1, 2009. In December 2009 the Minister of Finance issued an amendment to the aforementioned order that lowered the rate of VAT in 2010 from 16.5% to 16%. These changes relate to both the profit tax rate and the salary tax rate applicable to financial institutions.
The aforementioned amendments caused changes in the corporate tax rates and the effective tax rates applicable to the Group’s financial institutions as follows:
Comprehensive Corporate Profit tax rate in financial tax rate tax rate institutions Year % 2007 29 15.5 38.53 2008 27 15.5 36.80 2009 26 16.0 36.21 2010 25 16.0 35.34 2011 24 15.5 34.20 2012 23 15.5 33.33 2013 22 15.5 32.47 2014 21 15.5 31.60 2015 20 15.5 30.74 2016 and thereafter 18 15.5 29.00
The effect of the aforementioned change on the deferred tax balances caused an increase in profit for the period in the amount of NIS 65 million. Of this amount, NIS 41 million that is due to a decrease in the deferred tax liabilities was recognized in taxes on income and NIS 24 million was recognized in the results of investee companies.
The change in the profit tax rate did not have a material effect on the current taxes.
d. Tax assessments
1. Final tax assessments
The Company and its subsidiaries have received final assessments up to and including the year 2005, excluding as described in 21.4.d.2 below. The tax assessments are final by virtue of agreement or due to obsolescence by virtue of Clause 145 of the Income Tax Ordinance.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 21:- TAXES ON INCOME (Cont.)
4. Tax arrangements that are unique to the insurance industry (Cont.)
d. Tax assessments (cont’d)
2. Tax assessments in dispute
a) The Company has been issued a best judgment tax assessment for 2004 in the amount of NIS 14 million in accordance with Section 167 of the Ordinance, according to which it withheld tax from a dividend it distributed to its shareholders at a rate lower than that provided in the law. The Company contends that the assessment is incorrect and has no legal grounds because, inter alia, the proper withholding tax rate was determined according to approvals that were provided to the Company by the assessing officer, before each dividend distribution, and that the Company acted according to such approvals. In light of the aforementioned, the Company has submitted an objection to the assessment in accordance with the law. If the arguments of the Company are rejected, this may have an effect on other years in which the Company has distributed dividends but has not been issued assessments in respect thereto. At this point the Company is unable to evaluate the extent of the effect.
b) Migdal Insurance has been issued best judgment tax assessments for the 2005 tax year in accordance with Section 152 of the Ordinance with respect to the amortization of acquisition expenses of Makefet. The company has submitted an appeal on the assessments. Migdal Insurance has been issued best judgment deductions assessments for 2005 in accordance with Section 167 of the Ordinance. The company has submitted an objection on the matter. Migdal Makefet has been best judgment assessments for the 2005- 2006 tax years in accordance with Section 152 of the Ordinance and for 2007 in accordance with Section 145 of the Ordinance. The issue under dispute regarding which the assessments were issued is the creation and amortization of deferred acquisition costs (DAC). The company has submitted an appeal to the court with respect to the 2005-2006 assessments and an objection to the assessing officer with respect to 2007. If the objections and appeals of the companies are rejected, the effect on the financial statements is not expected to be material.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 21:- TAXES ON INCOME (Cont.)
e. Losses carried forward for tax purposes
Most of the losses carried forward from 2008 were offset from current profits and as at the reporting date they amount to NIS 30 million.
Migdal Insurance has a capital loss carried forward from prior years in the amount of NIS 8 million. Since it is not probable that it will be utilized in the foreseeable future no deferred taxes were created in respect thereto.
f. Taxes on income included in the statements of profit and loss
Year ended December 31 2009 2008 2007 NIS in thousands
Current taxes 187,475 4,538 299,468
Deferred taxes relating to the creation and reversal of temporary difference, also see g below 130,017 (136,169) 26,566 Taxes in respect of previous years 1,034 (4,155) (1,620) Effect of change in tax rates (41,312) - -
Taxes on income 277,214 (135,786) 324,414
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 21:- TAXES ON INCOME (Cont.)
g. Deferred taxes
Composition:
Deferred acquisition costs in life assurance Available and in for sale Losses health financial Fixed for tax insurance assets assets purposes Others Total NIS in thousands Deferred tax asset (liability) as at January 1, 2008 (289,593) ( 43,187 ( 34,175 ( 24,404 33,928( 357,431 Changes allocated to profit and loss (9,978) 107,789( 7,053 ( 9,039 79,524 (25,074 136,169 Changes allocated to equity - 67,944 (2,582 65,362 Business combination - 8,311 8,311 Balance of deferred tax asset (liability) as at December 31, 2008 (299,571) 132,546( 41,228 ( 33,443 79,524 14,583( 147,589 Changes allocated to profit and loss 3,963 (89,427 ( 3,220 4,034( 68,842 23,475( 130,017 Changes allocated to equity -( 186,286 (186,286 Effect of change in tax rates 27,610 9,941 3,76141,312
Balance of deferred tax asset (liability) as at December 31, 2009 (267,998) ( 143,167 ( 34,507 ( 29,409 10,682 41,819( 422,580
The deferred taxes are reported in the balance sheet as follows:
December 31 2009 2008 NIS in thousands
Deferred tax assets 19,631 33,909 Liabilities in respect of deferred taxes (442,211) (181,498)
(422,580) (147,589)
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 21:- TAXES ON INCOME (Cont.)
h. Theoretical tax
Hereunder is the reconciliation of the theoretical tax amount due, had all the income and expenses, profits and losses in the statement of profit and loss been liable to tax at the statutory tax rate applicable on income taxes in the statement of profit and loss :
Year ended December 31 2009 2008 2007 NIS in thousands
Profit (loss) before taxes on income 991,684 (384,586) 957,354
Overall statutory tax rate applicable to financial institutions (see c above) 36.21% 36.80% 38.53%
Tax (tax saving) computed at the overall statutory tax rate 359,089 (141,528) 368,868 Deduction in respect of companies that are not financial institutions and are therefore not subject to profit tax (5,773) (10,109) (8,802) Increase (decrease) in taxes on income resulting from the following factors: Non-deductible expenses 9,846 9,961 16,857 Exempt dividend income (8,179) (2,858) (27,291) Income liable for special tax rates (142) (693) (684) Effect of decline in tax rates on deferred taxes (41,312) - - Profit tax on salary tax - 3,026 4,886 Group's share of profits of affiliates (35,620) (12,604) (11,162) Differences in measurement basis (695) - (12,442) Increase (decrease) in losses for tax purposes for which no deferred taxes were allocated (6,672) 21,142 (763 ) Taxes in respect of previous years 1,034 (4,155) (1,620) Other 5,638 2,032 (3,433 )
Taxes on income 277,214 (135,786) 324,414
Average effective tax rate 27.95% 35.31% 33.89%
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 22:- ASSETS AND LIABILITIES FOR EMPLOYEE BENEFITS
Employee benefits include short term benefits, post employment benefits, other long term benefits, termination benefits, as defined in IFRS No. 19, and share based payments.
For additional details see Note 2 o. See Note 32 regarding share-based payments.
Labor laws and the Severance Pay Law in Israel require the Company to pay severance pay to an employee upon dismissal or retirement or to make current deposits in a defined deposit plan, according to Section 14 as described below. The Company’s liabilities in this respect are treated as a post employment benefit.
The calculation of the Company's liability due to employee benefits is made in accordance with a valid employment contract and is based on the Company’s forecast of the employee's salary at the time of dismissal or retirement.
Post employment benefits are usually financed by deposits classified as defined deposit plans or as a defined benefit plan as detailed below:
Defined contribution plan
The provisions of Section 14 to the Severance Pay Law, 1963, apply to a portion of the severance pay. According to these provisions, the Company’s current deposits in insurance companies’ policies and/or in pension funds, are exempt from any additional liability to employees, in respect of whom amounts were depositing, as mentioned above. These deposits and deposits in respect of benefits, constitute a defined deposit plan. In the years 2009, 2008 and 2007 the expenses in respect of the defined contribution plan amounted to NIS 38,548 thousand, 25,404 thousand and NIS 24,208 thousand, respectively, and were included under administrative and general expenses.
Defined benefit plan
The portion of severance pay that is not covered by deposits in defined deposit plans, as mentioned above, are handled by the Group as a defined benefit plan according to which a liability is recorded in respect of employee benefits and for which the Group deposits amounts in the relevant insurance policies and in central severance pay funds.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 22:- ASSETS AND LIABILITIES FOR EMPLOYEE BENEFITS (Cont.)
a. Composition of liabilities for employee benefits, net
December 31 2009 2008 NIS in thousands
Liabilities in respect of defined benefit plan which is not financed 10,875 9,280 Liability in respect of financed defined benefit plan 230,229 205,566
Total liability in respect of defined benefit plan – see b1 below 241,104 214,846
Less - fair value of the plan’s assets – see b2 below 54,705 41,675
Total net liability in respect of defined benefit plans 186,399 173,171 33,088 29,890 Other long term benefits – see c below 9,691 9,827
Total liabilities for employee benefits, net 229,178 212,888
b. Information regarding defined benefit plans
1. Changes in the present value of the liability for a defined benefit plan
December 31 2009 2008 NIS in thousands
Balance as at January 1 214,846 205,492
Interest cost 11,251 12,602
Current service costs 21,697 19,891
Benefits paid (16,406) (17,766)
Actuarial (profit) loss, net 9,716 (5,986)
Changes in respect of business combinations - 613
Balance as at December 31 241,104 214,846
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 22:- ASSETS AND LIABILITIES FOR EMPLOYEE BENEFITS (Cont.)
b. Information regarding defined benefit plans (Cont.)
2. Plan assets
a) Plan assets
The plan assets include assets held by the employee long term benefit fund (provident funds for employees and pension funds) and the related insurance policies.
b) The movement in the fair value of the plan assets
2009 2008 NIS in thousands
Balance as at January 1 41,675 31,529
Anticipated yield 2,397 2,698 Net actuarial profit (loss) 13,060 3,682 Deposits to plan by employer 835 7,292 Benefits paid (3,262) (3,889) Changes in respect of business combinations - 363
Balance as at December 31 54,705 41,675
3. The main actuarial assumptions in determining liabilities in respect of defined benefit plans
Year ended December 31 2009 2008 2007 %
The capitalization rate 4.99 5.15 6.01
The anticipated real yield on the plan assets (*) 5.62 5.80 5.74
Anticipated real salary increase 3.22 3.38 3.54
Anticipated inflation rate 2.60 1.65 2.48
*) The average yield of the dominant insurance companies in the market, during the last 10 years.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 22:- ASSETS AND LIABILITIES FOR EMPLOYEE BENEFITS (Cont.)
b. Information regarding defined benefit plans (Cont.)
4. The amounts regarding the current year and previous years
Year ended December 31 2009 2008 2007 NIS in thousands
Present value of liability in respect of defined benefit 241,104 214,846 205,492
Fair value of the plan assets 54,705 41,675 31,529
Deficiency in plan 186,399 173,171 173,963
Adjustment resulting from past experience regarding:
Plan liabilities 4,841 (122 ) -
Plan assets 6,545 (162 ) -
5. Expenses allocated to profit and loss
Year ended December 31 2009 2008 2007 NIS in thousands
Current service cost 21,697 19,891 18,208 Interest cost 11,251 12,602 10,222 Anticipated yield on plan assets ()2,397 ) (2,698 (2,084 ) Net actuarial loss (profit) recognized this year ()3,344 ) (9,668 781
Total expenses in respect of employee benefits (*) 27,207 20,127 27,127
*) The expenses were included in the salaries and related expenses under administrative and general expenses, see Note 31.
6. Actual yield
Year ended December 31 2009 2008 2007 NIS in thousands
Actual yield on the plan assets 15,457 6,380 1,731
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 22:- ASSETS AND LIABILITIES FOR EMPLOYEE BENEFITS (Cont.)
c. Other long term benefits
December 31 2009 2008 NIS in thousands
Liability for sick-pay 3,495 3,453 Liability for anniversary grant 6,196 6,374
9,691 9,827
NOTE 23:- CREDITORS AND PAYABLES
December 31 2009 2008 NIS in thousands
Stock Exchange Clearinghouse and securities 49,650 44,175 Employees and other salary-related liabilities 121,875 63,954 Expenses payable 123,767 103,558 Suppliers and service providers 90,784 111,568 Government authorities and institutions 21,738 15,342 Investees 37,306 43,050 Deferred acquisition costs in respect of reinsurance 70,102 73,942 Insurance companies and brokers: Deposits by reinsurers Other accounts 89,595 94,853
Total insurance companies and brokers 159,697 168,795 Insurance agents 317,924 309,721 Policyholders and members 205,495 202,363 Provision for profit participating policyholders 17,946 10,380 Prepaid premium 48,872 49,772 Others 35,101 23,134
Total creditors and payables 1,230,155 1,145,812
*) See details of assets and liabilities distributed according to linkage basis in Note 36c.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 24:- FINANCIAL LIABILITIES
This Note provides information regarding the contractual conditions of financial liabilities. Additional information regarding the Group’s exposure to interest risks, foreign currency and liquidity risks, are provided in Note 36, regarding financial instruments.
a. Details of financial liabilities
December 31 Book value Fair value 2009 2008 2009 2008 NIS in thousands
1. Financial liabilities reported at amortized cost:
Loans from banking 312,325 446,542 306,697 434,430 institutions (*) Loans from non-banking institutions Repo liability 31,223 53,322 30,806 51,763 Subordinated deeds - 82,040 - 82,040
Total financial liabilities reported at amortized cost 343,548 581,904 337,503 568,233
2. Financial liabilities reported at fair value through profit and loss:
Repo liability - 540,262 - 540,262 Derivates 165,908 111,905 165,908 111,905 Total financial liabilities reported at fair value through profit and loss (**) 165,908 652,167 165,908 652,167
Total financial liabilities 509,456 1,234,071 503,411 1,220,400
(*) includes loans from a bank which is an interested party 75,396 189,573 77,340 192,644
(**) Includes financial liabilities in respect of yield dependent policies in the amount of NIS 150 million (previous year NIS 634 million).
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 24:- FINANCIAL LIABILITIES (Cont.)
b. Financial liabilities reported at amortized cost – details regarding interest and linkage
Effective interest December 31 2009 2008 Linkage basis Percentage Linked to CPI 4.1 4.3 In NIS 3.9 5.2 Linked to foreign currency 3.2 2.8
c. Fair value levels of financial liabilities presented at fair value through profit or loss
The table below analyses financial liabilities that are presented at fair value. The different levels have been defined as follows: Level 1: fair value is measured using quoted prices (unadjusted) in active markets for identical instruments Level 2: fair value is measured using inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly Level 3: fair value is measured using inputs that are not based on observable market data (unobservable inputs).
The carrying amounts of creditors and payables and of repo liabilities are the same or proximate to their fair value.
December 31, 2009 Level 1 Level 2 Level 3 Total NIS in thousands
Derivatives - 165,908 - 165,908
Total financial liabilities - 165,908 - 165,908
d. Financial liabilities reported at fair value – the interest rates used to determine the fair value
December 31 2009 2008 Percentage Loans 2.2 4.1 Other financial liabilities 1.3 2.5
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD. NOTE 25:- PREMIUM EARNED ON RETENTION
Year ended December 31, 2009 Gross Reinsurance On retention NIS in thousands
Premiums in life assurance 5,704,312 132,144 5,572,168 Premiums in health insurance 511,721 39,272 472,449 Premiums in general insurance 1,453,874 445,013 1,008,861 Total premiums 7,669,907 616,429 7,053,478 Less – change in the unearned premium balance (*) 67,502 24,336 43,166 Total premiums earned 7,737,409 640,765 7,096,644
Year ended December 31, 2008 Gross Reinsurance On retention NIS in thousands
Premiums in life assurance 5,534,880 103,791 5,431,089 Premiums in health insurance 481,281 36,468 444,813 Premiums in general insurance 1,527,528 455,979 1,071,549 Total premiums 7,543,689 596,238 6,947,451 Less – change in the unearned premium balance (*) ()37,058) (16,797 (20,261) Total premiums earned 7,506,631 579,441 6,927,190
Year ended December 31, 2007 Gross Reinsurance On retention NIS in thousands Premiums in life assurance 5,037,866 111,424 4,926,442 Premiums in health insurance 443,721 32,484 411,237 Premiums in general insurance 1,501,157 463,986 1,037,171 Total premiums 6,982,744 607,894 6,374,850 Less – change in the unearned premium balance (*) (10,327) 1,458 (11,785) Total premiums earned 6,972,417 609,352 6,363,065
*) Mainly in general insurance, see Note 17.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 26:- PROFITS (LOSSES) FROM INVESTMENTS, NET AND FINANCE INCOME
Year ended December 31 2009 2008 2007 NIS in thousands Profits (losses) from assets held against yield dependent liabilities
Investment property 215,657 112,470 179,291 Financial investments:
Quoted debt assets 1,905,961 535,693 436,083 Unquoted debt assets 1,717,092 (172,117 ) 539,339 Shares 2,849,017 (4,838,169) 1,914,547 Other 2,951,764 (1,261,523) 290,714 Cash and cash equivalents (12,288 ) 50,276 9,787
Total profits (losses) from assets held against yield dependent liabilities, net 9,627,203 (5,573,370 ) 3,369,761
Profits (losses) from assets held against non-yield dependent liabilities, capital and others
Income from investment property: Revaluation of investment property 4,951 27,670 14,713 Current income in respect of investment property 32,002 33,004 25,684
Total income from investment property 36,953 60,674 40,397
Profits (losses) from financial investments, except for interest and linkage differences Rate differences and dividend in respect of: Available for sale assets (a) 426,915 (447,448 ) 139,052 Assets reported at fair value through profit and loss (b) 160,576 (32,454) 53,447 Assets reported as loans and debtors (c) 34,912 (83,553 ) 5,787
Interest income (*) and linkage differences from financial assets not at fair value through profit and loss 1,755,326 1,932,698 1,436,827 Interest income and linkage differences from financial assets at fair value through profit and loss 12,850 8,627 14,535 Loss from rate differences in respect of investments not measured at fair value through profit and loss and other assets 767 (1,656 ) (2,258 ) Income from dividend 37,801 30,144 28,055
Total profits (losses) from net investments and finance income 12,093,303 (4,106,338 ) 5,085,603
(*) In the above income includes interest in respect of financial assets not reported at fair value through profit and losses whose value was impaired 10,550 46,647 24,686
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 26:- PROFITS (LOSSES) FROM INVESTMENTS, NET AND FINANCE INCOME (Cont.)
a. Net profits (losses) from investments in respect of available for sale assets
Year ended December 31 2009 2008 2007 NIS in thousands
Net profits (losses) from realized securities 441,101 (135,757) 183,555
Net impairment allocated to profit and loss ()14,186) (311,691 (44,503)
Total profits (losses) from investments in respect of available for sale assets 426,915 (447,448) 139,052
Regarding the movement of available for sale assets, see Note 27.a.
b. Profits (losses) from investments in respect of assets reported at fair value through profit and loss
Year ended December 31 2009 2008 2007 NIS in thousands
Net changes in fair value, including realization profit:
In respect of assets designated upon initial recognized 11,381 (14,195 ) 152 In respect of assets held for trade 149,195 (18,259 ) 53,295
Total profits (losses) from investments in respect of assets reported at fair value through profit and loss 160,576 (32,454 ) 53,447
c. Profits (losses) from investments in respect of assets reported as loans and debtors
Year ended December 31 2009 2008 2007 NIS in thousands
Net profits (losses) from the realization of assets reported as loans and debtors -)(9,563 6,365
Net impairment allocated to profit and loss 34,912 (73,990 ) (578 )
Total profits (losses) from investments in respect of assets reported as loans and receivables 34,912 (83,553 ) 5,787
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 27:- INCOME FROM MANAGEMENT FEES
Year ended December 31 2009 2008 2007 NIS in thousands
Management fees in the pension and provident branches 322,420 252,063 171,634 Variable management fees in respect of life assurance contracts 25,351 - 321,069 Fixed management fees in respect of life assurance contracts 248,019 214,411 203,600 Other management fees 124,886 79,596 112,776
Total income from management fees 720,676 546,070 809,079
NOTE 28:- INCOME FROM COMMISSION
Year ended December 31 2009 2008 2007 NIS in thousands
Insurance agencies’ commission 149,349 144,232 121,411 Reinsurance commission, net of change in deferred acquisition costs in respect of reinsurance 98,454 105,526 104,887 Other commissions 52,372 27,400 24,995
Total income from commissions 300,175 277,158 251,293
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 29:- PAYMENTS AND CHANGE IN LIABILITIES IN RESPECT OF INSURANCE CONTRACTS AND INVESTMENT CONTRACTS ON RETENTION
Year ended December 31 2009 2008 2007 NIS in thousands
In respect of life assurance contracts:
Claims paid and outstanding Death, disability and others 713,850 698,904 668,729 Less reinsurance 83,410 50,669 39,763 630,440 648,235 628,966
Surrenders 1,399,698 1,309,585 1,358,367 Maturities 405,697 463,762 447,866 Annuities 97,716 77,605 61,369
Total claims 2,533,551 2,499,187 2,496,568
Increase in liabilities in respect of life assurance contracts (except for change in outstanding) on retention 13,272,688 (1,411,949 ) 6,305,277
Increase in liabilities in respect of investment contracts for yield component 83,500 51,135 32,582
Total payments and change in liabilities in respect of insurance contracts and investments contracts on retention, in respect of life assurance contracts 15,889,739 1,138,373 8,834,427
Total payments and change in liabilities in respect of general insurance contracts:
Gross 1,177,822 1,101,567 1,215,858 Reinsurance 267,417 234,286 448,496
On retention 910,405 867,281 767,362
Total payments and change in liabilities in respect of health insurance contracts:
Gross 440,298 258,396 300,363 Reinsurance 23,184 16,086 13,297
On retention 417,114 242,310 287,066
Total payments and change in liabilities in respect of insurance contracts and investment contracts on retention: 17,217,258 2,247,964 9,888,855
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 30:- COMMISSION, MARKETING EXPENSES AND OTHER ACQUISTION EXPENSES
Year ended December 31 2009 2008 2007 NIS in thousands
Acquisition expenses: Acquisition commission 342,737 406,545 369,640 Other acquisition expenses 356,003 294,373 278,252 Change in deferred acquisition costs 13,718(76,975 ) (55,344)
Total acquisition expenses 712,458 623,943 592,548
Other current commissions 453,114 381,570 334,137 Other marketing expenses 29,444 43,849 39,061
Total commission, marketing expenses and other acquisition expenses 1,195,016 1,049,362 965,746
NOTE 31:- ADMINISTRATIVE AND GENERAL EXPENSES
Year ended December 31 2009 2008 2007 NIS in thousands
Salaries and related expenses 814,902 693,179 665,986
Depreciation and amortization 121,024 103,829 98,656
Maintenance of office premises and communications 131,468 121,505 108,542
Marketing and advertising 89,639 48,400 41,148
Professional and legal counseling 39,889 40,811 36,000
Others 148,975 135,106 139,516
Total (*) 1,345,897 1,142,830 1,089,848
Less:
Amounts classified under change in liabilities and payments in respect of insurance contract item (94,181 ) (94,686) (95,705) Amounts classified in commissions, marketing expenses and other acquisition expenses (425,635 ) (346,959) (318,114)
Administrative and general expenses 826,081 701,185 676,029
(*) Administrative and general expenses include expenses in respect of IT 220,908 195,762 199,545 - 139 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 32:- SHARE BASED PAYMENT
a. Income recognized in the books
The expenses recognized in the financial statements for services that were received from the employees is presented in the following table:
Year ended December 31 2009 2008 2007 NIS in thousands
11,921 17,570 34,250
Share based payment transactions granted by the Company to its employees are described below. During the years 2007 through 2009 no changes or cancellations in the said employee benefit plans were performed, except as described in paragraph f hereunder.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD. NOTE 32:- SHARE BASED PAYMENT (Cont.)
a. Income recognized in the books (Cont.)
Plan Plan Plan Plan Plan 2009 2008 (1) 2007 2006 2005
Number of options allocated to the Chairman 650,000 651,486 478,663 476,848 414,053
Number of options allocated to the General Manager
To the retiring CEO (*) - 1,750,000 1,009,229 1,005,403 873,004
To the serving CEO 1,000,000 337,079 334,487 333,219 289,338
Number of options allocated to the other employees included in the plan 9,698,875 8,422,679 7,383,967 7,626,772 6,515,338
Total options allocated 11,348,875 11,161,244 9,206,346 9,442,242 8,091,733
Balance of unrealized options as at the balance sheet date 11,348,875 8,114,778 7,427,923 3,896,569
Conversion ratio (2) 1 1.126 1.3 1
Adjusted realization price as at December 31, 2009 (3) 5.48 5.78 5.96 5.41
Date of grant to Chairman of the Board of Directors 9/2009 2/2008 1/2007 12/2005 12/2005
Date of grant to other employees included in the plan 8/2009 12/2007 12/2006 11/2005 11/2005
Vesting date 1/2012 1/2010 1/2009 1/2008
Expiration date 12/2014 12/2012 12/2011 12/2010
Fair value (NIS in millions) as at the date of grant 3.3 4.2 3.1 3.4 2.6
To the Chairman of the Board of Directors and the CEO (**) 18.6 15.0 16.4 16.5 11.3
To other employees included in the plan
*) For additional details see paragraph f. **) On June 15, 2008 Mr. Izzy Cohen retired from his position as the Company’s CEO and Mr. Yonel Cohen was appointed instead of him. The said data relates to the retired CEO, since he was the serving CEO at the aforementioned time of grant.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 32:- SHARE BASED PAYMENT (Cont.)
a. Income recognized in the books (Cont.)
(1) Following the global crisis the Company did not meet the objectives and therefore no rights to shares were or will be granted in respect of this plan.
(2) In the plans for 2005-2007 the conversion ratio was based on the Company’s compliance with various parameters related to business performance of the Company in life assurance and general insurance. In the 2009 plan, which was granted in August 2008, the conversion ratio is not contingent upon objectives.
(3) The exercise price of each option is determined by the multiplication of the conversion ratio which will be determined in the basic realization price, with the addition of linkage difference to the CPI and adjusted to the dividend distribution in accordance with the regulations prescribed in the option program.
(4) The balance of unrealized options, which were granted in the years prior to 2005 is immaterial.
(5) In the said programs there are insignificant expansions that are reported together with the original program.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 32:- SHARE BASED PAYMENT (Cont.)
b. Movement during the year
The following table lists the number of share options, the weighted average realization prices of share options and the changes in employee option plans during the current year:
2009 2008 2007 Weighted Weighted Weighted average average average Number realization Number realization Number realization of options price of options price of options price NIS NIS NIS
Share options outstanding at beginning of year 33,840,946 5.82 34,232,390 5.68 31,398,980 5.36 Share options granted during the year 11,348,875 5.48 2,401,486 6.67 10,582,137 5.51 Share options forfeited during the year (6.89)9,520,306) (6.36)2,792,930 (633,113 5.51 Share options exercised during the year (*) (5.65--4,541,123) (7,115,614) 4.69
Share options outstanding at end of year 31,128,392 5.67 33,840,946 5.82 34,232,390 5.68
Share options exercisable at end of year 11,664,740 5.77 7,814,700 5.19 550,906 5.15
(*) The average weighted exercise price of the share in respect of the options exercise in 2009 - NIS 6.78, in the year 2008 no share options were exercised, in 2007 – NIS 7.28.
c. The weighted average remaining contractual life for the share options outstanding as of December 31, 2009 is 3.23 years (2008 – 3.56 years, 2007 – 4.55 years).
d. The range of exercise prices for share options outstanding as of December 31, 2009 was NIS 5.5-NIS 6 (2008 – NIS 5.4-NIS 6.7, 2007 – NIS 5.1-NIS 6.4).
e. Measurement of the fair value of equity-settled share options
The Company uses the binomial model for measuring the fair value of equity-settled share options. The measurement is made on the date of grant of this equity-settled share options, since the options are granted to employees.
The following table lists the inputs to the binomial model used for the fair value measurement of equity-settled share options for the above plan:
2009 Plan 2008 Plan 2007 Plan 2006 Plan Dividend yield per share (%) 1.33 3.75 3.75 3.75 Expected fluctuation of the share prices (%) 33.78 30.71 31.77 32.13 Historical fluctuation of the share prices (%) 33.78 30.71 31.77 32.13 Risk-free interest rate (%) 1.49 3.19 3.77 3.48 Options’ term (years) 5.74 6.39 5.51 6 Weighted average share price (NIS) 6 6 6 6 5.91 6.20 6.18 6.73
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 32:- SHARE BASED PAYMENT (Cont.)
e. Measurement of the fair value of equity-settled share options (Cont.)
The anticipated volatility of the share prices reflects the assumption that the historical volatility of the share prices is a reasonable indication of the anticipated future trends.
f. Changes to the conditions of the equity instruments
In 2009 a number of employees retired from the Company. The Company’s Board of Directors decided to extend for them the exercise period of the options beyond the original terms of the plan. The value of these changes is estimated to amount to NIS 667 thousand.
In September 2008 the Company’s Board of Directors decided to approve the retirement benefits to the Company’s previous CEO, Mr. Izzy Cohen, who left the Company in June 2008. In this framework, regarding the options allotted to Mr. Izzy Cohen according to the Company’s option plan which were not yet realized, it was approved that Mr. Izzy Cohen can realize a certain amount, as well as an extension of the realization dates beyond the original plan’s conditions.
The total value of the decisions and the changes in the option plans is estimated at about NIS 400 thousand, as at the date of approval.
For additional details, see the immediate report that the Company published on September 24, 2008.
NOTE 33:- OTHER EXPENSES
Year ended December 31 2009 2008 2007 NIS in thousands
Other expenses
Loss from realization of fixed assets - 864 - Loss from impairment of intangible assets (*) - 16,501 - Amortization of intangible assets 40,349 39,096 54,019 Other 760 2,812 -
41,109 59,273 54,019
(*) For additional details see Note 4a.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 34:- FINANCE COSTS
Year ended December 31 2009 2008 2007 NIS in thousands
Interest expenses and linkage differences in respect of: Liabilities to banks 10,145 22,379 16,869 Subordinated deeds - 1,113 2,851 Interest expenses to reinsurers 2,942 2,819 1,972 Commission and other finance expenses 13,006 2,599 5,285
Total finance expenses 26,093 28,910 26,977
NOTE 35:- EARNING (LOSS) PER SHARE
a. Basic earnings (loss) per share
The calculation of the basic loss per share as at December 31, 2009, was based on the profit attributed to the holders of ordinary shares in the amount of NIS 714,834 thousand (2008 – a loss in the amount of NIS 248,055 thousand, 2007 – a profit in the amount of NIS 663,005 thousand) divided by the weighted average number of ordinary shares outstanding during the period, which amount to 1,046,031 thousand shares (2008 – 1,046,011 thousand shares, 2007 – 1,045,230 thousand shares) as follows:
Year ended December 31 2009 2008 2007 NIS in thousands
Weighted average number of ordinary shares
Balance as at January 1 1,046,011 1,046,011 1,043,692 Effect of options realized into shares 20 - 1,538
Weighted average number of ordinary shares used for calculation of basic earnings (loss) per share as at December 31 1,046,031 1,046,011 1,045,230
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 35:- EARNING (LOSS) PER SHARE (Cont.)
b. Diluted earning (loss) per share
The calculation of the diluted earnings per share as at December 31, 2009 was based on the profit attributed to the holders of ordinary shares in the amount of NIS 714,834 thousand (2008 – a loss of NIS 248,055 thousand, 2007 – a profit of NIS 633,005 thousand) divided by the weighted average number of ordinary shares outstanding during the period, after adjustment in respect of all the potential diluted ordinary shares which amount to 1,046,031 thousand shares (2008 – 1,046,011 thousand shares, 2007 – 1,047,712 thousand shares) as follows:
Year ended December 31 2009 2008 2007 NIS in thousands
Weighted average number of ordinary shares used for calculation of basic earnings per share 1,046,031 1,046,011 1,045,230 Effect of dilutive potential ordinary shares - - 2,482
Weighted average number of ordinary shares used for calculation of diluted earnings (loss)per share 1,046,031 1,046,011 1,047,712
The average market value of the Company’s shares, for calculation of the dilutive effect of option warrants to shares, was based on the quoted market prices for the period in which the option warrants were outstanding.
In calculating the net diluted earnings (loss) per share, the convertible securities were not included (potentially dilutive ordinary shares), in respect of 35,669,516 options to employees in the share based payment plans (in the year 2008 – 33,840,942 options to employees in the share based payment plan, in the year 2007 – 9,085,239 options to employees in the share based payment plan), since their inclusion increases the basic earnings (decreases the loss) per share (anti-dilutive effect).
NOTE 36:- RISK MANAGEMENT
a. General
1. The principal risks
The Group operates in the insurance and financial services areas of activity. The insurance activities focus on life assurance and long term savings (life assurance, pension funds and provident funds), health insurance and general insurance. The Company’s activities expose it to the following risks:
market risks; liquidity risks; insurance risks; credit risks; operating risks. - 146 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
a. General (Cont.)
1. The principal risks (cont’d)
Market risks – The risk that the fair value or future cash flows of financial assets, financial liabilities or insurance liabilities will change as a result of changes in market prices. Market risks include, among others, risks resulting from changes in interest rates, stock exchange rates, the CPI and foreign currency exchange rates.
Liquidity risks – The risk that the Group will have difficulties in fulfilling obligations related to its liabilities.
Insurance risks – Life assurance and health insurance risks and actuarial risks in pension funds (the actuarial risks in the pension fund affect the members, and their effect on the managing company is with respect to the management fees) result from uncertainty in the anticipated future claims payment with respect to the assumptions relating to mortality/longevity rates, morbidity/disability rates, expenses, cancellations or surrenders. General insurance risks derive mainly from pricing, the valuation of reserves and catastrophic risk.
Credit risks – The risk of a loss that is the result of a borrower/reinsurer failing to meet their obligations, or of changes in credit spreads on the capital market.
Operating risks – The risk of a loss that is the result of inappropriate or failures in internal processes, human errors, system failures or external events.
The board of directors of Migdal Insurance defines the exposure policy of the insurer and of the profit participating portfolio to the various risks, which includes determining limits of exposure to risks to the extent these can be determined, determining the overall level of exposure to risks taking into consideration the correlation between the various risks, approving tools and controls for measuring and managing the risks, and methods for coping with the risks and with their materialization.
2. Legal requirements
In the insurance activities:
The Regulatory provisions regulate and determine, among others, the arrangements in relation to risks which the companies are exposed to, by providing regulatory requirements such as the following:
In the framework of the Supervision of Financial Services Law (Insurance) (Board of Directors and its Committees) and in relation to the management of exposures to risks, the Board of Directors should define the exposure policy of the insurer and the policyholders to various risks, to determine the ceilings of exposure to risks as far as is possible to determine them, to determine the overall level of exposure to risks, taking into consideration the correlation between the various risks, to approve tools and control for measurement of risks and their management and ways of coping with the risks and with their materialization.
The investment management – directives were determined regarding the manner of investment management by these entities, which, among others, set initial requirements for dispersal, limitations on investments and liquidity.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
a. General (Cont.)
2. Legal requirements (cont’d)
In the insurance activities: (Cont.)
Credit management – directives were set in order to make sure that there will be appropriate management, supervision and control mechanisms for management of credit risks while carrying out investment activities, including regarding the establishment of a credit committee and its roles; setting a policy for providing credit as well as ways of supervision, control and reporting to the various investment committees and to the Board of Directors.
Reinsurers – directives regarding management of exposure to reinsurers (“reinsurers exposure”) were prescribed.
Capital requirements – directives were determined regarding the minimum capital requirements, for further details see Note 7.f.
Risk management -
In the framework of the Bachar legislation a legal requirement was imposed on institutional entities (insurer, pension fund and provident fund) to appoint a risk manager. In October 2006 the Regulator published a circular concerning the appointment of a risk manager for insurance companies and pension funds (“Risk Management Circular”).
The risk management according to the Risk Management Circular, includes the identification of risks that are essential to the insurer’s financial strength, examination of the quality of risk management and quantification of the risks in order to come to the valuation of the required capital in order to bear these risks (the economic capital). In this respect, the economic capital is defined as the level of the capital that is required to guarantee the Company’s repayment ability against an event of a larges loss that might occur at a given level of certainty and during a given period.
According to the Risk Management Circular the duties of the risk manager in insurance companies and in pension funds are mainly:
- To identify the material insurance and financial risks to the insurer’s strength and compliance with his liability to its present and future policyholders or the risks the pension fund members are confronted with, the material risks that stem from the assets held against the insurer’s liabilities and the material risks that are derived from the assets that are held against yield dependent liabilities.
- Quantification of the exposure and evaluation of the potential risk of the material risks that were identified according to the criteria that will be defined by the insurer or the pension fund and for future periods that will be determined.
- The valuation of the shareholders’ equity (the economic capital) that is required from the insurance company in order to bear the material risks while taking the level of correlation between the various risks into account.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
a. General (Cont.)
In the insurance activities: (Cont.)
Risk management - (Cont.)
Periodic reporting to the general manager, Board of Directors and the investment committees, as the case may be, which mainly includes the identification of the main risks, the estimate of their potential risk on the future financial situation of the insurer or the pension fund insureds, and an estimate of the controls and the measures that are taken for the management of these risks.
To provide recommendations for improving the manner of managing the principal risks.
Adoption of Solvency II (“the Directive”) -
In July 2008 the Regulator published a circular determining directives regarding the preparations of the insurance companies in Israel for implementing the directive Solvency II concurrently with the implementation of the Directive in the European Union countries. The Directive includes a comprehensive examination of the risks the insurance companies are exposed to and the determination of standards for handling and measuring them, together with provisions for allocation of capital to risks that are involved with their activities. Apart from the quantitative aspects, the Directive focuses also on the internal supervision and control activities, as well as market discipline, disclosure and reporting. According to the circular the Regulator requires that the insurers will adopt the provisions of the Directive up to the second half of the year 2012, concurrently with their application in the European Union countries. In March 2009 the Regulator issued a circular of amendments and clarifications to insurance circulars regarding the duties of the risk manager and the preparation for Solvency II. The clarification assigned to the risk manager an additional reporting duty with respect to indications arising from the process of preparing for Solvency II and postponed the reporting dates with respect to other reports so as to match them to the implementation phases provided in the Solvency II circular.
Operating risks – in addition to the above arrangements, the Regulator published directives regarding the management of specific exposures of which the main ones are: embezzlement and fraud by certain entities within the organization and outside it (“the Embezzlement Circular”) and data protection risks management (“data protection”).
Management of internal control of the financial reporting (SOX) – according to the Supervision’s directives, the Company is required to establish working methods and identification of all the procedures in the framework of the circulars detailed in paragraphs f-(c) Section e’ to the corporate business report (that are based on Clause 302, which was applied commencing from the annual report for the year 2006, and Clause 404 to the Sarbanes Oxley Law and directives of the SEC).
In the financial services activities:
Migdal Capital Markets and its subsidiaries operate in accordance with the directives of various regulators and the Stock Exchange Articles of Association and Regulations, which define limitations to the ceiling of credit to customers, guarantees, instructions regarding customer activities with respect to derivate financial instruments, etc. - 149 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Legal requirements (Cont.)
3. Description of procedures and methods of risk management (cont’d)
a) The risk management array includes:
In the insurance activities:
a risk management forum headed by the Group’s CEO in which managers from various fields participate, the actuaries of the various insurance fields and the risks manager.
the risk management unit is responsible for the concentration of the following principal issues, in cooperation with the headquarter units responsible for the various issues: risk identification and their quantification, submission of reports regarding exposure to current or extraordinary risks to the reporting entities (in other words, to the investment committees, the Board of Directors, the risk management forum, etc), application of risk valuation systems and their management in the various fields in the Group and the application of the Regulatory directives relating to risk management in the various fields.
The Company has appointed a risk manager for the insurance company and institutional bodies managed by it.
In the financial services activities, an independent system for management of market risks. The CEO of Migdal Capital Markets is responsible for managing its market risks (regarding the activity of the foreign debentures and structured products desk). In the subsidiaries of Migdal Capital Markets, the persons responsible for managing market risks are the CEOs of each subsidiary. Migdal Capital Markets appointed a risk controller who is responsible for controlling the market risks in the provident fund activity.
b) The Company’s risk management policy
The Company’s risk management policy is designed to support the Company’s achievement of business objectives and valuation of the losses that are liable to result from the exposure to risks that the Company is faced with as a result of its business activities, and the limitation of these losses in accordance with the risk policy that was determined, and at the same time to take note of the changes in the business environment, as well as the Regulatory directives and requirements, as detailed below:
The insurance activities:
Market risks are managed by the investment manager in accordance with the law and the overall policy of the Board of Directors and of the investment committees of the asset portfolios of the members’ monies: the profit participating policies, pension funds and provident funds (in which the risk is carried by the members), and that of the Nostro assets portfolios: the insurance businesses and Migdal Holdings (“the Investment Committees”). These bodies receive reports regarding the exposure of the Group’s various investment portfolios to changes in the money and capital markets which include, as mentioned, the interest rates, foreign currency exchange rates and inflation, including management of the assets versus the liabilities, and with reference to this, they define the exposure levels to the various investment channels as borderlines for performing the investments by the Group’s investment domain, subject to the Ways of Investment Regulations. - 150 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Legal requirements (Cont.)
3. Description of procedures and methods of risk management (cont’d)
b) The Company’s risk management policy (cont’d)
The insurance activities: (cont’d)
For information regarding the exposure to the linkage bases of the managed portfolios see paragraph c hereunder.
Liquidity risk is managed by the investment manager who regularly monitors the average duration of assets compared to the average duration of liabilities in the various investment portfolios. The matter is discussed in the Board of Directors and in the investment committees of the managed portfolios, both the nostro portfolios and the members’ portfolios, the profit participating portfolios and the pension funds. The exposure limits to risk factors of the portfolios’ assets is determined in accordance with this data.
The insurance risks are managed by the insurance field manager and the actuaries of the various branches including the pension funds (in which the risks are carried by the members). The Board of Directors receives the exposure valuation of the maximum loss that is expected from the significant insurance risks, at the level of certainty prescribed, based on the following risk components:
the extent of the maximum anticipated loss as a result of the exposure to a single large damage, or an accumulation of damages in respect of an extremely large event (catastrophic event), as well the exposure to an unexpected change of the risk factors that are covered in policies sold by the Company, at a given level of certainty during the period of one year.
the effect of the measures taken by the Company for dispersion, reduction or limitation of the insurance risks, by underwriting procedures and regulations for receipt of business and through reinsurance arrangements, in order to reduce the aforementioned anticipated loss as a result of the exposure to insurance risks.
the effect of the Company’s activities for reducing/limiting the risks, including reinsurance arrangements, the potential effect of the exposures to significant insurance risks on the Company’s future financial position and the required shareholders’ equity against these risks (financial capital).
Regarding the estimate of the Company’s exposure to insurance risks (and to the actuarial risk of the pension fund members), the Board of Directors determines the Company’s or the fund’s exposure limitations to these risks.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Legal requirements (Cont.)
3. Description of procedures and methods of risk management (cont’d)
b) The Company’s risk management policy (cont’d)
Credit risks due to investments are managed by the investment manager in accordance with law and the overall policy of the Board of Directors and the investment committees. The policy includes exposure limitations which mainly relate to exposures to individual borrowers, a group of borrowers, exposure to credit risk ratings, liquidity, collateral, etc. The regulatory requirements are also taken into account when determining the abovementioned limitations. The Company has a credit committee which examines and approves transactions according to the level of authorization that was granted to it by each of the various investment committees.
For information regarding the credit rating of assets in the managed portfolios, see paragraph b.4.a).(2) below.
Reinsurers’ credit risks – managed by the head of the reinsurance field who presents the Board of Directors with the exposure to credit risks in respect of reinsurers. The Board of Directors determines the exposure limitations to the reinsurers’ credit risk ratng, among others, in relation to the type of insurance branch (long/short tail), to the individual reinsurer and taking into account the limitations prescribed by the legislative arrangements. For information regarding the rating of reinsurers’ balances, see paragraph b.1.4.
Main operating risks – managed by the heads of the domains and with respect to control, organization and methods, regulation and operating risks by the head of the domain. The operating risk management policy is determined in the work plan that is presented to the Board of Directors and there is also a reference to the severity of the potential losses that may be caused to the Company or its clients as a result of failures in internal processes, human errors, system failures and external events and also taking the regulatory directives into account.
In the financial service activities: Migdal Capital Markets and its subsidiaries, through their employees and risk systems, supervise the various exposures resulting from market risks, credit risks, liquidity risks and operating risks, in the framework of the exposure limitations prescribed by the Boards of Directors and the regulatory directives regarding these risks.
c) Work processes and the method of identifying risks in the insurance companies
Identification of the material risks, evaluation of their method of management as well as quantification of the exposure and the potential effect of these risks on the future financial position of the Group companies and its policyholders, are carried out together by the risk management unit and the corporate units responsible for the insurance activity, the reinsurance activity, the investment activity and the finance activity, respectively. The overall risk facing the Company as a result of its activity in the various branches is quantified by calculating the capital versus risk (economic capital) that is required in order to cover the loss arising at a given level of probability over a given period of time for the following principal risk categories:
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Legal requirements (Cont.)
3. Description of procedures and methods of risk management (cont’d)
c) (cont’d)
Market risks and liquidity risks: The exposure of the investment portfolios to market risks is quantified by measuring the value at risk (VaR), which measures the maximum potential damage at a given probability over a given period of time, and also by examining the damage expected for the Group under various market scenarios. The exposure to market risk is examined by comparing the average duration and internal rate of return of assets and liabilities (ALM) and by examining the effect of changes in interest curves on their fair value. The average duration gap serves as an indication of the liquidity risk in the portfolios (negative gap – a longer average duration of liabilities than of assets – low liquidity risk, and vice versa). In addition, in respect of the managed portfolios (the nostro portfolios and the asset portfolios of the members’ monies: the profit participating policies, pension funds and provident funds) various performance indices are calculated with respect to the relation between the return that is obtained and the level of risk in the portfolio.
Insurance risks:
In life assurance, health insurance and pension funds – Quantification of the exposure to loss deriving from the risk components of life assurance, health insurance and the actuarial risks in pension funds such as risks of death and disease, life expectancy, a particularly large event such as an earthquake, war or act of terror (catastrophic event), and an increase in rates of cancellations and surrenders. The exposure is quantified by the effect of extreme scenarios on the value of the long term savings portfolios taking into consideration the correlation between the risk factors over a one-year horizon.
In general insurance – The exposure to a significant deterioration in the risk factors covered by the policies such as an individual large event of damage or cumulative damages in respect of a particularly large event, such as an earthquake (catastrophic event), and the effect of reinsurance arrangements on the potential loss for Migdal Insurance is quantified using stochastic models that measure the value at risk (VaR) at a given level of probability over a one-year horizon, mainly on the basis of the behavior of these risks in the past. A calculation is also made of the exposure to a deterioration in future payments for outstanding claims in excess of the reserves existing for such claims.
Credit risks: The exposure to risk of credit granted in the various investment portfolios is estimated mainly on the basis of the calculation of the value at risk (VaR) that derives from the effect of changes in credit spreads on the value of these assets as derived from the credit rating and average duration of the asset, and by examining the damage expected for the Group from the credit assets under different scenarios.
The estimate of the exposure to credit risks from reinsurers is mainly based on the probability of a loss at a given level of certainty that derives from the credit rating of the reinsurers.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Legal requirements (Cont.)
3. Description of procedures and methods of risk management (cont’d)
c) (cont’d)
The credit granted in the investment portfolios is rated on the basis of an external rating, if one exists, and of an internal rating of the investment research department, which also examines the external rating.
The credit rating of reinsurers is based on the rating of Standard & Poor’s or the rating of some other rating company whose rating has been converted according to a scale provided in the Ways of Investment Regulations.
Operating risks: In accordance with Section 404 of the Sarbanes-Oxley Act, Migdal Insurance and other institutional bodies of the Group carried out the process of mapping and identifying the various work processes and methods while taking into consideration all the areas that require a similar identification of processes. Thus, the mapping process was actually combined with the general risk management and the management of other risks – such as operating risks.
Quantification of the loss arising deriving from operating risks is included in the calculation of the economic capital by means of accepted parameters that relate to the volume of the Group’s activity in the various branches of insurance.
New products: The process of entering into a new insurance plan or new area of activity in the Group is executed according to a procedure for launching a new product that complies with, inter alia, regulatory instructions on this matter. The risks associated with the product are identified and quantified as follows:
Insurance risks – The exposure to insurance risks is measured by the appointed actuary while taking into consideration both the risk expectancy, which serves as a basis for pricing the product, and the exposure to potential losses expected in excess of the risk expectancy, under various scenarios and at various probabilities.
Market risks – In products involving any kind of guaranteed yield, the exposure to market risk is measured using stochastic tools that measure both the expected loss in respect of market risks (which is the basis for pricing the product) and the expected potential loss at a given level of certainty, in respect of such risks.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Legal requirements (Cont.)
3. Description of procedures and methods of risk management (cont’d)
d) Risk management control is performed at a number of the Group centers as follows:
each headquarter unit is responsible in its field, for compliance with the Group’s procedures and the Board of Directors and the investment committee’s directives regarding the limitations of the exposure to risks. the control array, which is spread out in the various fields of activity in the Group and managed by the heads of the domains and the control manager, who examines the work procedures, the compliance with the Group’s procedures and acts to locate and minimize the risks, according to the working plan that was approved by the Board of Directors. the risks management unit. See paragraph b.3.a) above. the internal auditor combines in his work plans issues that were defined in the risks survey as issues that require special attention.
Market risks and liquidity risks The exposures of the Group’s various asset portfolios are measured monthly and include the risk indices described in paragraph 3.c above, as well as the situation of the exposures to risk factors compared to limitations that were determined by the Board of Directors and the various investment committees.
The exposure to interest risk as well as the exposure to liquidity risk, which are measured by means of the average duration gap between assets and liabilities, is measured once a quarter.
Exposure reports are provided regularly to the respective investment committees of the various asset portfolios. A summary of the asset portfolios’ risk indices is reported by the CEO to the management and Board of Directors in the framework of the CEO’s monthly report to the Board of Directors.
Insurance risks The Group has professional/insurance forums headed by the CEO and the heads of the insurance and pension activities. Developments in the exposure to insurance risks in the various insurance branches are brought before these forums on a regular basis, as well as developments in other matters, and management decisions are made in these areas accordingly.
In life assurance, health insurance and pension fund – There is ongoing control over developments in the exposures to insurance/actuarial risks, such as risks relating to death, life expectancy, loss of capacity to work, portfolio preservation, expenses, etc., and their effect on both the insurance reserves and the value of the long-term savings portfolio, as well as on the profitability of the products and the value of the Group’s new sales.
In general insurance – There is ongoing control over the developments and trends in exposures to insurance risks of the various insurance branches, which mainly derive from changes in the frequency of the claims and their severity as well as in expenses and in other costs, and their effect on both the profitability of the products and on the insurance reserves. - 155 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
d) Risk management control is performed at a number of the Group centers as follows: (cont’d)
Credit risks of investments The situation of borrowers of credit provided in the framework of the Group’s various investment portfolios is examined once a quarter by the Group research unit, if there has been a change in the credit risk of the borrower. In addition, the credit unit regularly examines the financial covenants of the credit and compliance with the instructions of regulators, the Board of Directors and the investment committees. The exposure to credit risks of the various investment portfolios, including the exposure to borrowers, industries and segments, ratings of borrowers, problematic debts, etc., are brought before the investment committees once a quarter for discussion.
Reinsurers’ credit risks The reinsurance area examines the rating of reinsurers that are planned to participate in reinsurance arrangements before they are renewed. The quality of the reinsurers is also examined by the “underwriting office” when entering into facultative agreements in policies for large enterprises.
The rating of reinsurers compared to the insurance reserves, the outstanding claims as well as to the exposure to earthquakes of reinsurers is examined regularly by the finance unit. The finance unit regularly monitors collection from reinsurers.
Other operating risks Information security – Surveys and penetration tests to information systems are performed in order to detect weak points and contend with them. Fraud and embezzlement, and human errors – These are handled by the control system. Preparation for disaster – The Company has a plan for action in the event of a disaster (DRP/BCP) which includes, inter alia, an overseas backup site for the computer system.
b. Details of the risks
1. Market risks
A market risk is the risk that the fair value or future cash flows of financial assets, financial liabilities or insurance liabilities will change as a result of changes in market prices. Market risks include, among others, risks resulting from changes in interest rates, stock exchange rates, the CPI and foreign currency exchange rates. See paragraph b.1.a) hereunder with respect to the effect of a sensitivity analysis of the effect of changes in these variables on the profit (loss) for the period and on comprehensive income.
Interest risk – The risk that the fair value or future cash flows of a financial instrument will change as a result of changes in market interest rates. In most of the Group’s business the average duration of the assets does not match the average duration of the liabilities, mainly that of the life assurance liabilities in which the average duration of liabilities is considerably longer than the average duration of assets. As a result, a decrease in the interest rate results in lower future yields when refunding the assets as compared to the liabilities and to a decrease in the inherent value of the life assurance portfolio as well as to a decrease in the internal rate of return on the members’ monies.
Market risks (shares/real assets) – Risks deriving from a change in share prices or a change in the fair value of other assets. - 156 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (cont’d)
1. Market risks (cont’d)
Risks related to the Consumer Price Index – A real loss deriving from erosion in the value of shekel assets as the result of inflation being higher than the expectations reflected in the capital market, as compared to CPI-linked insurance liabilities.
Currency risk – The risk that the fair value or future cash flows of a financial instrument will change as a result of changes in foreign currency exchange rates.
The investment income standing against the insurance reserves and the shareholders’ equity has a significant effect on the insurance companies’ profits. A major part of the Group’s asset portfolio is invested in quoted securities in the capital market, and in financial derivates, which are characterized by fluctuations as a result of political and economic events in Israel and around the world. Quoted securities are reported based on their stock exchange value as at the reporting date. Therefore, the fluctuations in the value of these investments are likely to have a significant effect on the Group’s profitability and shareholders’ equity. The extent of the effect on profits depends on the characteristics of the insurance liabilities (Nostro, yield dependent) and the management fee terms of the products against which the relevant reserve is held.
Yield dependent liabilities are liabilities in respect of contracts in which the beneficiary is entitled to receive insurance benefits that depend on the yield derived from investments made against the liabilities in respect of these policies, less management fees as follows:
In respect of policies issued until 2004, fixed management fees as well as variable management fees at the rate of 15% of the real yield after deducting the fixed management fees. In respect of policies issued as from 2004 – fixed management fees.
With respect to the assets and liabilities in respect of these products the insurance companies do not have direct exposure to changes in interest, fair value of the investments or the CPI. The effect of the financial results on the profits of the insurance companies is limited to the exposure derived from the variable management fees based on the fluctuations in the yield received by the policyholders, and only in respect of policies issued until 2004, and from the overall amount of the liabilities from which the fixed management fess of the insurer are derived with respect to all the yield dependent products. In light of the aforementioned, the sensitivity tests and repayment dates of the liabilities specified in the following paragraphs do not include yield dependent contracts.
Any change of 1% in the real yield on investments in the framework of yield dependent contracts in respect of policies issued up to the year 2004, whose scope of liabilities as at December 31, 2009 is about NIS 37 billion (previous year NIS 28 billion), will affect the management fees by an amount of about NIS 55 million (previous year NIS 42 million). The effect of the said change on policies issued from the year 2004 and onwards is insignificant. When the yield in these contracts is negative the Company does not collect variable management fees and cannot collect them as long as there is no positive yield that covers the accumulated negative yield. Since as at December 31, 2008 there was a net accumulated negative yield for the policyholders at a real rate of 20.45%, and according to the Regulator’s directives it is not possible to collect variable management fees until all the accumulated negative yield is covered, a 1% change in the real yield on investments in the framework of yield dependent contracts did not have an immediate effect on the profit. In the fourth quarter of 2009 a real positive yield was obtained that covered the investment losses that were incurred by the policyholders and the Company began collecting variable management fees.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (cont’d)
1. Market risks (cont’d)
In non-yield dependent life assurance (in respect of the portion of the life assurance portfolio that is not backed by designated bonds), in general insurance and in equity there is no full correlation between the linkage basis of the assets and the linkage basis of the liabilities. In non-yield dependent life assurance - the major part of the life assurance portfolio is in respect of yield guaranteed policies, mainly backed by designated bonds (Hetz – life linked bonds) issued by the Bank of Israel during the policy’s entire term. Therefore, the Company has financial coverage overlapping the main liabilities regarding interest and linkage over the policy’s term. As at December 31, 2009, the designated bonds covered about 67% (in December 2008 about 70%) of all the insurance liabilities in life assurance in these programs. Therefore, changes in the capital market, in the CPI and in foreign currency exchange rates, might have a significant effect on the Group’s results of activities.
As a result of the developments and tremors that occurred in the financial markets in 2008, there was a considerable decrease in the value of the asset portfolio managed by the Group and in the reported profit for 2008. In 2009 there were significant rises in prices on the capital markets. In profit participating policies sold until 2004, in which the management fees are comprised of variable management fees (15% of the real yield) and fixed management fees (0.6% of the accrual), the Company did not collect variable management fees in 2008 and in almost all of 2009, until it covered the investment losses incurred by the policyholders as from 2008. Towards the end of 2009 the Company began collecting variable management fees after obtaining a real positive yield that covered the investment losses incurred by the policyholders as aforementioned.
a) Sensitivity tests relating to market risks
Hereunder is a sensitivity analysis of the effect of a change in these variables on the profit (loss) for the period and on the comprehensive income (shareholders’ equity). The sensitivity analysis relates to the carrying amount of the financial assets, the financial liabilities and liabilities in respect of insurance contracts and investment contracts in respect of the relevant risk variable as at each reporting date, and assumes that there is no change in all the other variables. Thus, for example, the change in interest is under the assumption that all the other parameters have not changed. The sensitivity analysis does not include, as mentioned, the effects of the yield dependent contracts as detailed above. In addition, it is assumed that the said changes do not reflect a permanent impairment of assets reported at amortized cost or of available for sale assets and therefore, the above sensitivity test did not include impairment losses in respect of these assets.
The sensitivity analysis only reflects the direct effects and does not reflect the ancillary effects.
It should also be noted that the sensitivity is not necessarily linear. Hence, larger or smaller changes in relation to the changes described below are not necessarily a simple extrapolation of the effect of those changes.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
As at December 31, 2009:
Rate of change Investments in capital Rate of change in the U.S. Dollar The interest rate (1)(2) instruments (3) in the CPI exchange rate +1% -1% +10% -10% +1% -1% +10% -10% NIS in thousands Profit (loss) (730 ) 873 319 ()236 ) (15,182 15,182 (9,714) 9,714
Comprehensive income (4) (116,572 ) 129,130 163,542 ()163,455 ) (15,182 15,182 30,738 (30,738 )
As at December 31, 2008:
Rate of change Investments in capital Rate of change in the U.S. Dollar The interest rate (1)(2) instruments (3) in the CPI exchange rate +1% -1% +10% -10% +1% -1% +10% -10% NIS in thousands Profit (loss) (742 ) 767 4,116 ()4,171 ) (13,264 13,264 14,048 (13,139 )
Comprehensive income (4) (112,621 ) 123,602 72,735 ()72,791 ) (13,264 13,264 41,016 (40,107 )
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
As at December 31, 2007:
Rate of change Investments in capital The rate of change in the U.S. Dollar The interest rate (1)(2) instruments (3) in the CPI exchange rate +1% -1% +10% -10% +1% -1% +10% -10% NIS in thousands Profit (loss) (542 ) 552 (4,689) ()675)(10,173 10,173 6,812 (5,597 )
Comprehensive income (4) (83,569 ) 92,591 66,653 ()71,993 ) (10,173 10,173 38,067 (36,852 )
(1) The sensitivity analysis in relation to the change in interest also relates to instruments at fixed interest instruments with variable interest. In relation to instruments with fixed interest, the exposure is in relation to the book value of the instrument and for instruments with variable interest, the exposure is in relation to the cash flows from the financial instrument. Also the change in interest from the beginning of the year with respect to assets acquired during the year was taken into account for purposes of the sensitivity analysis
(2) The sensitivity analysis does not include the effect on insurance liabilities even though they were classified in the table below as liabilities with a direct interest risk, since in life assurance and health insurance the discount rate is usually derived from the tariff interest and in general insurance the liabilities are not discounted.
(3) Investments in instruments that do not have fixed flows, or alternatively, the Company has no information regarding this flow (in accordance with the definitions of IFRS 7 they do not include investments in affiliates).
(4) The sensitivity tests in relation to the comprehensive income also reflect the effect on the profit (loss) for the period.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
1. Market risks (Cont.)
b) Direct interest risk
Direct interest risk is the risk that the change in the market interest will cause a change in the fair value or in the cash flows deriving from the asset or the liability. This risk relates to assets settled in cash. The addition of the word “direct” emphasizes the fact that the interest change can also effect other types of assets but not directly, such as the effect of the interest change on the share rates.
Hereunder are details of assets and liabilities according to exposure to interest risks:
December 31, 2009 Non-yield Yield dependent dependent Total NIS in thousands Assets with direct interest risk: Quoted debt assets 3,664,738 10,314,493 13,979,231 Unquoted debt assets: “Hetz – life linked” bonds 14,679,573 567,321 15,246,894 Other 3,696,255 7,487,246 11,183,501 Other financial investments Cash and cash equivalents 1,100,954 1,249,035 2,349,989 Reinsurance assets 1,076,106 5,077 1,081,183 Total assets with direct interest risk 24,217,626 19,623,172 43,840,798 Assets without direct interest risk (*) 6,691,973 23,542,537 30,234,510 Total assets 30,909,599 43,165,709 74,075,308 Liabilities with direct interest risk: Financial liabilities Liabilities in respect of insurance contracts and 359,305 150,151 509,456 investment contracts 24,823,443 42,780,380 67,603,823 Others 606,176 65,213 671,389 Total liabilities with direct interest risk 25,788,924 42,995,744 68,784,668 Liabilities without direct interest risk (*) 1,143,994 93,040 1,237,034 Total capital and liabilities 26,932,918 43,088,784 70,021,702 Total assets net of liabilities 3,976,681 76,925 4,053,606 Off balance sheet risk (liabilities to grant credit) 107,412 888,857 996,269
(*) Assets and liabilities without direct interest risk – include shares, fixed assets and real estate for lease, deferred acquisition costs and other assets, as well as balance sheet groups of financial assets (outstanding premiums, insurance companies’ current balances and debtors and receivables) whose average duration is up to six months and therefore the interest risk is relatively low in their respect. - 161 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
1. Market risks (Cont.)
b) Direct interest risk (cont.)
December 31, 2008 Non-yield Yield dependent dependent Total NIS in thousands Assets with direct interest risk: Quoted debt assets 3,287,449 12,645,278 15,932,727 Unquoted debt assets: “Hetz – life linked” bonds 13,746,880 598,371 14,345,251 Other 3,539,062 6,091,136 9,630,198 Other financial investments Cash and cash equivalents 509,841 1,382,146 1,891,987 Reinsurance assets 1,143,455 3,278 1,146,733 Total assets with direct interest risk 22,226,687 20,720,209 42,946,896 Assets without direct interest risk (*) 5,764,062 11,425,828 17,189,890 Total assets 27,990,749 32,146,037 60,136,786 Liabilities with direct interest risk: Financial liabilities 600,353 633,718 1,234,071 Liabilities in respect of insurance contracts and investment contracts 23,298,620 31,067,815 54,366,435 Others 336,256 58,130 394,386 Total liabilities with direct interest risk 24,235,229 31,759,663 55,994,892 Liabilities without direct interest risk (*) 1,078,443 72,528 1,150,971 Total capital and liabilities 25,313,672 31,832,191 57,145,863 Total assets net of liabilities 2,677,077 313,846 2,990,923 Off balance sheet risk (liabilities to grant credit) 47,010 564,744 611,754
(*) Assets and liabilities without direct interest risk – include shares, fixed assets and real estate for lease, deferred acquisition costs and other assets, as well as balance sheet groups of financial assets (outstanding premiums, insurance companies’ current balances and debtors and receivables) whose average duration is up to six months and therefore the interest risk is relatively low in their respect.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISKS MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
1. Market risks (Cont.)
b) Direct interest risk (Cont.)
Comment: See paragraph b.3.b),(3).(a) hereunder regarding the discount interest rate used to calculate the insurance liabilities in life assurance and health insurance. The Company does not discount its general insurance liabilities. For further details see paragraph b.3.c) hereunder.
2. Liquidity risks
Liquidity risk is the risk that the Group will have difficulties in fulfilling obligations related to its liabilities.
The Group is exposed to risks resulting from uncertainty regarding the date the Group will be required to pay claims and other benefits to policyholders in relation to the scope of the monies that will be available for that purpose at that same date. However, a significant part of its insurance liabilities in the life assurance segment are not exposed to the liquidity risks due to the nature of the insurance contracts as described below.
Yield dependent contracts, in life assurance – according to the tserms of the contracts, the owners are entitled to receive only the value of the said investments. Hence, if the investment value increases there will be a corresponding increase in the Company’s liabilities, net of the management that the Company collects.
Non-yield dependent contracts, in life assurance – 33% (last year 38%) of the insurance liabilities in life assurance are in respect of non-yield dependent contracts but the yield is guaranteed at a rate that was agreed upon. These contracts are mainly backed by designated bonds (Hetz – “life linked bonds”) issued by the Bank of Israel. The Company is entitled to realize these bonds when the redemption of these bonds is required.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISKS MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
2. Liquidity risks (Cont.)
Hence, the Group’s liquidity risk is mainly due to the balance of assets that are not designated bonds and are not held against yield dependent contracts. These assets constitute, as at December 31, 2009, about 10% of all the Group’s assets (about NIS 7 billion). As at December 31, 2008 these assets constituted about 10% of all the Group’s assets (about NIS 6 billion).
From the said asset balance, the amount of about NIS 2.9 billion (previous year NIS 2.2 billion) are quoted assets.
It should be noted, however, that a possible necessity to raise sources of funds unexpectedly and in a short time might require a quick realization of a large portion of assets and their sale at prices that do not necessarily reflect their market value.
According to the Ways of Investment Regulations Migdal Insurance is required to hold liquid assets (namely, government bonds or cash and cash equivalents) in the amount of not less than 15% of the required capital.
Management of assets and liabilities Migdal Insurance manages its assets and its liabilities in accordance with the Supervision Law requirements and regulations.
The tables below concentrate the estimated settlement dates of the company’s non-capitalized insurance and financial liabilities. Since the amounts are non-capitalized, they do not match the balances of the insurance and financial liabilities in the statement of financial position.
a) The estimated settlement dates of the liabilities in life assurance and health insurance are included in the tables as follows: Savings monies – contractual settlement dates, namely, retirement age, without cancellation assumptions, under the assumption that the savings will continue as a lump sum and not as annuity. Annuity in payment, occupational disability in payment and long term care in payment – on the basis of an actuarial estimate. Outstanding claims and risk reserves – reported under the column “without a defined settlement date”.
b) The estimated settlement dates of the liabilities in respect of general insurance contracts were included in the tables as follows: Insurance liabilities assessed by the actuary – on the basis of an actuarial estimate. Insurance liabilities in non-statistical insurance branches and in branches the actuary does not sign off on, other than property branches and excess of income over expenses (accrual) – reported under the column “without a defined settlement date”. Insurance liabilities in non-statistical insurance branches and in branches the actuary does not sign off on in property branches are included in the column of settlement up to 3 years.
c) The settlement dates of the financial liabilities and liabilities in respect of investment contracts were included on the basis of the settlement dates of the contracts. In contracts in which the opposing party is entitled to chose the time of payment, the liability is included on the basis of the earliest date that the Company can be required to pay the liability.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISKS MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
2. Liquidity risks (Cont.)
Liabilities in respect of life assurance and health insurance contracts (*) Over one Over 5 Over 10 Without a year and years and years and defined Up to one up to 5 up to 10 up to 15 Over 15 settlement year years Years years years date Total NIS in thousands
As at December 31, 2009 1,270,750 4,603,940 6,328,870 6,205,462 8,415,221 218,719 27,042,962
As at December 31, 2008 1,704,341 4,315,659 5,827,425 5,665,983 7,615,637 230,033 25,359,078
(*) Does not include in respect of yield dependent contracts.
Liabilities in respect of general insurance contracts (*)
Over 3 Without a years and defined Up to 3 up to 5 Over 5 settlement year years years date Total NIS in thousands
As at December 31, 2009 2,264,156 564,386 567,468 156,878 3,552,888
As at December 31, 2008 2,207,973 568,412 585,686 230,942 3,593,013
(*) The presented flows are according to a directive of the Regulator
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISKS MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
Financial liabilities and liabilities in respect of investment contracts:
Over 5 Over 10 Over 1 years years Up to year and and and 1 year up to 5 up to 10 up to 15 Over (*) Years years years 15 years Total NIS in thousands
As at December 31, 2009: financial liabilities 401,039 117,325 - 1,800 - 520,164
Liabilities in respect of non yield dependent investment contracts 79,938 531,253 80,903 73,335 1,481 766,910
Liabilities in respect of yield dependent investment contracts ------
As at December 31, 2008: financial liabilities 1,018,182 237,366 1,800 - - 1,257,348
Liabilities in respect of investment contracts 46,487 142,359 577,133 69,211 1,948 837,138
Liabilities in respect of yield dependent investment contracts ------
(*) Liabilities up to one year include the amount of NIS 109 million (previous year NIS 148 million) to be settled upon demand. These liabilities were classified for settlement of up to one year even though the actual settlement date is likely to be in later years.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks
a) General
The insurance risks –
Life assurance and health insurance risks mainly result from uncertainty in the anticipated future claims payment in relation to the assumptions relating to the mortality/longevity rates, morbidity/disability rates, expenses, cancellation or surrenders.
General insurance risks:
Pricing – the exposure to deterioration in the risk factors covered by the policy beyond the actuarial valuation according to which this premium was determined for covering these risks. The gaps may be due to random changes in the business results and to changes in the average claim cost and/or the frequency of the claims as a result of various reasons.
Valuation of the insurance liabilities (reserve for outstanding claims) – the exposure to deterioration in future payments of the outstanding claims above the estimate of the Company’s liability for these claims.
Catastrophic risk:
An exposure to the risk that a single event of vast effect (catastrophe), such as earthquake, war or terror, will cause a high percent of accumulated damage.
The size of the maximum loss that is expected in general insurance business, as a result of an exposure to a large single damage or an accumulation of damages in respect of a significantly large event at a maximum probable loss (weighted MPL for an event once every 350 years) of about 1.59%, is about NIS 3,814 million, gross, and about NIS 50 million on retention.
In life assurance business it is required to hold equity for damage from a low probability significantly large event at the rate of 0.17% of the amount at risk in respect of death, and a CAT type reinsurance agreement in an additional amount of $ 150 million.
For further information on various insurance branches for which the insurer is exposed to insurance risk, see details of insurance liabilities according to insurance risks in Note 3.d .
b) Insurance risk in life assurance and health contracts
(1) General
Hereunder is the description of the various insurance products and assumptions used in the calculation of the liabilities in their respect, according to the type of product.
In general, in accordance with the Regulator’s directives, the insurance liabilities are calculated by the actuary according to the accepted actuarial methods and consistent to the previous year. The liabilities are calculated in accordance with the relevant coverage data, such as: age and sex of policyholder, term of insurance, date of commencement of insurance, type of insurance, periodic premium and the amount of the insurance.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
b) Insurance risk in life assurance and health contracts (Cont.)
(2) Actuarial methods for calculating insurance liabilities
“Adif” type and “Investment tracks” insurance programs:
In “Adif” and “Investment track” insurance programs are insurance products there is an identified savings component. The basic and main reserve is at the level of the accumulated savings plus the yield according to the policy’s terms as follows:
Principal linked to investment portfolio yield (yield dependent contracts)
Principal linked to the CPI plus a fixed guaranteed interest or credited by a guaranteed yield against adjusted assets (yield guaranteed contracts).
In respect of insurance components that are attached to these policies (occupational disability, death, long term care, etc.), the insurance liability is calculated separately as mentioned below.
Endowment” type policies (Traditional) and others
The “Endowment” type insurance programs and similar programs combine a savings component in the event that the policyholder is still alive at the end of the term of the program with an an insurance component of death risk during the period of the program. In respect of these products, the insurance liability is calculated for each coverage as a capitalization of the cash flows in respect of the anticipated claims, including a payment at the end of the period, net of future anticipated premiums. This calculation is based on assumptions according to which the products were priced and/or on assumption based on the claims experience, including the interest rates (hereunder – tariff interest), mortality or morbidity tables. The calculation is according to the net premium reserve method, which does not include the component that was loaded on the premium tariff for covering the commissions and expenses, in the anticipated flow of receipts and on the other hand it does not deduct the anticipated expenses and commissions. The reserve in respect of yield dependent traditional products is calculated according to the actual yield that was obtained, net of management fees.
Liabilities for annuities in payment are calculated in accordance with the anticipated mortality rate, based on updated mortality tables that were created after an examination of the Company’s experience and with the assistance of data published by the Treasury’s actuary in the Regulator’s circular.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
b) Insurance risk in life assurance and health contracts (Cont.)
(2) Actuarial methods for the calculation of the insurance liabilities (Cont.)
Liabilities in respect of annuities paid for life in respect of valid policies (paid and settled) which have not yet reached the stage of realization of annuity or the policyholder has reached retirement age and the actual payment did not yet begin, are calculated according to the probability of annuity withdrawal and in accordance with the anticipated life expectancy on the basis of the updated mortality tables. At the time of updating the mortality tables and/or updating the probability of taking an annuity, there is a gradual increase of the liabilities for annuity taking into consideration the anticipated profits from the policies until the policyholders reach retirement age in accordance with the Regulator’s circular. If the guaranteed annuity coefficients of the policies are higher, the required increase is also higher.
Other life assurance programs include pure risk products (occupational disability, death, long term care) sold as independent policies or attached to policies with a basic program such as “Adif”, “Investment track” or “Traditional”. An actuarial liability is calculated in respect of these programs. The calculation is according to the method called the Net Premium Reserve.
In respect of continuous claims in payment, in long term care and occupational disability insurance, the insurance liability is calculated according to the duration of the anticipated payment, and it is capitalized according to the tariff interest rate of the product.
The reserves for the insurance of individual medical expenses are calculated based on the net premium reserve. The calculation assumptions regarding parameters relating to morbidity and cancellation assumptions were based on the Company’s experience, with a conservative margin, as generally accepted for the calculation or reserves.
The outstanding claims in the sub-branch surgery, are calculated according to the three way basis (chain ladder, Bornhuretter-Fergosun) regarding claims that are paid according to the months of damage, without capitalization, and without a range indication. The outstanding claims in the sub-branches of transplant and surgeries abroad, are calculated on the basis of the claims department report. The outstanding claims in the sub-branch medications are calculated on the basis of an actuarial model, according to the monthly payments and claim seniority.
The insurance liabilities in respect of group insurance consists of a liability in respect of unearned premium, provision for participation in profits, IBNR reserve (claims incurred but not yet reported), reserve for continuity and provision for future losses, if necessary.
The liabilities for outstanding claims in life assurance mainly include provisions for outstanding claims for death cases.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
b) Insurance risk in life assurance and health contracts (Cont.)
(3) Main assumptions used in the calculation of the insurance liabilities
(a) The capitalization rate
In respect of the insurance programs of the “Endowment” type and others (Traditional) and pure risk products with fixed premiums, the interest used for capitalization is as follows:
In insurance plans mainly backed by designated bonds, the tariff interest is between the 3% to 5%, linked;
In respect of yield dependent products, issued in the years 1991 and onwards, a tariff interest rate of 2.5%, linked. In accordance with the policy’s conditions, changes in interest will be imputed to the policyholders.
The capitalization rate can change as a result of significant changes in the long term market interest rate.
(b) Mortality and morbidity rates
(1) The mortality rates used in the calculation of the insurance liabilities in respect of the policyholders’ mortality before retirement age (in other words not including mortality of the policyholders who receive old age pension and monthly compensation for occupational disability or long term care) are usually similar to the rates used for determining the tariff.
(2) Liability for three fold annuity for life is calculated according to the updated mortality tables.
An increase in the mortality rate assumption, due to an increase in the actual mortality to a level that is higher than the existing assumption, will cause an increase in insurance liabilities in respect of mortality of policyholders before reaching the retirement age and a decrease in liability for three fold annuities for life.
It should be noted that in the last decades there is an opposite trend of increase in the life expectancy rate and a decrease in mortality rates. The mortality assumption that is used for calculating the liability for annuity, takes into consideration an assumption in respect of a future increase in life expectancy.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
b) Insurance risk in life assurance and health contracts (Cont.)
(3) Main assumptions used in the calculation of the insurance liabilities (Cont.)
(b) Mortality and morbidity rates (Cont.)
(3) The morbidity rates relate to the frequency of claims in respect of dread disease, occupational disability, long term care, surgery and hospitalization, disability from accidents, etc. These rates are determined on the basis of the Company’s experience or reinsurers’ research. In the long term and occupational disability branches the period for payment of annuities is determined in accordance with the Company’s experience or reinsurers’ research.
If the assumption regarding the morbidity rate will increase, also the insurance liability in respect of illnesses due to dread disease, occupational disability, long term care, surgery and hospitalization and disability from accidents, will increase.
(c) Annuity rates
Life assurance contracts, that include a savings component, were managed, in respect of monies deposited up to the year 2008 in two tracks: a lump sum track or an annuity track. In part of the contracts the policyholder is entitled to choose the track at the time of retirement. Since the amount of the insurance liability is different in each of these two tracks, the Company must determine the rate of policies that the policyholders will chose in the annuity track. This rate is determined according to the Supervision’s directives and adjusted to the Company’s experience. Beginning from the year 2008 all the programs are for annuity.
(d) Cancellation rates
The cancellation rates effect the insurance liabilities in respect of part of the health insurances and the annuities paid for life during the period before beginning the payments. The cancellation of insurance contracts can be due to the cancellation of policies initiated by the Company due to discontinuation of the premium payments or surrenders of policies at the policyholders’ request. The assumptions regarding the cancellation rates are based on the Company’s experience and they are based on the type of product, the life span of the product and sales trends.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
b) Insurance risk in life assurance and health contracts (Cont.)
(3) Main assumptions used in the calculation of the insurance liabilities (Cont.)
(e) Continuity rates
There are health insurances and group long term care insurances in which the policyholders are entitled to continue to be insured under the same conditions, even if the collective contract is not renewed. In respect of this option of the policyholders, the Company has a liability that is based on assumptions regarding the continuity rates of the collective insurances and the continuity rates of the contracts with the policyholders after the collective contract expires.
The higher the probability that the collective contract will not be renewed (a higher continuity rate), the higher the insurance liability, because of it continuing under the previous conditions without the underwriting being adjusted to the change in the policyholders’ state of health.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
b) Insurance risk in life assurance and health contracts (Cont.)
(4) Sensitivity analysis
December 31, 2009 Rate of cancellations (surrenders, settlements Morbidity rate and reductions) Death rate NIS in thousands +10% -10% +10% -10% +10% -10%
Profit (loss) (97,490) 97,262 6,330 (7,043 ) (2,850 ) 2,850 Comprehensive income (97,490) 97,262 6,330 (7,043 ) (2,850 ) 2,850
December 31, 2008 Rate of cancellations (surrenders, settlements Morbidity rate and reductions) Death rate NIS in thousands +10% -10% +10% -10% +10% -10%
Profit (loss) (86,453) 86,233 5,367 (5,971) (2,473) 2,473 Comprehensive income (86,453) 86,233 5,367 (5,971) (2,473) 2,473
December 31, 2007 Rate of cancellations (surrenders, settlements Morbidity rate and reductions) Death rate NIS in thousands +10% -10% +10% -10% +10% -10%
Profit (loss) (83,137) 83,376 5,410 (6,019 ) (2,323 ) 2,323 Comprehensive income (83,137) 83,376 5,410 (6,019 ) (2,323 ) 2,323
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
b) Insurance risk in life assurance and health contracts (Cont.)
(5) Changes in the main assumptions used for calculating the insurance liabilities
In 2009 the Group identified a continuation in the trend of rising rates of realization. Accordingly, an adjustment was made in the rates of realization and in the rate of future income deriving from the management fees or from the financial margin deriving from investments held against insurance reserves or from premium payments in respect of the policies (“K value”) that is used to finance the increase in the annuity reserves from a rate of 0.4% to a rate of 0.6%, an increase that will have a negative effect on the financial results in the forthcoming years. Taking into consideration the accrual existing at the date of the financial statements, the effect of the aforementioned increase on increasing the annuity reserve and decreasing the profitability for the year net of tax is estimated to be NIS 25 million, throughout the life of the policies in the existing portfolio.
Also taking into consideration the aforementioned adjustment, it is noted that the management fees or the financial margin deriving from investments held against the reserve in respect of the policies and the premium payments for the policies in respect of the existing portfolio, may produce future income higher than the aforementioned K in an amount that covers all the expenses that will be discovered until the expected age of retirement that are related to the said policies and investments.
c) Insurance risk in general insurance contracts
(1) Summary description of the main insurance branches in which the Group operates:
The Group’s activities focuses on the branches of motor act, motor casco, property insurance and liability insurance.
Motor act insurance covers, pursuant to the motor insurance ordinance, the owner of the vehicle and the driver for any liability they may be liable to pursuant to the Road Accident Victims Compensation Law, 1975, due to bodily damage caused to the driver of the vehicle, the passengers in the vehicle, or pedestrians injured by the vehicle, as a result of the use of the motor vehicle. The claims in this branch are characteristic by a long tail, namely, sometimes a long time passes from the date of the event to the time the claim is finally settled.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
b) Insurance risk in life assurance and health contracts (Cont.)
c) Insurance risk in general insurance contracts
(1) Summary description of the main insurance branches in which the Group operates:
Motor casco insurance is an optional insurance and it is the most common voluntary insurance in the framework of general insurance. Motor casco insurance includes damage coverage for the insured vehicle and property damages that the insured vehicle will cause to a third party.
The tariff for motor casco insurance requires an approval, as well as an approval of the entire policy, by the Regulator of Insurance and it is a differential actuarial tariff (which is not uniform for all the policyholders and adjusted to risk). The said tariff is based on a number of parameters, those related to the vehicle insured by the policy (such as type of vehicle, production year, type of protection, etc.), as well as those relating to the characteristics of the policyholders (number of drivers of the vehicle, age of the drivers, previous claims experience, etc.).
The underwriting process is performed partly through the tariff itself and partly through the underwriting policy of the Group as determined from time to time.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
c) Insurance risk in general insurance contracts (Cont.)
(1) Summary description of the main insurance branches in which the Group operates: (Cont.)
Liability insurance is designed to cover the policyholders’ liability by law in respect of damage that he may cause to any third party. The main types of insurance are: liability insurance towards a third party, employers’ liability insurance and other liability insurance such as professional liability, product liability and directors’ and officeholders’ liability. The policies in liability insurances are usually issued for the period of one year. However, the time it takes to handle the claims in this branch is longer and might go on for a number of years, due to several reasons: the damage covered by the policy was caused to a third party who is not covered by the policy, the time that passes between the date of the event which is the subject of the claim and the time the liability and the damage are outlined and the claim is filed, is relatively long. In many cases it involves relatively complicated factual and legal inquiries, both, regarding the policyholders’ liability, as well as the scope of the damage, the period of limitation in respect of the cause of the claim is longer than the period of limitation which is generally accepted in property insurance. The claims in this branch are characterized by a “long tail”, namely, a long time passes from the date of the event until the final settlement date of the claim.
Property insurances are designated to grant the policyholder coverage against physical damage to his property. The main risks covered by property policies are fire risks, explosions, theft, earthquake and natural disasters. The property insurances sometimes include coverage for consequential damage (loss of profits) due to the physical damage to the property. Property insurances constitute an important factor in comprehensive residential insurance, business premises insurances, engineering insurances, freight in transit (marine, cargo, aviation) etc.
In most cases, the property insurance policies are issued for a period of one year. In addition, in most cases the claims in respect of these policies are handled close to the time the insurance event had occurred.
(2) Principles for calculating actuarial valuations in general insurance:
(a) Liabilities in respect of general insurance contracts include the following main components:
Provision for unearned premium Excess of income over expenses (accrual) Outstanding claims and provision for insufficient premium
The provision for unearned premium reflects the premium component relating to the period after the balance sheet date, according to generally accepted accounting principles. These reserves do not reflect the actuarial liabilities of unexpired risks and therefore they do not depend on any special assumptions.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
c) Insurance risk in general insurance contracts (Cont.)
(2) Principles for calculating actuarial valuations in general insurance:
(a) (Cont.)
Excess of income over expenses (accrual) – in branches were the time required to give notification of the damage and/or for determining the damage and compensation for the damage, takes a long time and might go on for a number of years, for example: in the liability and motor act branches, the excess of income over expenses reserve is calculated on a three year funded basis (hereunder – “the excess”) which is comprised of the insurance fees and the income is attributed from investments at the rate of 3%, in real terms, net of claims and expenses, net of the reinsurers’ share, separately for each branch and underwriting year. The accumulated surplus until the end of the third year from the date of the beginning of the insurance, net of the unexpired risks reserve (hereunder – “the accrual”), is included under the outstanding claims item. The losses, if any, are included under the current results.
The outstanding claims, including the reinsurers’ share therein, in the statistical branches (the liabilities, motor act, motor casco, comprehensive residential and personal accidents branches), were calculated by the appointed actuary in general insurance Ms. Anat Cohen-Toledano, who stated, among others, that the valuations were performed in accordance with generally accepted actuarial principles, and the assumptions and methods for valuating the provisions were determined by her, according the best of her professional judgment, and in accordance with the guidelines, directives and principles (see actuary’s statement attached to the financial statements).
The actuarial valuations are mainly based on data bases in respect of the paid claims that also include direct expenses for the settlement of claims and the deductible. Subrogations and salvage recoveries are taken into consideration in the data base that serves for calculating the actuarial estimates of the outstanding claims. In accordance with the directives of the Regulator of Insurance, the valuations also included indirect costs for settlement of claims in respect of all the branches in which the Company operates in general insurance.
In addition, according to the Regulator’s directives, provisions for premiums that do not cover the anticipated cost of the claims (hereunder – insufficient premium), are included, if necessary, in the motor act, motor casco and comprehensive residential branches. This provision, if it is set-up, is reported under outstanding claims.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
c) Insurance risk in general insurance contracts (Cont.)
(2) Principles for calculating actuarial valuations in general insurance: (Cont.)
(b) In accordance with the Regulator’s directives, the outstanding claims are calculated by the actuary, according to the generally accepted actuarial methods, consistently with the previous year. The choice of actuarial method suitable for each insurance branch is determined by the actuary, according to the compatibility of the method to the branch. The valuation of outstanding claims in the Group is based, in most of the branches, on actual claims payments and in some of the branches it is based on the accumulated cost of the claims. The main assumption in these models is: the stability of the claims run-off, namely, past behavioral pattern will also continue in the future.
(c) In the motor act, employer’s liability, third party and motor casco branches, the calculations are based on the actual claims payments. In comprehensive residential, professional liability, product warranty and personal accidents branches, the calculations are based on the accumulated cost of the claims (the actual claims payment with the addition of individual valuations).
(d) When valuating exceptionally large claims, the valuation is based on individual estimates of the Company’s experts.
(e) Regarding special cases that were not fully expressed in the payments, as detected by the Company from time to time, there are specific provisions on the basis of the relevant legal and/or statistical estimates.
(f) There might be new events which that are not really expressed in the present claims payment. If it turns out that the actual experience will be different from the accumulated experience in the present claims payment, additional provisions might be required in the future.
(g) The actuarial valuation is based on statistical estimates that include an uncertainty component. The statistical estimate is based on various assumptions, which will not necessarily be realized. The assumptions used in the actuarial forecast effect the final results of the provision. Therefore, the actual claims cost might be higher or lower than the statistical estimate.
(h) Assumptions that were determined in the past might change in accordance with new information that will be received in the future. In such cases, the outstanding claims will change according to the change in the assumptions and the actual results, and the differences that were created during the reported year will be included in the general insurance business statement.
(i) The actuarial calculations do not include an amortization due to capitalization of future claims payments. In branches where there is a big difference, there is an addition for the risk margin (standard deviation).
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
c) Insurance risk in general insurance contracts (Cont.)
(2) Principles for calculating actuarial valuations in general insurance: (Cont.)
(j) The provision for outstanding claims for residual insurance arrangements (hereunder – the “Pool”) was performed based on the calculations of the Pool’s actuary.
11. The outstanding claims are calculated on a gross level and the reinsurers’ share in the outstanding claims is estimated taking the type of agreement into consideration (relative/non-relative).
(3) Details of the actuarial methods in the main insurance branches
The following actuarial models were utilized in order to estimate the outstanding claims, in a combination with the various assumptions:
(a) Link ratio: - this statistical method is based on the claims run-off (payment run-offs and/or total claims run-off, run-off of the number of claims, etc.), in order to estimate the anticipated run-off for the existing and future claims. This method is mainly suitable after a sufficient period of time has passed from an event or the underwriting of the policy, and there is enough information from the existing claims in order to estimate the total anticipated claims .The Sherman Power Curve method provides an appropriate curve for the link ratio.
(b) Bornhuetter-Ferguson: - this method combines early estimates (a priori) that is known to the company or in the branch, and an additional estimate based on the claims themselves. The early estimate utilizes premiums and loss ratio for evaluating the total claims. The second estimate utilizes the actual claims experience based on other methods (such as link ratios). The combined claims valuation weighs the two estimates, and a larger weight is given to the valuation based on the claims experience as time passes and additional information is accumulated for the claims. The use of this method is mainly suitable for the recent period where there is not enough information from the claims or for a new business, or a business with insufficient historical information.
(c) Averages: - in certain cases, like in the Bomhuetter-Ferguson method, when the claims experience in the recent periods is insufficient, the historical average method is utilized. In this method the claims cost is determined based on the cost of the claim per policy for earlier years and the number of policies in the later years. Likewise, the claims cost is calculated based on the forecast of the number of claims (the link ratio method) and the historical average claim.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3. Insurance risks (Cont.)
c) General insurance contract insurance risks
(3) Hereunder are details of the actuarial methods used in the main insurance lines (Cont.)
(d) Model for large claims: In order to calculate repayments from reinsurance, the Company uses a “log normal” type of curve adjustment technique. The election of the appropriate actuarial method for every insurance line and for each event/underwriting year, is determined based on the judgment of the Company’s actuary according to its compatibility with the case at hand, and there is also a combination of the various methods.
(e) Other For claims regarding occupational diseases in employers’ liability insurance, which are claims based on prolonged damage, a provision is calculated on the basis of future expected cost. In claims of this type there is no specific date on which the employee was injured and the damage is formed as the result of prolonged exposure to the risk factors. Claims of this type are characterized by a very long period of time between the beginning of exposure to the risk factors and the date the claim is reported (long tail claims).
(4) Hereunder is a description of the actuarial methods that were applied in the main insurance lines:
(a) Motor act and liability lines:
The basic models used by the Company are the Link Ratio, which is based on the actual data and the adjustment of the Sherman Power Curve. The model is at the level of the underwriting year and is calculated at the level of the gross claims.
In the recent underwriting years, the Company uses the Bornhuetter Ferguson method, which is based on claims per policy in the motor act line and on the Loss Ratio basis in the liability lines.
Since the valuation of the outstanding claims is calculated, as mentioned, at a gross level, there is a model for estimating the reinsurance outstanding claims.
In non-proportional reinsurance (Excess), the model for the old underwriting years is based on the treatment of individual claims, whereas in the recent underwriting years it is based on an adjustment of the curve for the large claims and on the risk rate derived from the reinsurance premium. In proportional reinsurance, including facultative, there is no separate model. In large facultative businesses the claims are handled individually.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
(4) Hereunder is a description of the actuarial methods that were applied in the main insurance lines: (cont’d)
(b) Motor Casco:
The Company uses the Link Ratio model which is based on actual payments at the level of monthly damages. There are separate models for accident damages and theft damages. The data is at a gross level.
In the recent damage months, the Company uses the Bornhuetter Ferguson method, which is based on claims per policy.
The outstanding claims valuation is calculated on the gross level. The reinsurance component in this line of business is insignificant.
\ (4) Hereunder is a description of the actuarial methods that were applied in the main insurance lines: (Cont.)
(c) Comprehensive residential:
The Company uses the Link Ratio model which is based on the cumulative cost of the claims (claim payments plus individual estimates). The model is applied at the level of monthly damages and the data is at the level of gross claims.
In the last damage month, the Bornhuetter Ferguson method was used. This model is based on claims per policy.
In this line of business, the reinsurance is proportional and the retention is calculated based on the actual reinsurance rates in each damage year.
(d) Personal accidents:
The Company uses the Link Ratio model based on the cumulative cost of claims (claim payments plus individual estimates). The model is applied at the underwriting year level and the data used is at the level of the gross claims.
In the last underwriting years, the Bornhuetter Ferguson method was used, on the basis of Loss Ratio.
In this line of business, the reinsurance is in part proportional and in part Excess of Loss type reinsurance. The retention is calculated based on the actual reinsurance rates in each underwriting year.
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MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
(4) Hereunder is a description of the actuarial methods that were applied in the main insurance lines: (cont’d)
(e) Lines of business in which non-actuarial provisions were set-up:
Based on the directives of the Regulator of Insurance, the Group also examined calculation of the actuarial reserves in the other main lines: comprehensive business premises insurance, engineering insurance, contractors insurance, marine insurance, aircraft insurance, insurance of goods in transit and travel abroad insurance.
Due to a lack of statistically significant information, an actuarial model was not applied for these lines.
The outstanding claims with respect to these lines were included based on estimates that included the following components:
Known outstanding claims, that include an appropriate provision for handling expenses up to the end of the period, but were not yet paid as at the financial statements date. This provision is mainly based, on an individual valuation of each claim, based on the opinion received from the Company’s attorneys and experts handling the claims. Most of the claims are backed by reinsurance and therefore the effect of the deductible collected from the policyholder is immaterial.
A provision for claims incurred but not yet reported (IBNR) based on past experience.
- 182 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
3 Insurance risks (Cont.)
c) General insurance contract insurance risks (Cont.)
(5) Changes in assumptions, facts (rulings and legislation) and in actuarial models and their impact on the provisions.
In the last year, no significant changes in the actuarial models were made.
It should be noted that the change in assumptions/methods described above and/or additional information in respect of factors detailed above, could result in changes to the actuarial estimates.
4. Information regarding credit risks in respect of assets against non-yield dependent contracts
a) Debt assets credit risks
(1) Breakdown of debt assets according to their location:
December 31, 2009 Quoted (*) Unquoted Total NIS in thousands
In Israel 3,549,323 18,341,591 21,890,914
Abroad 115,415 34,237 149,652
Total debt assets 3,664,738 18,375,828 22,040,566
December 31, 2008 Quoted (*) Unquoted Total NIS in thousands
In Israel 3,240,116 17,251,968 20,492,084
Abroad 47,333 33,974 81,307
Total debt assets 3,287,449 17,285,942 20,573,391
(*) Quoted debt assets are classified mainly under the available for sale category and are reported at fair value.
Also see details of assets divided into ratings, below.
- 183 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4. Information regarding credit risks in respect of assets against non-yield dependent contracts (Cont)
a) Debt assets credit risks (Cont.)
(2) Details of assets divided into ratings
(a) Debt assets
Local rating (*) December 31, 2009 AA BBB to Rated lower and above A than BBB Unrated Total NIS in thousands Debt assets in Israel Quoted debt assets Government debentures 2,683,735 - - - 2,683,735 Corporate bonds 217,998 625,422 18,501 3,667 865,588 Total quoted debt assets in Israel 2,901,733 625,422 18,501 3,667 3,549,323 Unquoted debt assets 14,679,573 - - - 14,679,573 Government debentures 550,512 566,003 56,737 - 1,173,252 Corporate bonds 1,491,540 5,114 - - 1,496,654 Deposits in banks and financial institutions - - - 139,814 139,814 Other debt assets according to guarantees: Mortgages - - - 174,626 174,626 Loans on policies Other guarantees 168,508 321,468 - 180,553 670,529 Not guaranted - - - 7,143 7,143 Total unquoted debt assets in Israel 16,890,133 892,585 56,737 502,136 18,341,591 Total debt assets in Israel 19,791,866 1,518,007 75,238 505,803 21,890,914 From this debt assets according to internal rating 137,429 212,801 - - 350,230 Includes debt assets in internal rating whose rating was reduced by the Company - 56,407 - - 56,407
- 184 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4. Information regarding credit risks in respect of assets against non-yield dependent contracts (Cont)
a) Debt assets credit risks(Cont.)
(2) Details of assets divided into ratings (Cont.)
(a) Debt assets (Cont.)
International rating (*) December 31, 2009 Rated lower A and above BBB than BBB Unrated Total NIS in thousands Debt assets abroad Quoted debt assets Government debentures - - - - - Corporate bonds - 115,415 - - 115,415 Total quoted debt assets abroad - 115,415 - - 115,415 Unquoted debt assets Deposits in banks and financial institutions 34,237 - - - 34,237 Total unquoted debt assets abroad 34,237 - - - 34,237 Total debt assets abroad 34,237 115,415 - - 149,652
*) Each rating includes all the ranges, for example: A includes A- up to A+.
- 185 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4. Information regarding credit risks in respect of assets against non-yield dependent contracts (Cont)
a) Debt assets credit risks(Cont.)
(2) Details of assets divided into ratings (Cont.)
(a) Debt assets (Cont.)
Local rating (*) December 31, 2008 AA BBB to Rated lower and above A than BBB Unrated Total NIS in thousands Debt assets in Israel Quoted debt assets Government debentures 2,444,820 - - - 2,444,820 Corporate bonds 570,842 206,165 - 18,289 795,296 Total quoted debt assets in Israel 3,015,662 206,165 - 18,289 3,240,116 Unquoted debt assets 13,746,880 - - - 13,746,880 Government debentures 684,609 336,566 - 4,027 1,025,202 Corporate bonds 1,470,668 6,944 - - 1,477,612 Deposits in banks and financial institutions - - - 188,073 188,073 Other debt assets according to guarantees: Mortgages - - - 180,637 180,637 Loans on policies Other guarantees 335,629 135,370 - 147,303 618,302 Not guaranted - - - 15,262 15,262 Total unquoted debt assets in Israel 16,237,786 478,880 - 535,302 17,251,968 Total debt assets in Israel 19,253,448 685,045 - 553,591 20,492,084 From this debt assets according to internal rating 27,368 274,226 - - 301,594
- 162,929 - - 162,929
- 186 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4. Information regarding credit risks in respect of assets against non-yield dependent contracts (Cont)
a) Debt assets credit risks(Cont.)
(2) Details of assets divided into ratings (Cont.)
(a) Debt assets (Cont.)
International rating (*) December 31, 2008 AA BBB to Rated lower and above A than BBB Unrated Total NIS in thousands Debt assets abroad Quoted debt assets Government debentures 11,324 - - - 11,324 Corporate bonds - 35,293 716 - 36,009 Total quoted debt assets abroad 11,324 35,293 716 - 47,333 Unquoted debt assets Deposits in banks and financial institutions 33,974 - - - 33,974 Total unquoted debt assets abroad 33,974 - - - 33,974 Total debt assets abroad 45,298 35,293 716 - 81,307
*) Each rating includes all the ranges, for example: A includes A- up to A+.
- 187 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4. Information regarding credit risks in respect of assets against non-yield dependent contracts (Cont)
a) Debt assets credit risks(Cont.)
(2) Details of assets divided into ratings (Cont.)
(b) Credit risks in respect of other assets (In Israel)
Additional information
Local rating (*) December 31, 2009 AA and Lower above BBB to A than BBB Not rated Total NIS in thousands
Debtors and receivables, except for reinsurers’ balances - - - 223,515 223,515 Deferred tax 19,631 - - - 19,631 assets Other financial investments 40,884 - - 236,395 277,279 Cash and cash equivalents 1,094,776 - - - 1,094,776
Local rating (*) December 31, 2008 AA and Lower above BBB to A than BBB Not rated Total NIS in thousands
Debtors and receivables, except for reinsurers’ balances - - - 300,039 300,039 Deferred tax assets 33,909 - - - 33,909 Other financial investments 13,212 - - 421,309 434,521 Cash and cash equivalents 494,991 - - - 494,991
*) Each rating includes all the ranges, for example: A includes A- up to A+.
- 188 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4. Information regarding credit risks in respect of assets against non-yield dependent contracts (Cont)
a) Debt assets credit risks(Cont.)
(2) Details of assets divided into ratings (Cont.)
(c) Credit risks in respect of off balance sheet instruments (In Israel)
Local rating (*) December 31, 2009 AA and Lower above BBB to A than BBB Not rated Total NIS in thousands
Unutilized credit lines 55,654 51,758 - - 107,412
Local rating December 31, 2008 AA and Lower above BBB to A than BBB Not rated Total NIS in thousands
Unutilized credit lines - 47,010 - - 47,010
*) Each rating includes all the ranges, for example: A includes A- up to A+.
- 189 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4. Information regarding credit risks in respect of assets against non-yield dependent contracts (Cont)
a) Debt assets credit risks(Cont.)
(2) Details of assets divided into ratings (Cont.)
(d) Credit risks in respect of other assets (abroad)
International rating December 31, 2009 AA and Lower above BBB to A than BBB Not rated Total NIS in thousands Other financial investments 3,790 - - 718,811 722,601 Cash and cash equivalents -6,178 - - 6,178
International rating December 31, 2008 AA and Lower above BBB to A than BBB Not rated Total NIS in thousands Other financial investments 3,614 - 4,183 201,265 209,062 Cash and cash equivalents - 14,850 - - 14,850 *) Each rating includes all the ranges, for example: A includes A- up to A+.
b) Additional information regarding credit risks
(1) The Company operates according to a credit rating methodology that was approved by the Company’s Board of Directors and was submitted to the Regulator of Insurance. The Company continuously examines the gaps, if any, between the ratings it performed and the ratings performed by external rating companies. When there are unexplained significant gaps between the ratings received from external and internal ratings, the lower (the more prudent) of the ratings is taken.
(2) There is a difference in the rating scale between debt assets in Israel and debt assets abroad. It should be noted that in accordance with the Capital Market Circular 2008-6-1, regarding the publication of the conversion scale between the Israeli rating and the International rating, the Regulator instructed that up to January 1, 2009 the rating companies who received approval from the Commissioner of the Capital Market, Insurance and Savings to operate as a rating company in accordance with the Capital Market Circular 2004/1, to publish a conversion scale between the local and international rating.
- 190 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4. Information regarding credit risks in respect of assets against non-yield dependent contracts (Cont)
a) Debt assets credit risks(Cont.)
(2) Details of assets divided into ratings (Cont.)
b) Additional information regarding credit risks (cont’d)
(3) Information regarding credit risks in this Note does not include the assets for yield dependent contracts that are reported in a separate Note.
(4) Regarding reinsurers’ exposure to credit risk see paragraph b.1.4 below.
(5) Regarding outstanding premium balances in the amount of NIS 382,926 thousand (last year – NIS 402,511 thousand) see Note 10.
(6) Aging of investments in unquoted financial debt assets:
December 31 2009 2008 NIS in thousands Debt assets whose value was not impaired 18,076,657 16,844,351 Without arrears In arrears(*): Up to 90 days 19,785 3,744 Between 90 to 180 days 5,779 720 Over 180 days 6,985 25,748 Total debt assets whose value was not impaired 18,109,206 16,874,563 Debt assets whose value was impaired: Gross assets whose value was impaired 348,227 527,955 Impairments allocated to profit and loss (accrued) (81,605) (116,576) Total unquoted debt assets 18,375,828 17,285,942
It should be noted that the above amounts do not constitute the actual amount in arrears, but rather they include the debt balance involved in the arrears. *) Mainly loans on policies against which there are full redemption values and/or mortgages.
- 191 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4. Information regarding credit risks in respect of assets against non-yield dependent contracts (Cont)
b) Additional information regarding credit risks (Cont.)
(7) Details of exposure to economic sectors for investments in quoted and unquoted financial debt assets
December 31, 2009 Balance sheet credit risk Off balance Amount % sheet risk NIS in Of the NIS in thousands total thousands Economic sector Industry 148,061 0.7 - Construction and real estate 603,534 2.7 51,758 Electricity and water 908 0.0 - Commercial 35,078 0.2 - Transportation and storage 128,512 0.6 - Communication and computer services 59,404 0.3 55,654 Banks 2,199,477 10.0 - Financial services 112,282 0.5 - Other business services 333,425 1.5 - Public services 481,380 2.2 - Private individuals 499,656 2.3 - Other 75,541 0.3 - Government bonds 17,363,308 78.7 - Total 22,040,566 100.0 107,412
- 192 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f
MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4. Information regarding credit risks in respect of assets against non-yield dependent contracts (Cont)
b) Additional information regarding credit risks (Cont.)
(7) Details of exposure to economic sectors for investments in quoted and unquoted financial debt assets (Cont.)
December 31, 2008 Balance sheet credit risk Off balance Amount % sheet risk NIS in Of the NIS in thousands total thousands Economic sector Industry 118,226 0.6 - Construction and real estate 594,909 2.9 47,010 Electricity and water 22,578 0.1 - Commercial 62,748 0.3 - Transportation and storage 7,844 0.0 - Communication and computer 48,713 0.2 - services 2,072,418 10.1 - Banks 5,757 0.0 - Financial services 460,490 2.2 - Other business services 417,523 2.0 Public services 1,266 0.0 - Private individuals 536,019 2.6 - Other 21,876 0.1 - Government bonds 16,203,024 78.9 - Total 20,573,391 100.0 47,010
4.1. Reinsurers’ credit risks
The Company insures part of its business by reinsurance, most of which is done through reinsurers abroad. However, the reinsurance does not release the direct insurers from their commitment towards their policyholders according to the insurance policies.
The Company is exposed to risks resulting from uncertainty regarding the reinsurers’ ability to pay their share in the liabilities in respect of insurance contracts (reinsurance assets). This exposure is managed by a current follow-up of the reinsurers rating in the international market and their following through on monetary liabilities.
The Company is exposed to concentrated credit risk to an individual reinsurer, due to the reinsurance market structure and the limited amount of reinsurers with sufficient rating.
In accordance with the Regulator’s directives, once a year the Company’s Board of Directors determines the limits of the maximum exposure to the reinsurers with whom the Company has engaged and/or will engage, which is mainly based on their international rating. These exposures are managed in the Company by individual valuation of each of the reinsurers separately.
In addition, the Company’s exposures are dispersed between various reinsurers, and the principal ones are reinsurers who are rated at high international ratings.
- 193 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009 NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4.1. Reinsurers’ credit risks (Cont.) As at December 31, 2009: Amount of Reinsurance assets letters of Debts in arrears Total Balances credit Between reinsurance in debit In In In In received Total half a premiums (credit) life health property Liability Deposits by from exposure year and Over one Rating group: (D) for 2006 net assurance insurance insurance insurance reinsurers reinsurers (a) (c) one year year NIS in thousands AA and above Assicurazioni Generali SpA (e) 227,305(27,246 ) 10,778 404 154,894 208,510 10,429 1,290 335,621 - - Munich Reinsurance Co. AG 56,231(2,639 ) 2,274 1,757 50,564 104,586 1,813 - 154,729 - - Others 114,450(6,413 ) 64,998 2,136 53,527 59,280 16,536 253 156,739 8 1 397,986(36,298 ) 78,050 4,297 258,985 372,376 28,778 1,543 647,089 8 1 397 986 (36 298) 78 050 4297 258 985 372 376 28 778 1543 647 089 8 1 A212,048(9,265 ) 7,732 690 173,068 145,278 41,320 16,791 259,392 14 3 BBB 450(--97---95-2 ) - Lower than BBB – or unrated (f) 5,945(2,849 ) 1,128 4 5,495 33,983 4 - 37,757 301 332 Total 616,429(48,414 ) 86,910 4,991 437,645 551,637 70,102 18,334 944,333 323 336 1. (a) The total exposure to reinsurers is: debit (credit) balances, net, reinsurance assets, net of the deposits and net of the amount of letters of credit received from reinsurers as a guarantee for their liabilities. (b) After deduction of the provision for doubtful debts in an amount of NIS 1,911 thousand. The balances do not include the insurance company’s balances in respect of co- insurance (c) The total provisions for doubtful debts, plus the reduction in the reinsurers’ share in outstanding claims and in reserves amounts to about NIS 3,036 thousand which constitutes about 0.3% of the exposure as at December 31, 2009. The reduction in the provisions for doubtful debts results, among others, from the recognition of part of the debts as bad debts and from the collection of old debts. (d) The rating is determined mainly according to the S&P rating company. In cases where S&P did not provide a rating, the rating was determined by another rating company whose rating was converted in accordance with a special formula as determined pursuant to the Ways of Investment Regulations. Each rating includes all the ranges, for example: A includes A- through A+. (e) Controlling shareholder’s balance. This balance includes facultative premiums in reinsurance at the rate of 100% in the amount of about NIS 50 million in respect of one policyholder. (f) The non-rated group includes balances for outstanding claims through brokers from business that was received up to and including the year 2003 in the amount of about NIS 12,305 thousand and an insignificant balance in respect of a reinsurer from the Generali Group. (g) The difference in the premiums and in the exposure between the rating groups compared to 2008 is due to, inter alia, rating updates. 2. The total exposure of the reinsurers in the event of an earthquake at the feasibility of damage of 1.59% (weighed MPL) is about NIS 3,764 million (the MPL is estimated by the last models held by the Group). The most significant reinsurer is Generali, which is the controlling shareholder in the Company, and its share in this exposure is about NIS 1,270 million. 3. There are no other reinsurers apart from those detailed above that the exposure in their respect is above 10% of the overall exposure of reinsurers or the premium in their respect is over 10% of the premiums for reinsurance for the year 2009.
- 194 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009 NOTE 36:- RISK MANAGEMENT (Cont.)
b. Details of the risks (Cont.)
4.1. Reinsurers’ credit risks (Cont.)
As at December 31, 2008: Amount of Reinsurance assets letters of Debts in arrears Total Balances credit Between reinsurance in debit In In In In received Total half a premiums (credit) life health property liabilities Deposits by from exposure year and Over one Rating group: (D) for 2006 net assurance insurance insurance insurance reinsurers reinsurers (a) (c) one year year NIS in thousands AA and above Assicurazioni Generali SpA (e) 227,610 (21,090) 10,164 - 173,341 212,212 10,208 1,299 363,120 - - Munich Reinsurance Co. AG 51,224 1,110 3,254 - 50,465 90,759 1,872 - 143,716 - - Others 187,199 (20,554) 8,174 951 140,144 184,869 32,387 16,926 264,271 7 23 466,033 (40,534) 21,592 951 363,950 487,840 44,467 18,225 771,107 7 23 A 466119, 033617(40 9 534,325) 21 776592 951 -363 117, 950008 48747, 84093544 29,158 467 18 240225 145771, 107646 1127 23 5 BBB 169 (11) --111- --100 -- Lower than BBB – or not rated (f) 10,419 (3,172) 60,092 - 10,569 35,909 317 - 103,081 467 371 Total 596,238(34,392 ) 82,460 951 491,638 571,684 73,942 18,465 1,019,934 586 399
1. (a) The total exposure to reinsurers is: debit (credit) balances, net, reinsurance assets, net of the deposits and net of the amount of letters of credit received from reinsurers as a guarantee for their liabilities. (b) After deduction of the provision for doubtful debts in an amount of NIS 3,008 thousand. (c) The total provisions for doubtful debts, plus the reduction in the reinsurers’ share in outstanding claims and in reserves amounts to about NIS 3,932 thousand which constitutes about 0.4% of the exposure as at December 31, 2008. The reduction in the provisions for doubtful debts results, among others, from the recognition of part of the debts as bad debts, , from collection of old debts and collection of a doubtful debt which was in the outstanding claims and was collected almost entirely as a settled claim. (d) The rating is determined mainly according to the S&P rating company. In cases where S&P did not provide a rating, the rating was determined by another rating company whose rating was converted in accordance with a special formula as determined pursuant to the Ways of Investment Regulations. Each rating includes all the ranges, for example: A includes A- through A+. (e) Controlling shareholder’s balance. This balance includes facultative premiums in reinsurance at the rate of 100% in the amount of about NIS 72 million in respect of one policyholder (f) The non-rated group includes balances for outstanding claims through brokers up to and including the year 2003 in the amount of about NIS 15,183 thousand and an insignificant balance in respect of a reinsurer from the Generali Group. 2. The total exposure of the reinsurers in the event of an earthquake at the feasibility of damage of 1.56% (weighed MPL) is about NIS 3,799 million (the MPL is estimated by the last models held by the Group). The most significant reinsurer is Generali, which is the controlling shareholder in the parent company, and its share in this exposure is about NIS 1,319 million. 3. There are no other reinsurers apart from those detailed above that the exposure in their respect is above 10% of the overall exposure of reinsurers or the premium in their respect is over 10% of the premiums for reinsurance for the year 2008.
- 195 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
c. Details of assets and liabilities distributed into linkage basis
December 31, 2009 denominated Liabilities In NIS in foreign Non- in respect of linked currency or monetary yield In NIS to the linked items and dependent unlinked CPI thereto others contracts Total NIS in thousands Intangible assets - - - 1,184,011 - 1,184,011 Deferred tax assets - - - 19,631 - 19,631 Deferred acquisition costs - - - 1,394,173 - 1,394,173 Fixed assets - - - 424,755 - 424,755 Investments in affiliates 142,310 - - 405,499 - 547,809 Investment property for yield dependent contracts - - - - 2,810,446 2,810,446 Other investment property - - - 361,702 - 361,702 Reinsurance assets 143,587 905,885 26,634 - 5,077 1,081,183 Current tax assets - 40,714 104 - 9,076 49,894 Debtors and receivables 147,738 - 4,838 90,625 17,256 260,457 Outstanding premiums 148,699 145,138 34,163 - 54,926 382,926 Financial investments for yield dependent contracts - - - - 39,019,893 39,019,893 Other financial investments: Quoted debt assets 1,322,923 2,226,400 115,415 - - 3,664,738 Unquoted debt assets 213,761 18,098,967 63,100 - - 18,375,828 Shares - - - 1,147,993 - 1,147,993 Others - 7,742 25,839 966,299 - 999,880 Total other financial investments 1,536,684 20,333,109 204,354 2,114,292 - 24,188,439 Cash and cash equivalents for yield dependent contracts - - - - 1,249,035 1,249,035 Other cash and cash equivalents 1,070,690 - 30,264 - - 1,100,954 Total assets 3,189,708 21,424,846 300,357 5,994,688 43,165,709 74,075,308
- 196 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
c. Details of assets and liabilities distributed into linkage basis (Cont.)
December 31, 2009 denominated Liabilities In NIS in foreign Non- in respect of linked currency or monetary yield In NIS to the linked items and dependent unlinked CPI thereto others contracts Total NIS in thousands - - - 4,053,606 - 4,053,606 ------
574,602 24,200,224 48,617 - - 24,823,443
- - - - 42,780,380 42,780,380 - - - 442,211 - 442,211
54,072 109,893 - - 65,213 229,178 - 6,879 - - - 6,879 572,473 370,988 142,947 50,707 93,040 1,230,155 152,100 179,032 28,173 - 150,151 509,456 1,353,247 24,867,016 219,737 492,918 43,088,784 70,021,702 1,353,247 24,867,016 219,737 4,546,524 43,088,784 74,075,308 1,836,461 (3,449,912) 88,422 1,448,104 76,925 - (528,392) 264,757 29,031 234,604 - - 1,308,069 (3,185,155) 117,453 1,682,708 76,925 -
Most of the insurance policies of Migdal Insurance are denominated in NIS and its exposure to changes in exchange rates is immaterial. Where there is exposure to exchange rates, it mainly derives from exposure to the dollar and the euro.
- 197 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f MIGDAL INSURANCE AND FINANCIAL HOLDINGS LTD.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
c. Details of assets and liabilities distributed into linkage basis (Cont.)
December 31, 2008 denominated Liabilities In NIS in foreign Non- in respect of linked currency or monetary yield In NIS to the linked items and dependent unlinked CPI thereto others contracts Total NIS in thousands Intangible assets - - - 1,176,397 - 1,176,397 Deferred tax assets - - - 33,909 - 33,909 Deferred acquisition costs - - - 1,407,891 - 1,407,891 Fixed assets - - - 408,915 - 408,915 Investments in affiliates - - - 250,340 - 250,340 Investment property for yield dependent contracts - - - - 2,633,548 2,633,548 Other investment property - - - 356,139 - 356,139 Reinsurance assets 163,691 949,704 30,060 - 3,278 1,146,733 Current tax assets - 130,647 397 - 9,323 140,367 Debtors and receivables 221,393 45,875 6,475 92,890 859 367,492 Outstanding premiums 5,704 315,584 50,208 - 31,015 402,511 Financial investments for yield dependent contracts - - - - 28,085,868 28,085,868 Other financial investments: Quoted debt assets 1,182,495 2,048,254 56,700 - - 3,287,449 Unquoted debt assets 100,944 17,158,096 26,902 - - 17,285,942 Shares - - - 617,715 - 617,715 Others - - 26,207 617,376 - 643,583 Total other financial investments 1,283,439 19,206,350 109,809 1,235,091 - 21,834,689 Cash and cash equivalents for yield dependent contracts - - - - 1,382,146 1,382,146 Other cash and cash equivalents 491,671 - 18,170 - - 509,841 Total assets 2,165,898 20,648,160 215,119 4,961,572 32,146,037 60,136,786
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
c. Details of assets and liabilities distributed into linkage basis (Cont.)
December 31, 2008 denominated Liabilities In NIS in foreign Non- in respect of linked currency or monetary yield In NIS to the linked items and dependent unlinked CPI thereto others contracts Total NIS in thousands - - - 2,990,923 - 2,990,923 ------
610,316 22,634,835 53,469 - - 23,298,620
- - - - 31,067,815 31,067,815 - - - 181,498 - 181,498
154,758 - - - 58,130 212,888 5,159 - - - - 5,159 505,342 350,076 123,283 94,583 72,528 1,145,812 336,097 237,726 24,561 1,969 633,718 1,234,071 1,611,672 23,222,637 201,313 278,050 31,832,191 57,145,863 1,611,672 23,222,637 201,313 3,268,973 31,832,191 60,136,786 554,226 (2,574,477) 13,806 1,692,599 313,846 - (472,276) - 406,268 66,008 - - 81,950 (2,574,477) 420,074 1,758,607 313,846 -
Most of the insurance policies of Migdal Insurance are denominated in NIS and its exposure to changes in exchange rates is immaterial. Where there is exposure to exchange rates, it mainly derives from exposure to the dollar and the euro.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
d. Information regarding financial investments for yield dependent contracts
1. Composition of investments according to linkage basis
December 31, 2009 denominated in foreign In NIS currency or Non financial In NIS linked to the linked items unlinked CPI thereto and others Total NIS in thousands
Cash and cash equivalents 1,068,073 - 180,962 - 1,249,035 Quoted assets 3,050,738 7,050,908 214,996 17,950,282 28,266,924 Unquoted assets 477,552 7,570,267 241,218 5,360,713 13,649,750
Total assets 4,596,363 14,621,175 637,176 23,310,995 43,165,709
Exposure to the base asset through derivate instruments in Delta terms (9,229,432) - 9,228,401 1,031 -
December 31, 2008 denominated in foreign In NIS currency or Non financial In NIS linked to the linked items unlinked CPI thereto and others Total NIS in thousands
Cash and cash equivalent 1,257,882 - 124,264 - 1,382,146 Quoted assets 6,149,174 6,026,206 368,730 7,761,868 20,305,978 Unquoted assets 33,872 6,558,785 272,661 3,592,595 10,457,913
Total assets 7,440,928 12,584,991 765,655 11,354,463 32,146,037
Exposure to the base asset through derivate instruments in Delta terms (2,660,553) - 1,829,469 831,084 -
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
d. Information regarding financial investments for yield dependent contracts 2. Credit risk for assets in Israel Local rating (*) December 31, 2009 AA BBB Lower than and above to A BBB Not rated Total (**) NIS in thousands Debt assets in Israel: Government bonds 6,500,183 6,500,183 Other debt assets - quoted 1,604,825 2,531,575 64,974 2,870 4,204,244 Other debt assets - unquoted 4,074,403 2,385,273 111,094 564,073 7,134,843 Total debt assets in Israel 12,179,411 4,916,848 176,068 566,943 17,839,270 From this debt assets at internal rating 523,153 831,308 - - 1,354,461 Includes debt assets at internal rating whose ranting was reduced by the Company - 168,689 - - 168,689
Local rating (*) December 31, 2008 AA BBB Lower than and above to A BBB Not rated Total (**) NIS in thousands Debt assets in Israel: Government bonds 9,642,694 - - - 9,642,694 Other debt assets - quoted 2,801,501 551,903 - 20,627 3,374,031 Other debt assets - unquoted 4,126,277 1,083,717 - 587,901 5,797,895 Total debt assets in Israel 16,570,472 1,635,620 - 608,528 18,814,620 From this debt assets at internal rating 204,648 647,552 - - 852,200 Includes debt assets at internal rating whose ranting was reduced by the Company 83,720 198,222 - - 281,942 (*) The sources for the rating level in Israel are the rating companies “Ma’a lot” and “Midroog. The rating company’s data were converted into rating signs according to generally accepted conversion coefficients. Each rating includes all the ranges, for example: A includes A- through A+. (**) The book value forms a proximity to the maximum credit risk. Therefore, the total column represents the maximum credit risk.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 36:- RISK MANAGEMENT (Cont.)
d. Information regarding financial investments for yield dependent contracts (Cont.)
3. Credit risks for assets abroad
International Rating (*) December 31, 2009 A Lower than and above BBB BBB Not rated Total (**) NIS in thousands
Total debt assets abroad 418,444 111,346 - - 529,790
International Rating (*) December 31, 2008 A Lower than and above BBB BBB Not rated Total (**) NIS in thousands
Total debt assets abroad 411,944 108,221 - - 520,165
(*) The sources for the rating level aboard are the rating companies S&P, Moody’s and Fitch, which were approved by the Regulator of Insurance. Each rating includes all the ranges, for example: A includes A- through A+.
(**) The book value forms a proximity to the maximum credit risk. Therefore, the total column represents the maximum credit risk.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 37:- BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES
Part of the insurance and monetary activities of the Company and its subsidiaries, during the ordinary course of business, is done with interested parties, belonging to the Bank Leumi Group and the Company’s controlling shareholder, Generali Group and with related parties of the Company. The following details do not include income, expenses and balance sheet balances resulting from said activities, except as detailed below:
a. Balances with interested and related parties
Composition: December 31, 2009 Controlling Interested Regarding shareholder party (*) conditions (the Proportionally and other see parent consolidated related paragraph company) Affiliates companies parties NIS in thousands
Reinsurance assets 374,899 - - - Debtors and receivables 2,249 - - - Debt assets 14,15 - 117,911 - 2,648,822 Shares - - - 731,439 Creditors and payables (39,893) - - - Financial liabilities 11,12 - - - (76,115)
(*) The interested party’s highest balance of debt assets during the year amounted to NIS 2,803,825 thousand.
December 31, 2008 Controlling Interested Regarding shareholder party (*) conditions (the Proportionally and other see parent consolidated related paragraph company) Affiliates companies parties NIS in thousands
Reinsurance assets 396,614 - - - Debtors and receivables 6,014 - - - Debt assets 14,15 - 506 - 1,968,574 Shares - - - 245,909 Creditors and payables (--37,075) - Financial liabilities 11,12 - - - (190,937 )
(*) The interested party’s highest balance of debt assets during the year amounted to NIS 2,102,781 thousand.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 37:- BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (Cont.)
b. Transactions with interested and related parties Year ended December 31, 2009 Regarding Controlling Interested conditions shareholder Proportionally party and see (the parent consolidated other related paragraph company) Affiliates companies parties NIS in thousands Premiums earned - reinsurance 1 241,720 - - - Reinsurance commission 1 38,072 - - - Reinsurance claims and outstanding claims 1,2 142,362 - - - Premiums received 1,4 6,988 - - 4,049 Commissions and profit participating in group insurance Distribution and operating agreements 7-9 - - - 20,477 Agent commission and other commissions 3,5 - 399 1,931 3,270 Leasing fees/usage fees 1 182 - - 216 Advertising services 10 - 1,366 - - Income from underwriting and custodial fees 6 - - - 574
Year ended December 31, 2008 Regarding Controlling Interested conditions shareholder Proportionally party and see (the parent consolidated other related paragraph company) Affiliates companies parties NIS in thousands Premiums earned - reinsurance 1 211,383 - - - Reinsurance commission 1 38,035 - - - Reinsurance claims and outstanding claims 1,2 20,602 - - - Premiums received 1,4 6,320 - - 2,632 Commissions and profit participating in group insurances - - - 26,873 Distribution and operating agreements 7-9 - - - 18,695 Agent commission and other commissions 3,5 - 406 1,475 4,576 Leasing fees/usage fees 1 178 - - 908 Advertising services 10 - 792 - - Income from underwriting and custodial fees 6 - - - 144
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 37:- BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (Cont.)
b. Transactions with interested and related parties
Year ended December 31, 2007 Regarding Controlling Interested conditions shareholder Proportionally party and see (the parent consolidated other related paragraph company) Affiliates companies parties NIS in thousands Premiums earned - reinsurance 1 242,768 - - - Reinsurance commission 1 39,847 - - - Reinsurance claims and outstanding claims 1,2 263,974 - - - Premiums received 1,4 5,696 - - 3,457 Commissions and profit participating in group insurances - - - 31,125 Distribution and operating agreements 7 - - - 4,598 Agent commission and other commissions 3,5 - 368 1,508 4,363 Leasing fees/usage fees 1 155 - - 1,564 Services to policyholders in respect of policies 16 - - 2,087 -
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 37:- BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (Cont.)
b. Transactions with interested and related parties (Cont.)
Officeholders in the Company are likely to acquire, from time to time, insurance contracts, investment contracts or other financial products issued by the Group, at market conditions and during the ordinary course of business.
c. Benefits to key management people
Year ended December 31 2009 2008 2007 Number of Number of Number of people Amount people Amount people Amount NIS in NIS in NIS in thousands thousands thousands Short term benefits 11 26,663 14 19,981 14 28,631 Post employment benefits 10 2,337 11 1,676 11 2,730 Other long term benefits 10 527 11 568 11 283 Share based payment (see Note 32) 10 3,201 14 7,348 13 10,797 32,728 29,573 42,441
d. Benefits for directors not employed by the Company
Year ended December 31 2009 2008 2007 Number of Number of Number of people Amount people Amount people Amount NIS in NIS in NIS in thousands thousands thousands
Management fees for those who are not employed by the Company on its behalf 15 6,011 16 4,419 17 3,917 Share based payment (see Note 32) 1 661 1 899 1 1,325 6,672 5,318 5,242
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 37:- BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (Cont.)
e. Transaction terms with related parties
1. Reinsurance transactions:
The Group enters into reinsurance contracts (“reinsurance contracts”) and facultative agreements (“facultative agreements”) with various reinsurers (hereinafter together – “reinsurance transactions”). Reinsurance transactions are executed in the Company’s various areas of activity, life assurance, health insurance and general insurance (property and liabilities insurance). Generali, the controlling shareholder of the Company, is an insurance company rated (AA-) by S&P. Generali takes a significant part of the Group’s reinsurance. Generali participates in reinsurance contracts and facultative agreements, as part of the reinsurance Generali provides to all the Generali group companies around the world. It is clarified that Generali does not take part in all the reinsurance transactions of Migdal and that part of Migdal’s liabilities are not even ceded to reinsurers (retention).
A. Approvals for reinsurance transactions with Generali that were executed in 2009: In 2009 reinsurance transactions with Generali were approved in the framework of the following approvals:
(1) Annual approvals All the reinsurance contracts and facultative agreements in general insurance, life assurance and health insurance for 2009 that are in the ordinary course of business and at market terms were approved on an annual basis (hereinafter – ““the annual approval”). These transactions were classified as an “extraordinary transaction” in accordance with Section 270(4) of the Companies Law – 1999 (hereinafter – “the Companies Law”), because of the aggregate of the transactions being material. The transactions were submitted for approval in accordance with Regulation 1(5) of the Companies Regulations (Mitigations in Transactions with Interested Party) – 2000 (hereinafter – “the mitigation regulations”) (the undertaking is at market terms and in the ordinary course of business and does not impair the interests of the Company). For additional details regarding the annual approval for 2009 see the Company’s immediate report from January 22, 2009.
(2) Facultative reinsurance transactions in general insurance that due to their uniqueness were not included in Regulation 1(5) of the mitigation regulations (and thereafter were not included in the annual approval), were classified as an “extraordinary transaction” and received a framework approval from the general meeting of shareholders in accordance with the format provided in Section 275 of the Companies Law. In the framework of the general meeting’s approval, the general meeting was also requested to approve an exemption from reporting on each transaction included in the framework for which approval was requested in accordance with that provided in Section 1(3) of the mitigation regulations with respect to transactions included in the framework approval. This approval relates to facultative reinsurance transactions in general insurance that were executed in 2007, 2008 and 2009. For additional details regarding the triennial approval, see the Company’s immediate reports from October 24, 2006 and November 27, 2006.
(3) Other approvals Separate approvals were requested for reinsurance transactions that do not meet the conditions of the annual approval or the conditions of the triennial approval, in accordance with the classification of each transaction on the basis of the criteria regarding extraordinary transactions.
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e. Transaction terms with related parties (Cont.)
1. Reinsurance transactions:(Cont.)
B. Approvals for reinsurance transactions with Generali that will be executed as from January 1, 2010 : Reinsurance transactions with Generali that will be executed as from January 1, 2010 were approved in 2009 as follows:
(1) Annual approval All the reinsurance contracts in general insurance, life assurance and health insurance for 2010 that are in the ordinary course of business and at market terms were approved on an annual basis. These transactions were classified as an “extraordinary transaction” in accordance with Section 270(4) of the Companies Law, because of the aggregate of the transactions being material. The transactions were submitted for approval in accordance with Regulation 1(5) of the mitigation regulations. The Company’s Board of Directors approved the reinsurance contracts for 2010 on December 3, 2009 after receiving the approval of the audit committee on December 2, 2009. With respect to the annual approval for 2010 see the Company’s immediate report from December 6, 2009. The Company has established criteria and standards by which it will verify that all the reinsurance contracts between Migdal and the Generali group that are based on this annual approval are at market terms and details of these tests are provided in the aforementioned immediate report.
(2) Framework approval for facultative agreements in general insurance for the years 2010-2012 Due to the large amount of facultative agreements and in order to make the Group’s work procedures easier and more efficient and to establish general framework terms for general insurance facultative reinsurance agreements with the Generali group, the Company’s Board of Directors approved, after receiving the approval of the audit committee, general framework terms for such agreements including criteria for examining market conditions and materiality, which all together comprise the general framework terms for the agreements. The framework terms for the facultative agreements with Generali were approved by the Company’s general meeting on January 1, 2010. For additional details regarding approval of the framework terms for facultative agreements as aforementioned and the voting results of the general meeting, see the Company’s immediate reports from December 6, 2009 and January 20, 2010.
Transactions included in Section 270(4) of the Companies Law – extraordinary transactions A. General insurance Annual approval for 2009 Presented hereunder are the general insurance reinsurance contracts for 2009: “Rate of participation” – Wherever this term appears, its means the rate of participation of Generali in the specified insurance contracts at a proportionate part of the contract, out of the risks that were transferred to all the reinsurance contracts.
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e. Transaction terms with related parties (Cont.)
1. Reinsurance transactions:(Cont.)
Branch Rate of participation in premium and in exposure for 2009 Property insurance 13.18% “Magen” insurance for property contract 20% Contracting and engineering businesses 25% Liabilities businesses 30% Motor act – coverage with unlimited liability 22.4% (in premium) Liability of directors and officers 25% in premium and 16% in exposure Marine insurance 10% General accident insurance (basket contract that 40% among other covers personal accidents, fiduciary, foreign travel, money, etc.) Motor casco (self inflicted damage and third party) 5% Product warranty/professional insurance for hi-tech 100% companies (the amount of premiums transferred is not high)
The total amount of reinsurance premiums to the Generali group with respect to coverage of general insurance reinsurance contracts that are included in the annual approval for 2009 is NIS 37 million, constituting 16% of the total reinsurance premium relating to general insurance reinsurance contracts in the said year. The total amount of insurance amounts for exposure to earthquakes that were transferred to Generali in the framework of general insurance reinsurance contracts included in the annual approval for 2009 is NIS 180 million in terms of MPL and constitutes 10% of the total exposure to earthquake transferred in the framework of the general insurance reinsurance contracts in the said year.
Annual approval for 2010 Presented hereunder are the Company’s general insurance reinsurance contracts for 2010:
Branch Rate of participation in premium and in exposure for 2010 Property insurance 13.25% “Magen” insurance for property contract 20% Contracting and engineering businesses 25% Liabilities businesses 28% in premium and 28.3% in exposure Liability of directors and officers 30% Motor act insurance (unlimited coverage) 22.4% (in premium) Marine cargo 10% Marine – ships hull 10% General accident insurance (basket contract that 40% among other covers personal accidents, fiduciary, foreign travel, money, etc.) Motor casco (self inflicted damage and third party) 10% Product warranty/professional insurance for hi-tech 100% companies
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e. Transaction terms with related parties (Cont.)
1. Reinsurance transactions:(Cont.)
The total amount of reinsurance premiums and insurance amounts for exposure to earthquakes that will actually be transferred to the Generali group with respect to general insurance reinsurance contracts included in the framework of the annual approval for 2010 will be determined according to the volume of business executed by the Group in 2010.
Facultative agreements In the area of the general insurance facultative coverage, the Company acted in 2009 according to the triennial approval that was provided as aforementioned by the general meeting on November 11, 2006, the annual approval for 2009 and specific approvals in respect of certain transactions that it received as described hereunder. The annual approval for 2009 – On January 22, 2009, in the framework of the annual approval for 2009, the Company’s Board of Directors approved, after receiving the approval of the audit committee, entering into general insurance facultative agreements that meet the following conditions: (1) The amount of the reinsurance premium transferred to Generali in each facultative agreement in the framework of the annual approval is no higher than 5% of the general insurance premiums of Migdal in 2008; (2) The total amount of the premiums transferred to Generali with respect to the general insurance facultative reinsurance coverage that are included in the annual approval is no higher than $ 41 million; (3) The overall average rate of participation of Generali, out of the reinsurance premium transferred in 2009 with respect to the general insurance facultative coverage, is no higher than 58%; (4) The total amount of the facultative insurance amounts transferred to coverage by Generali, which are included in the annual approval, is no higher than $ 21 million; and (5) The average overall rate of participation in the exposure transferred to Generali, out of the total facultative exposure transferred to reinsurance in the framework of the facultative coverage in 2009 in general insurance, is no higher than 61%.
The total amount of premiums that were transferred to the Generali group in 2009 with respect to facultative agreements that were included in the triennial approval and in the annual approval for 2009 is NIS 122 million, constituting 55% of the total facultative reinsurance premiums relating to general insurance that were transferred to reinsurers. The total amount of insurance amounts for exposure to earthquakes that were transferred to Generali in respect of facultative agreements that were included in the framework of the triennial approval and the annual approval for 2009 is NIS 71 billion, which constitutes 56% of the total exposure transferred in the general insurance facultative agreements.
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e. Transaction terms with related parties (Cont.)
1. Reinsurance transactions:(Cont.)
Fronting transaction (specific approval) On July 23, 2008, after approval by the audit committee on July 17, 2008, the Company’s Board of Directors approved entering into a “fronting” transaction with Generali. The transaction was classified as an “extraordinary” transaction due to its materiality and its approval was requested in accordance with Regulation 1(5) of the mitigation regulations. In the framework of the fronting transaction, Generali will provide to the Company reinsurance with respect to risks included in the policy of the insured party, which includes property insurance in the amount of $ 7,500 million with a loss limit of $ 50 million per event. The property insurance period is for 18 months, from April 1, 2008 to September 30, 2009. The fronting transaction also includes liability insurance with a limit of $ 25 million per event and product warranty insurance with a limit of $ 25 million per event and for the period of insurance. The liability insurance is for 12 months from April 1, 2008 to March 31, 2009. The total amount of the premium to Generali in respect of this transaction is $ 20 million of which $ 15 million is in respect of 2008 and $ 5 million is in respect of 2009. The fronting fee that will be paid to the Company for the property insurance in respect of the period of 18 months is $ 300,000, of which $ 200,000 is in respect of 2008 and $ 100,000 is in respect of 2009. The amount of the fronting fee that will be paid to the Company in respect of the liability insurance in respect of the period of 12 months is $ 200,000. On January 22, 2009, after approval by the audit committee on December 17, 2008, the Company’s Board of Directors approved an extension of 6 months to the insurance period of the property insurance policy included in the insurance coverage and a corresponding extension to the reinsurance Migdal acquires from Generali in respect of this coverage in the framework of the fronting transaction, by means of cancelling the policy and reissuing it for a period of 18 months. After the said extension the overall insurance period of the property insurance policy is 24 months (until March 31, 2010). All the original terms, including the fronting fees, of the property insurance policy were updated pro rata to the extended period and accordingly the fronting fees that Generali will pay the Company (which amounted to $ 300,000 in respect of the original period) were adjusted by an additional amount of $ 100,000 for the extension period of 6 months. For additional details see the immediate report dated July 23, 2008 and the immediate report dated January 2, 2009. The liabilities transaction was renewed on April 1, 2009 for 12 months at a premium of $ 3.5 million and fronting fees of $ 200,000. This transaction was included in the framework of the triennial approval.
In 2010 the Company is operating with respect to general insurance facultative coverage, in accordance with the approval to the framework terms of agreements that was approved by the Company’s general meeting on January 20, 1010. See paragraph e.1.B above.
B. Life assurance and health insurance Presented hereunder are the life assurance and health insurance reinsurance contracts for 2009:
Annual approval for 2009 Branch Rate of participation Life assurance and disability income insurance 74% Pure risk insurance 21% Catastrophe insurance 2.5% Long term care insurance 10%
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e. Transaction terms with related parties (Cont.)
1. Reinsurance transactions:(Cont.)
It is noted that in life assurance and health insurance including long term care, in which the policies are for the long term, the reinsurance contracts (other than the catastrophe insurance contract) cover the policies that were sold in the year of the contract and are in effect until the policies are cancelled, even if the reinsurance contract is not renewed in subsequent years. Similarly, policies in the aforementioned insurance branches that were sold in previous years by Migdal are covered by reinsurance agreements (contractual and facultative) from prior years, including with Generali, as from the 1970s and thereafter (“the old portfolio”). The overall amount of the reinsurance premiums in life assurance and health insurance that were transferred to Generali in respect of payments for 2009, together with premiums for the old portfolio, is NIS 69 million, constituting 40% of the total reinsurance premiums that were transferred in life assurance and health insurance. The overall amount of the reinsurance premiums in life assurance and health insurance that were transferred to Generali according to the aforementioned reinsurance contracts, in respect of new business in 2009 (excluding the old portfolio) is NIS 3 million, constituting 42% of the total reinsurance premiums that were transferred in life assurance and health insurance. The Company is entitled to participation in profit commissions in the framework of the life assurance and health insurance reinsurance contracts. The Group did not enter into facultative agreements in life assurance and health insurance for new business in 2009. Premiums in respect of facultative agreements undertaken in the past and still in effect are included in the aforementioned amounts or premiums of the old portfolio.
Annual approval for 2010 Presented hereunder are the Company’s life assurance and health insurance reinsurance contracts according to business that will be received in 2010:
Branch Rate of participation Life assurance and disability income insurance 74% Group life assurance and disability income insurance 10% Pure risk insurance 21% Catastrophe insurance 2.5% Long term care insurance 10%
The total amount of reinsurance premiums that will actually be transferred to the Generali group with respect to the life assurance and health insurance reinsurance contracts included in the framework of the annual approval for 2010 will be determined according to the volume of business executed by the Group in 2010.
Transactions that are not extraordinary (transactiosn that are not included in Section 270(4) of the Companies Law and are not immaterial) There are none.
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e. Transaction terms with related parties (Cont.)
1. Reinsurance transactions:(Cont.)
Immaterial transactions To the best of the Company’s knowledge, the Group has immaterial transactions that are not extraordinary with the controlling shareholder or in which the controlling shareholder has a personal interest as follows:
(a) The Group enters as aforementioned into facultative agreements with various reinsurers including, inter alia, the Generali group. The facultative agreements are made from time to time with respect to a specific insurance undertaking of Migdal with a certain customer or with respect to a specific coverage for the same customer that deviates and/or exceeds from the coverage in the reinsurance contracts and/or because of specific underwriting considerations. These reinsurance transactions are sometimes immaterial transactions on an individual basis but are not immaterial all together. A description of these reinsurance transactions is provided in the framework of the approvals described above.
(b) On February 12, 2008 the Company’s audit committee approved a payment to EMB for using its “Igloo” program that was acquired by Generali for the Group companies. This program enables the analysis of reinsurance, calculation of risk premium, calculation of gross economic capital, reinsurance and retention and running a large number of various simulations and scenarios for each type of reinsurance.
(c) On September 22, 2008 the Company’s audit committee approved the transaction with Generali ABM, a subsidiary of Generali in Aachen, Germany, for the extension of the leasing contract regarding the backup site in Aachen, Germany which provides services for Migdal’s computer unit.
2. In 2007 there was a large claim of property and loss of profits which was insured by a full reinsurance coverage that was initially estimated at a considerable amount. In 2008 it turned out that the claim was significantly lower. In 2009 there were no particularly large claims. The increase compared to 2008 is due to the aforementioned.
3. Life assurance and property insurance policies for borrowers of Bank Leumi Mortgages, an interested party of the Company. On December 28, 2003 an amount of NIS 58 million was paid to a mortgage bank, which is an interested party, in respect of participation in profits from group life assurance policies of borrowers. The sum was accrued in previous years but was held back after the Regulator of Insurance informed Migdal Insurance in November 1997, as well as other insurance companies, that the payments to the bank are contrary to the law. The bank's position and the position of Migdal Insurance as put in a letter sent to the Regulator of Insurance was that the agreement between the Company and the bank is valid and does not contradict the law. The above sum was paid after the bank undertook to refund the above sum together with linkage differences and interest to Migdal Insurance under any circumstances where a court having jurisdiction gives a final judgment finding that Migdal Insurance acted improperly in transferring the above mentioned amounts, and this without prejudice as to the bank's claims and its rights to the above mentioned payments. This arrangement will apply to amounts collected in respect of the above group life assurance until December 31, 2005 or until a final judgment of a court as mentioned above is rendered, at the earlier of the two.
4. Bank Leumi acquires from Migdal Insurance various property insurances and liability insurances – employers’ liability, third party and professional liability. The total premium for the years 2009, 2008 and 2007 amounted to NIS 4,049 thousand, NIS 2,632 thousand and NIS 3,457 thousand, respectively.
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e. Transaction terms with related parties (Cont.)
5. The Company and its subsidiaries acquire in the ordinary course of business brokerage and custodial services from group companies of Bank Leumi, which is an interested party of the Company. Payments in respect of these services amounted to NIS 1,328 thousand, NIS 2,272 thousand and NIS 2,956 thousand in 2009, 2008 and 2007, respectively.
6. Group companies of Migdal Capital Markets, subsidiaries, provided to Bank Leumi, an interested party of the Company, custodial services and executed underwriting transactions with them. The group companies of Bank Leumi paid in respect of these services NIS 574 thousand and NIS 144 thousand in 2009 and 2008, respectively.
7. Migdal Mutual Funds Ltd., a company owned by Migdal Capital Markets, marketed mutual funds by means of Bank Leumi, an interested party of the Company. The bank was paid an amount of NIS 7,925 thousand, NIS 6,595 thousand and NIS 4,598 thousand in 2009, 2008 and 2007, respectively.
8. In 2007 Migdal Platinum Provident Ltd. (hereunder – “Platinum”), a wholly owned subsidiary of Migdal Capital Markets, signed distribution agreements with, inter alia, an interested party of the Company, Bank Leumi, with respect to the educational funds managed by Platinum, pursuant to which Bank Leumi shall distribute the educational funds in consideration for a distribution fee at the maximum rate provided in the Supervision of Financial Services Regulations (Provident Funds) (Distribution Commissions), 2006 (0.25%). The distribution agreements will be for a period of 10 years. For further details see Note 7.e.2.
9. In 2007, a subsidiary, Platinum, signed an agreement for the receipt of operating services from an interested party, Leumi Capital Markets Ltd. (formerly – Leumi Provident), with respect to Platinum, for a period of 5 years that can be shortened under certain circumstances. The maximum fee specified in this respect in the circular issued by the Commissioner of the Capital Market, Insurance and Savings in the Ministry of Finance (0.1%) will be paid for the operating services. At the beginning of 2008 Platinum transferred all the other provident funds it manages to the operation of Leumi Provident (other than the Migdal Platinum Employer fund). Bank Leumi was paid in respect of these services the amount of NIS 9,889 thousand and NIS 10,035 thousand in 2009 and 2008, respectively.
10. 50 Plus Ltd. (hereunder – 50 Plus) is an affiliate of the Company as from May 2008.
a. 50 Plus has a commitment to provide services to Migdal Insurance for a period of five years ending in May 2013, at a volume not lower than NIS 1,200 thousand per year (not including V.A.T.). The Company and a fully consolidated company acquired services from 50 Plus in 2009 in the amount of NIS 1,366 thousand (2008 – NIS 792 thousand).
b. In December 2008, an agreement was signed for granting 50 Plus a credit line for a period of 36 months. According to the credit line terms this credit will not exceed NIS 4 million, at any given time. The interest that was set for the sums of money that will be utilized under the credit line is prime plus 3%.
11. In January 2001, a long term loan in the sum of NIS 119 million, linked to the CPI, bearing interest of 6.95% per annum, to be settled in equal quarterly installments over 10 years beginning from April 1, 2003, was received by Migdal Insurance from Bank Leumi, an interested party of the Company. The balance of the above loan as at December 31, 2009, amounts to about NIS 21 million.
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e. Transaction terms with related parties (Cont.)
12. In November 2005, a long-term loan in the amount of NIS 150 million was received by Migdal Insurance from Bank Leumi, an interested party of the Company. This loan is unlinked, bears interest of 6.55% per annum and is repayable in eleven equal quarterly payments beginning from May 21, 2008. The balance of the above-mentioned loan as at December 31, 2009, is about NIS 55 million.
13. The Company and interested parties of the Company (Generali, Bank Leumi, and Leumi Real Holdings Ltd. (previously SAL Holding Company Ltd.) owned by Bank Leumi) gave letters of waiver and letters of indemnity to directors and other officers of the Company and its subsidiaries, in respect of claims not covered by the Group’s executive and director liability insurance policy, in connection with their activities as officers of the Group. The letters of waiver also relate to the Company's prospectus from December 1996.
14. In June 2009 a fully consolidated company put at the disposal of an affiliate, Central Lands Ltd., a total of NIS 142 million. Part of the said amount (about NIS 76 million) was provided against an allotment of capital notes. The aforesaid amount is not linked to the CPI and does not bear interest. Another part (about NIS 67 million) was provided against an allotment of shares that are redeemable under certain circumstances. For further details see Note 7.a.1.
15. The Company and its subsidiaries deposit from time to time amounts for the long term and short term and hold cash and current credit deposits with Bank Leumi, an interested party of the Company, and purchase debentures and capital notes (“debentures and capital notes”). These instruments are linked, partly linked or denominated in NIS, as relevant, for short periods of one day to two weeks (“short term and current credit deposits”), or for long periods of up to 15 years (“long term deposits”). The interest rate was in the range of 1.15%-1.62% in 2008-2009 on the short term and current credit deposits, in the range of 2.45%-6.29% in 2008-2009 on the debentures and capital notes and in the range of 4%- 6.45% and of 3.75%-6.45% in 2009 and 2008, respectively, on the long term deposits.
16. Europe Israel engaged in providing assistance services (assistance to policyholders) and it provided assistance services to the Group’s insurance companies. On February 28, 2007 a transaction between Europe Israel and a third party (Femi Premiums Ltd.) was completed. In accordance with this transaction Europe Israel sold all its activities and business as a going concern to the third party. The Company undertook to continue to acquire from Femi the assistance services that Europe Israel had provided to the insurance companies exclusively, for a period of five years from the date of completion, as mentioned.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS
a. Contingent liabilities
a) Requests to approve claims as class actions
There is a general exposure, which cannot be estimated and/or quantified, among others, as a result of the complexity of the services provided by the Group to its policyholders. The complexity of these arrangements contains, among others, a potential for arguments and interpretations, etc. due to information gaps between the Group and the other parties to the insurance contracts, which relate to many commercial and regulatory conditions. It is not possible to anticipate the type of arguments that will be raised in this area, as well as the exposure that will be derived from arguments that will be raised with respect to the insurance contracts, among others, through the deliberation system, as prescribed pursuant to the Class Actions Law.
The requests to approve class actions that are described hereunder are in various stages of the deliberation process and some are in the process of appeal after being approved as class actions (see paragraphs 7-10 hereunder). The requests to approve class actions were filed against the Company and/or the subsidiaries with respect to various matters related mainly to insurance contracts and to the ordinary course of business of the Company and/or the subsidiaries, for which the Company and/or the subsidiaries provided insurance reserves.
Requests to approve class actions detailed below in paragraphs 1-28, 31 have been treated as follows: Requests to approve class actions which in management’s opinion based on the opinion of its legal advisors, it is more likely than not that the defense arguments of the Company will be accepted and the request to approve the class action will be rejected, no provision has been made in the financial statements. Requests to approve class actions where it is more likely than not that the defense arguments of the Company will be rejected, provisions have been made in the financial statements to cover the exposure estimated by the Company and/or its subsidiaries.
In Management’s estimation, based on the opinions of legal counsel, appropriate provisions have been included in the financial statements, where necessary, to cover the exposure estimated by the Company and/or its subsidiaries. The provisions made by the Company to cover the exposure are immaterial.
The chances that the requests to approve claims as class actions, as detailed in paragraphs 29-30 below, will be approved, cannot be estimated at this early stage. Therefore, no provision has been included in the financial statements with respect to these claims.
Hereunder are details of the proceedings
1. In September 1999, a claim against the subsidiary, Migdal Insurance and against other insurance companies, was filed with the Tel Aviv Jaffa District Court regarding the use of mortality tables A49-52 in computing the premiums of its life assurance policies. The plaintiff, who holds a life assurance policy of Migdal Insurance, claims breach of trust by Migdal Insurance and/or deception and/or conducting negotiations not in good faith and/or breach of the assurance agreement and/or breach of the duty of disclosure and/or breach of the duty of good faith at the contractual stage and/or unlawful enrichment and/or deception in violation of the Consumer Protection Law, 1981 (hereunder – the Consumer Protection Law) and/or the exploitation of the distress of the plaintiff and/or his ignorance according to the Financial Services Supervision Law (Insurance), 1981 (hereinafter – the Insurance Supervision Law) and/or the exploitation of the distress of the plaintiff or his ignorance or lack of experience according to the Insurance Supervision Law. The Court was requested to declare that the plaintiff is entitled to cancel the insurance agreements with Migdal Insurance and/or is entitled to take all remedies that follow from breach of contract. The claim was filed together with a request for its approval as a class action (hereinafter – “the request for approval”). A similar claim and request to approve the claim as a class action was filed in 1997 against Migdal Insurance and other insurance companies with the District Court of Jerusalem, and was stricken at the request of the plaintiffs.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
1. (Cont.)
In his claim or in the request for approval, the claimant did not include an estimate of the remedies demanded for the group he wishes to represent.
The Tel Aviv Jaffa District Court rejected in limine the claim and the request for approval. The plaintiff appealed against this decision to the Supreme Court. Before a decision was made with respect to the appeal, the appeal against the other insurance companies was stricken and only the appeal against Migdal Insurance remained. The Supreme Court accepted the appeal and ruled that there had been no justification to dismiss the claim against Migdal Insurance in limine. Therefore, the case was remanded in order to consider the request for approval.
On March 2, 2008, the Court ordered Migdal Insurance to submit a response to the request to approve the claim as a class action and its statement of defense.
On September 10, 2009 Migdal Insurance submitted its response to the request for approval and its statement of defense. The plaintiff submitted its reply to the response of Migdal to the request for approval. On March 2, 2010 the plaintiff submitted a motion according to Section 7(b) of the Class Actions Law in which the Court is requested to hear the request for approval without hearing the similar request for approval that had been submitted and to order elimination of parts of the similar request for approval that had been submitted (paragraph 2 hereunder).
With respect to an additional claim and an additional request to approve the claim as a class action which were filed against Migdal Insurance regarding mortality tables, see paragraph (2) hereunder.
2. In December 2003, a claim against Migdal Insurance was filed with the Tel Aviv- Jaffa District Court together with a request to approve the claim as a class action (hereunder – “the request for approval”) regarding the issue of mortality tables (as detailed in paragraph (1) above). The claimant claims that over a period of decades Migdal Insurance concealed its use of out of date mortality tables (A-49-52), in determining premiums in life assurance. This, he claims, was done in spite of the steep increase in life expectancy and the decrease in mortality rates. The claimant also claims that Migdal Insurance also concealed the amount of commissions included in premiums and/or policies. Furthermore, with regard to annuities which Migdal Insurance paid to its policyholders that are affected by the said mortality tables, Migdal Insurance did not use the mortality tables from the year 1952, but used up to date mortality tables, since the use of the out of date tables with higher mortality rates would have forced Migdal Insurance to pay higher rates of annuities to its policyholders.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
2. (Cont.)
The claimant estimates that the claim will be in the amount of about NIS 900 million.
Since the issue of mortality tables has been raised in another similar request for approval of a class action (see (1) above), Migdal Insurance requested a stay of proceedings on the claim and the request for approval. On October 31, 2007, a hearing was held on the request for a stay of proceedings, and the Court ordered under the Class Action Law that the claim and the request for approval be transferred to the Central District Court in Petah Tikva where a similar request for approval of a class action is being heard (see (1) above).
On September 10, 2009 Migdal Insurance submitted its response to the request for approval and its statement of defense. On March 1, 2010 the claimant submitted a motion according to Section 7(b) of the Class Actions Law in which the Court is requested to hear the request for approval that had been submitted by the claimant and to order the dismissal of the similar request for approval that had been submitted (paragraph 1 above).
3. In September 2002, a claim was filed against Migdal Insurance with the District Court of Tel Aviv Jaffa (as well as by an additional claimant against Clal Insurance Company Ltd., (hereinafter - "Clal"). The claim is in respect to group life assurance policies written to insure persons who have taken mortgage loans from mortgage banks. The claimant, who alleges that she took out a mortgage loan from Leumi Mortgage Bank Ltd. (hereinafter: "the Bank") claims that at the time the loan agreement was signed, the bank added her to the list of borrowers whose lives were insured by a group life assurance policy issued by Migdal Insurance. According to the claimant, during the term of the loan, Migdal Insurance pays the bank, in respect to the aforesaid life assurance, commissions or profit participation fees in respect of borrowers who have joined the group life assurance. This, according to the claim, is contrary to the Supervision Law, and contrary to the Regulations for the Supervision of Insurance Business (Group Life Assurance), 1993. Alternatively, and in addition, the claimant claims that Migdal Insurance conducted a wrongdoing in breach of its statutory duty by paying commissions to the bank, as stated above.
The plaintiff requested that the claim be approved as a class action (hereunder – “the request for approval”).
The plaintiff estimates the aggregate amount of the claim for the members of the group of plaintiffs (which also includes policyholders of Clal) at hundreds of millions of NIS.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
3. (Cont.)
In the claim the Court is being requested to declare that the payment of the commissions (as defined by the claimant) to the bank was unlawfully made, to forbid Migdal Insurance from paying commissions to the bank, as well as to return to each member of the claimants group the amounts of the commissions and/or benefits collected from them and paid to the bank. Alternatively, it should pay to each member of the group compensation in respect to the damages caused to him, in other words, the commission collected from him and which was transferred to the bank, together with interest at a rate of 16% per annum, or linkage differences and interest, whichever is higher, from the date of payment of each of the premiums. In addition, the Court was requested to order Migdal Insurance to provide details of premiums transferred to the mortgage banks, the dates of payment and details relating to the members of the Group.
On April 3, 2003, the Court stayed the proceedings until a judgment is made on claim 970/97 Rozin and others versus Mishkan Bank Hapoalim Mortgages Ltd. (hereunder – “the Rozin issue”), which is the first proceeding filed against a number of mortgage banks wherein similar legal issues have been raised. Accordingly, at present, the proceedings are stayed. A request to renew the proceedings due to the time that had passed, which was submitted in June 2006, was not approved by the Court and the request for permission to appeal against the above decision before the Supreme Court was also dismissed.
On March 2, 2009, the plaintiff filed a request to instruct to transfer the deliberations regarding the request for approval to the panel dealing with the Rozin issue. On March 29, 2009 Migdal Insurance submitted its response to this request. On August 31, 2009 the Court accepted the request to transfer the matter to the panel hearing the Rozin issue (hereinafter – the decision to transfer the hearing). In the framework of the decision to transfer the hearing, the Court also issued an order cancelling its decisions regarding the stay of proceedings so that the court to which the hearing is being transferred will be able to rule on the continuation of the proceedings, including a new stay of proceedings from an overall view of the two proceedings combined in the hearing.
In light of the decision, on September 15, 2009 Migdal Insurance submitted to the court to which the proceedings were transferred a request to stay the proceedings until a decision is made on the Rozin issue. On September 16, 2009 Migdal Insurance submitted a request to extend the date for submitting a response to the request for approval for 60 days from the date a decision is made on the request to stay the proceedings, and similar requests were also submitted by Clal. On October 26, 2009 the plaintiff submitted a response to the request to stay the proceedings, and on November 3, 2009 Migdal Insurance submitted its response to the response of the plaintiff. In the pre-trial that was held on November 18, 2009 the Court clarified that even though at this stage it is not required to consider the request to stay the proceedings and to extend the date for submitting a response to the request for approval, in light of the mediation proceeding on the Rozis issue, there is supposedly cause to stay the proceedings. An addition pre-trial is scheduled for May 26, 2010.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
3. (Cont.)
The parties to the request for approval in question and the request for approval on the matter of Rozin have held a number of mediation meetings with the mediator in the framework of the mediation proceeding being held with respect to the Rozin matter.
With respect to an additional claim and an additional request to approve the claim as a class action which were filed against Migdal Insurance regarding group insurance for persons who have taken mortgage loans from the Bank, see paragraph (4) hereunder.
4. In December 2006, an additional claim was filed against Migdal Insurance with the Tel Aviv Jaffa District Court, together with an additional request to approve the claim as a class action (hereunder – “the request for approval”), with respect to group life assurance policies to insure persons who have taken mortgage loans from Leumi Mortgage Bank. The claim and request for approval were also filed against Leumi Mortgage Bank. The request to approve the claim as a class action was filed under the Class Actions Law.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
4. (Cont.)
The grounds of the claim and the request for approval is the alleged payment of partial insurance benefits, in group life assurance policies of Migdal Insurance, written on mortgage loans marketed by Leumi Mortgage Bank, where the amount of the insured loan is lower than the amount of the loan taken by the policyholder from Leumi Mortgage Bank, at the time the loan was taken. It was contended that this is contrary to what is mentioned in the aforesaid policies and in additional relevant documents. The claimant contends that Migdal Insurance undertook to pay insurance benefits in the amount of the balance of the loan that she took from Leumi Mortgage Bank at the time an insurance event occurs or alternatively the maximum amount for insurance, at the lower of the two. The claimant contends that Migdal Insurance is not entitled to pay only partial insurance benefits according to the ratio of the amount of the insured loan and the original amount of the loan.
The claimant contends that by acting in this manner, Migdal Insurance breached its obligations according to the insurance policy, the documents attached to it and the form for joining the insurance that is given to the borrowers by the bank at the time they take the loan. In addition, the claimant contends that Migdal Insurance misled the policyholders, in its actions and omissions (non disclosure) and took advantage of their ignorance. Finally, it was contended that by doing so Migdal Insurance unlawfully enriched itself at the expense of the claimant.
The amount of the claimant’s personal claim is about NIS 253 thousand. The claimant estimated the aggregate damage to the alleged group, and accordingly the amount of the class action, at NIS 150 million.
Migdal Insurance submitted its response to the request for approval.
On December 2, 2008, a compromise agreement was signed between the parties to this case, subject to the court’s approval and subject to the proceedings pursuant to the Class Actions Law. A preliminary hearing of the compromise agreement was held on January 18, 2009, wherein the court determined that it does not see any point in rejecting the compromise agreement in limine. Migdal Insurance published notices in the newspapers, detailing the main points of the compromise agreement. The court instructed to appoint a tester for this case and the parties transferred all the relevant material to him. The tester has submitted his findings to the court. On November 9, 2009 a hearing was held for approving the compromise agreement and in it the court requested to receive from the parties the outline of the amended compromise according to the recommendations of the tester. The parties agreed to amendment of the compromise according to the recommendations of the tester and are now waiting for the Court’s decision with respect to the request for approval of the compromise agreement.
With respect to an additional claim and an additional request to approve the claim as a class action which were filed against Migdal Insurance regarding group insurance for persons who have taken mortgage loans from the Bank, see (3) above.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
5. In April 2006 a claim was filed with the Tel Aviv Jaffa District Court against Migdal Insurance together with a request to approve the claim as a class action with respect to the illegal charging of a premium for the risk component and expenses of managers insurance policies in the period between filling out the insurance proposal and the date Migdal Insurance actually approves the proposal. The claimant contends that Migdal Insurance’s insurance proposal includes a statement regarding the effective date of the insurance contract by which, inter alia, the insurance contract between the parties will be valid only if the insurance proposal is approved by Migdal Insurance. The claimant contends that the insurance contract comes into effect on the date the proposal is approved by Migdal Insurance and that the period from the date of signing the proposal form (or any other date prior to the approval of the proposal by Migdal Insurance) until the date of approval is an interim period (hereinafter – “the interim period”) in respect of which premiums should not be paid. Furthermore, the claimant contends that if the insurance contract refers to the date of the proposal or to a date prior to the date of approval of the insurance contract, the insurance contract is invalid since, as contended by the claimant, it constitutes retroactive insurance coverage and Migdal Insurance is unable to provide any consideration in respect of the premium paid in the said interim period. Accordingly the claimant contends that Migdal Insurance has breached insurance contracts, has breached a higher duty of good faith both during the period of the negotiations preceding the signing of the agreement and with respect to the collection of risk fees in the premium for the interim period, has illegally collected a premium and has become unlawfully enriched.
The request to approve the claim as a class action was filed pursuant to the Class Actions Law (hereunder – “the request for approval”).
The group the claimant wishes to represent is all the holders of risk (managers or term) life assurance policies of Migdal Insurance who entered into an insurance contract with Migdal Insurance and paid Migdal Insurance risk fees in the premium for the interim period before the insurance contract entered into effect, during the last seven years prior to the submission of the claim.
In the complaint, the Court is requested to declare that the charging of a risk component and expenses in the premium for the period prior to the actual entering of the contract was illegal; to forbid Migdal Insurance from continuing to collect the risk fee and expenses in the premium for the period before the insurance contract entered into effect, to order Migdal Insurance to pay to each member of the group compensation in respect of the damages they incurred in the amount of the risk fees and expenses that were collected from them in the interim period with the addition of interest as required by law, or to alternatively order Migdal Insurance to refund each member of the group by the risk fees and expenses included in the premium they paid in the interim period with the addition of interest as required by law, and other remedies regarding the disclosure of accounts, the payment of expenses and lawyer’s fees.
The claimant claims the amount of NIS 234 and estimates the damages to the group to amount to half of the amount of the risk component and expenses in the policy which the group members paid in the interim period. However, the request for approval does not include an estimate of the total damage that according to the claimant was caused to the group.
Migdal Insurance submitted its response to the request for approval.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
5. (Cont.)
With respect to an additional claim and an additional request to approve the claim as a class action which were filed against Migdal Insurance regarding the charging of risk premiums during the period preceding the date the policy entered into force, see paragraph (6) hereunder.
6. In May 2007, a claim was filed with the Tel Aviv-Jaffa District Court against Migdal Insurance, together with a request to approve the claim as a class action which are similar to the claim and request to approve the claims as a class action detailed in (5) above. The claim is with respect to the illegal charging of a premium for the risk component of managers insurance policy, for the period commencing from the first day of a certain month (the month in which the policyholder signs the insurance proposal) and up to the date the policyholder actually paid the premium for the first time, and at least up to the date of the policy’s inception by Migdal Insurance.
The claimant contends that Migdal Insurance collected premiums from him on the first day of a certain month, although he signed the insurance proposal only towards the middle of that month and although he actually paid the premiums for the first time about a month and a half after Migdal Insurance collected the insurance premiums from him for the first time.
The claimant contends that the collection of the premiums by Migdal Insurance, as mentioned, is illegal and against the terms of the policy, since the claimant alleges that during this period Migdal Insurance could not have had an insurance risk since the policy did not reach the stage of a binding agreement. The claimant also contends that if an insurance event had occurred, according to the policy, during the period prior to the date of inception of the policy by Migdal Insurance, Migdal Insurance would have renounced its responsibility to cover the damage according to the policy.
The claimant contends that Migdal Insurance restricted its responsibility according to the policy, and this is against the obligation imposed on the Company, pursuant to the Insurance Contract Law, 1981; collected monies illegally; misled the policyholders of this type of policy; has become unlawfully enriched at the expense of the policyholders of this policy, breached a legislated duty; and has breached a duty of good faith.
The request to approve the claim as a class action was filed pursuant to the Class Actions Law (hereunder – the request for approval).
The group that the claimant wishes to represent includes all the customers of Migdal Insurance who entered an agreement with it regarding a life assurance policy, under which Migdal Insurance collected premiums from the first of the month in which the agreement was initially created, instead of starting to collect the premium from the date the insurance contract reached the stage of a binding contract and the insurance coverage had begun, during the last seven years prior to filing the claim.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
6. (Cont.)
The claimant also contends that if it turns out that Migdal Insurance collects premiums retroactively also in other types of insurance, of long term care and/or health insurance, the court is requested to instruct Migdal Insurance to pay back the excess premiums also in respect of all its policyholders in these policies and to include them as members of the requested group for representation and/or as a sub-group.
In the claim the court is requested to instruct Migdal Insurance to refund to all the policyholders who had engaged with Migdal Insurance for a life assurance policy, for the excess premium that was collected from them, as mentioned. The court is also requested to determine that the date from which Migdal Insurance is allowed to collect insurance premiums from its policyholders is the date the insurance premiums are actually paid for the first time by the policyholder; or alternatively, to determine that the date from which Migdal Insurance is allowed to collect insurance premiums from its policyholders is the date on which Migdal Insurance receives the policyholder’s insurance offer and agrees to be engaged with an insurance policy agreement with him. The court is also requested to determine that the refund will also apply to sums that were collected, as mentioned, by Migdal Insurance upon changes and/or upgrades of the policy in which a retroactive charge was made during the month in which the change or upgrade were performed, and to order a special compensation, expenses and legal fees for the claimant.
The claimant contends that the personal damage amounts to NIS 272 and according to his calculations, the damage that was caused to the requested group for representation amounts to NIS 40.5 million.
Migdal Insurance’s reply to the request for approval has not yet been submitted. On May 19, 2008, the Court ordered to transfer the hearing of this claim to a judge who is handling the hearing of the claim that is detailed in paragraph (5) above. On March 15, 2010, in the framework of a pre-trial, the parties to the aforementioned request for approval and to the claim described in paragraph 5 above requested to submit within 7 days a request to appoint an expert who will examine all the policies specified in the requests for approval and on their basis an outline of a compromise will be submitted at a later date to the approval of the Court.
With respect to an additional claim and an additional request to approve the claim as a class action which were filed against Migdal Insurance regarding risk premiums collected during the period preceding the date the insurance contract entered into force, see (5) above.
7. In May 2007 a claim was filed with the Tel Aviv Jaffa District Court (hereunder – the claim), together with a request to approve the claim as a class action (hereunder – the request for approval), against Migdal Insurance and against Dikla Insurance Company Ltd. (hereunder – Dikla), Clal Insurance Company Ltd. (hereunder – Clal) and Harel Insurance Company Ltd. (hereunder – Harel) (Migdal Insurance together with the rest of the above defendants will be called hereunder – all the defendants).
The request for approval was filed pursuant to the Class Actions Law.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
7. (Cont.)
The claimant contends that he was insured under a group insurance policy “Mashlim Lagimla” issued by all the defendants (hereunder – the policy), and that all the defendants illegally collected from him insurance fees after the insurance event had occurred as defined according to the policy. The claimant notes that Dikla issued the policy and it is the managing company with respect to the insurance according to the policy and its share in the insurance liability according to the policy is 40%; and that Clal, Harel and Migdal Insurance are participants in the policy and the share of each one of them in the insurance liability according to the policy is 20%. The claimant also contends that although there is no specific instruction in the policy that relates to the collection of insurance fees after the insurance event occurs, all the defendants continued to collect, in mala fides and unreasonably, the full amount of the monthly premium payments and/or began to deduct the aforementioned premium amounts from the monthly insurance benefits. In addition, the claimant contends that in the manner that all the defendants acted, they substantially reduced the insurance benefits and by doing so they caused the claimant a substantial pecuniary damage.
The grounds for the claim are, among others, misleading, improper disclosure, collection of premiums illegally and in violation of the instructions of the Regulator of Insurance, illegal enrichment and a deprivation condition in a standard contract. The group that the claimants wish to represent consists of all policyholders of Dikla under the policy and/or other long term care policies with terms that are similar to those of Dikla or the other defendants, during the last seven years and at present, including policyholders who have passed away and have experienced an “insurance event”. According to the plaintiff’s calculations the group consists of 4,373 policyholders.
The remedies that are demanded in this claim are that all the defendants be ordered to pay back the premiums they collected from the group members during the period in which the group members received insurance benefits, and alternatively or in addition to issue a ruling to compensate the group or the public, and alternatively to the alternative or in addition to issue a declarative judgment, which the court would regard as fair and just under the circumstances of the case, in addition to legal fees which will not be lower than 15% of the value of the remedy that will be ruled and/or from the sum that all the defendants will be ordered to pay.
The personal damage that was caused to the claimant, as he contends, due to the alleged actions of all the defendants amount to the total sum of NIS 8 thousand. The claimant contends that according to his calculations, which are based, among others, on the data of the central bureau of statistics and the periodical financial statements of Dikla, the alleged damage for the period of seven years, in respect of all the defendants is estimated to be about NIS 166 million.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
7. (Cont.)
On July 1, 2009 the Court decided to approve the request for approval of a class action (hereinafter – the decision). According to the decision, the group that was approved for purposes of the class action includes all the policyholders who had long-term care insurance and continued to pay the monthly premium also in the period they received the insurance benefits (hereinafter – the group members).The legal and factual questions that will be resolved in the framework of the class action are can the policy insurers not explain and specify in the policy regarding the continued payment of the premium after the occurrence of an insurance event.
In the hearing of the class action a decision will be made regarding the requested remedy as follows: the full refund of insurance premiums for long-term care insurance that were collected from the group members during the period the insurance benefits were paid. Alternatively or in addition, to award compensation to the group or the public in accordance with Section 20(c) of the Class Actions Law, 2006 and alternatively to the alternative or in addition, a declarative judgment that the court considers to be fair and just in the circumstances of the matter.
In its decision the Court instructed all the defendants to submit a defense statement on their behalf within 45 days from the date of the decision.
On October 11, 2009 Migdal Insurance submitted to the Supreme Court a request for leave to appeal the decision. The claimant submitted a reply to the request for leave to appeal on January 4, 2009. The request for leave to appeal is scheduled to be heard by a court on November 10, 2010.
With respect to a claim that was filed together with a request to approve the claim as a class action with respect to the “Mashlim Lagimla” policy – see paragraph 32 below.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
8. In April 2003, a claim was filed against Migdal Insurance in the Tel Aviv - Jaffa District Court. Together with the claim the claimant filed a request to approve the claim as a class action. A similar claim was filed against additional insurance companies. The claimant claims that Migdal Insurance was not permitted and authorized to collect stamp duties from him in accordance with the Stamp Duty Law, since the tax liability under the Stamp Duty Law is placed on the insurer, and the insurer has not received the approval of the Regulator of Insurance to "pass on" the tax to the policy holder. Therefore, the claimant claims that the collection of stamp duties was not done in good faith and represents unlawful enrichment, perversion of justice, misrepresentation, breach of statutory duty and gives him the right to claim the refund of all stamp duties collected from him.
Together with the claim a request to approve the claim as a class action was filed based on Section 62B of the Supervision Law, for misrepresentation according to Section 55 of the Supervision Law and exploitation of the claimant’s distress according to the Section 58 of the Supervision Law (hereunder – the request for approval).
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
8. (Cont.)
In the request for approval the claimant requests to represent all insurance policyholders and/or persons insured by Migdal Insurance by insurance policies in the general insurance branch, during the period from August 5, 1997 (the date the amendment to the Supervision Law, to include Section E1 to the Supervision Law regarding class actions, became effective) and until the date the request was filed (hereunder - "the represented group").
The claim amount is NIS 166 and in the claimant's estimation the damages caused to the represented group will amount to approximately NIS 99 million.
On June 7, 2009 the Court decided to approve the request for approval of a class action. In its decision the Court decided that an insurance company that requests to charge a policyholder with stamp duty on a transaction, which according to law both parties are required to pay it, has to obtain the explicit consent of the policyholder to being charged. Therefore, since the policyholders did not provide their explicit consent to the payment of half of the stamp duty, the approved remedy for purposes of the class action will be the refund of the amount the policyholders paid in respect of half of the stamp duty (hereinafter – the approval decision).
The group that was approved for purposes of the class action includes the policyholders of the following insurance policies: property, business, motor (casco and act), money in transit and personal accidents that were acquired from Migdal Insurance between January 1, 1997 and the date of filing the claim, April 27, 2003, and who paid stamp duty to the defendants (hereinafter – the group). On July 28, 2009 the Court accepted the request of the representative claimants to correct a clerical error that was made in the decision by which the relevant period for defining the group will begin on August 5, 1997 and not January 1, 1997, as indicated in the approval decision.
On September 1, 2009 Migdal Insurance submitted to the Supreme Court a request for leave to appeal the approval decision. On September 2, 2009 a defense statement was submitted in the framework of the claim.
On September 30, 2009 the Supreme Court decided that the claimant would submit a response to the request for leave to appeal. On December 28, 2009 a response was submitted to the request for leave to appeal the approval decision.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
9. In April 2006 a claim was filed against Migdal Insurance with the Tel Aviv District Court together with a request to approve the claim as a class action. A similar claim was filed against other insurance companies.
The plaintiffs contend that Migdal Insurance had collected insurance premiums in respect of a disability insurance policy until the end of the insurance period, including the last three months of the insurance period according to the policy. The plaintiffs contend that in accordance with the policy, the compensation will be paid for an insurance event only after a waiting period of three months, providing that the disability has continued and no later than the end of the policy. Accordingly, the plaintiffs claim that Migdal Insurance had collected insurance fees in the last three months of the insurance period even though according to the policy the plaintiffs could not have received any insurance benefits during that period according to the policy terms, even if an insurance event had occurred, The plaintiffs also contend that Migdal Insurance did not inform them that it intends to collect monthly premiums in respect of that period.
Therefore, the plaintiffs contend that in its actions Migdal Insurance had breached the Insurance Contract Law, had breached Article 55 of the Supervision of Financial Services Law (Insurance), 1981, had provided a misleading description of the disability policy, had not acted in good faith, had included a depriving condition in a policy that constitutes a standard contract, had been negligent, had breached its statutory duty and had become unlawfully enriched.
The request to approve the claim as a class action was filed pursuant to the Class Actions Law (hereunder – “the request for approval”).
The Court was requested to order Migdal Insurance to stop collecting insurance premiums in respect of the said period and to order it to refund the insurance premiums it had collected from the group members in respect of the aforementioned period with the addition of linkage differences and interest as stated in Section 28(c) of the Insurance Contract Law from the date of the claim until the actual date of payment.
The plaintiffs contend that according to an expert opinion they received, the initial estimate of the damage for 1998-2004, which includes the damage, they contend, was caused by Migdal Insurance and the other insurance companies amounts to NIS 47.61 million, out of which the amount that is demanded from Migdal Insurance is NIS 19.2 million.
In the court’s decision on February 3, 2009, it approved the claim as a class action. In this decision the court determined that the remedy will be the refund of the insurance fees that Migdal Insurance actually collected from its policyholders under this policy, with respect to the three months of the last waiting period under the policy, plus interest linkage differences from the date of collection and up to the actual refund. The court determined that Migdal should submit a defense statement regarding the claim, within 45 days from the date of the decision.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
9. (Cont.)
The District Court approved Migdal’s request from February 16, 2009, to postpone the date for deliberating the claim and to postpone the date for submitting the defense statement and the publication of a notice regarding the approval of the request to approve the claim as a class action, until the Supreme Court comes to a decision regarding the application for grant of permission to appeal against the decision to approve the claim as a class action, a request that was filed on April 26, 2009 to the Supreme Court (hereinafter – “the postponement decision”). The plaintiff submitted a request for leave to appeal the postponement decision and on November 24, 2009 the Supreme Court denied the request for leave to appeal the postponement decision. The request for leave to appeal is scheduled to be heard by a panel of judges on November 15, 2010.
10. In May 2006 a claim was filed against Migdal Insurance with the Tel Aviv Jaffa District Court, together with a request to approve the claim as a class action.
The main allegation in the claim is that in matters relating to the insurance coverage for accident disability (hereinafter – “accident disability annex”) that is included in the life assurance policy of Migdal Insurance, Migdal Insurance customarily lowers its liability by using a formula that significantly reduces the rate of compensation, which results in the compensation not being paid according to the rate of disability that was determined but a much lower compensation, and thus the defendant limits its liability according to the policy.
The grounds for the claim are, inter alia, breach of the duty of disclosure provided in insurance laws including in the Supervision Law and the regulations enacted thereunder, the provision of a misleading description, breach of agreement, charging in mala fide, breaching fiduciary duties and unlawful enrichment. The request to approve the claim as a class action was filed pursuant to the Class Actions Law (hereunder – “the request for approval”).
The group for which the class action is filed includes any person who is insured or is a beneficiary or who was insured or was a beneficiary in a policy in which the Company provides coverage for accident disability, who is entitled or was entitled to compensation according to this insurance, when the policy states that the compensation is the amount of insurance as stated in the policy according to the appropriate percentage of disability that was or will be determined, but notwithstanding the compensation was paid according to a lower rate of disability and the payment was made in the last seven years. The group will also include policyholders and beneficiaries under policies issued by insurance companies other than the defendant, which as a result of merger transactions or other transactions, the defendant had provided or is providing the insurance coverage for them. The remedy that the plaintiff demands is that the Company be ordered to pay the difference between the amount of compensation the plaintiff contends is due according to the policy and the amount of compensation that was actually paid to the entire group.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
10. (Cont.)
The claimant contends that his personal damages amount to about NIS 11 thousand. The request for approval does not include an estimate of the damage that the claimant contends was allegedly caused to the group he wishes to represent, and according to the claimant this is due to the lack of information required in order to estimate the overall damages.
In the court’s decision on January 11, 2009, it approved the claim as a class action and it determined that Migdal Insurance reduced its liability by utilizing a certain formula whereby it reduces the rate of compensation that is due to the policyholder according to the accident disability appendix. The court determined that the remedy in this case will be the supplementation of the compensation that is due to each of the plaintiffs to the full amount of insurance, multiplied by the disability percent that was determined and this will apply to all those who purchased an accident disability policy of Migdal Insurance and received during the relevant years (which were not specified in the decision) insurance benefits that are not equal to the multiplication of the partial and permanent disability that was determined by the Company’s doctor at the maximum amount of insurance (hereinafter – “the approval decision”)..
On January 29, 2009, Migdal submitted a request to the court to postpone the hearing of the claim, to postpone the date for filing a defense statement and to postpone the date for publishing an advertisement in the newspapers regarding the approval of the claim as a class action, until the Supreme Court comes to a decision regarding the application for grant of permission to appeal which Migdal filed against the approval decision (hereunder in this paragraph – “the request for postponing the date”).
On March 25, 2009, the Court rejected the request for postponing the date and determined that Migdal Insurance should submit a defense statement and publish a notice up to May 18, 2009. On May 3, 2009, Migdal Insurance filed an application for grant of permission to appeal to the Supreme Court against the District Court’s decision not to postpone the date for deliberating the claim until the Supreme Court’s decision regarding the approval decision. On May 13, 2009 Migdal Insurance submitted to the Supreme Court an urgent request to postpone the dates until a decision is made on the request for permission to appeal on the matter of the request for postponing the date. On May 13, 2009 the Supreme Court ordered the claimant to submit a reply to the request for permission to appeal the request for postponing the date, and decided that Migdal Insurance is not required to publish a notice in the newspaper and submit a defense statement until such date as it is decided otherwise.
The plaintiff filed a response to the application for permission to appeal the approval decision. A hearing with respect to the application for permission to appeal the approval decision is scheduled to take place before a panel of judges on October 25, 2010.
11. In March 2007 a claim was filed against Migdal Insurance with the Tel Aviv Jaffa District Court, together with a request to approve the claim as a class action (hereunder – the request for approval). A similar claim was filed against other insurance companies (hereunder – the other companies).
The request for approval was filed pursuant to the Class Actions Law.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
11. *cont’d) The main allegation in this claim is that Migdal Insurance continues to collect from its policyholders, under managers insurance policies, after they had passed the retirement age (65), premium in respect of the risk component under this policy. The claimants allege that by doing so, Migdal Insurance is acting in contrary to the agreement under the policy, and thus it has breached the agreement with its policyholders. In addition, the claimants allege that by doing so Migdal Insurance is illegally enriched and is taking advantage of its greater power versus its policyholders. On the grounds of these allegations, the claimants demand that they be refunded the premiums that were collected, as mentioned above.
The group that the claimants wish to represent is comprised of all the present policyholders of Migdal Insurance and the other companies, as well as all those who were insured by them in the past by managers insurance policies and/or the other types of policies – “Yoter” and/or “Adif” and/or “Meitav” (policies with a savings value), and these policyholders had reached the age of 65 at the time they were insured, and they continued to be insured with these companies also after they had reached the age of 65.
The remedy that the claimants demand is that Migdal Insurance and the other companies be ordered to pay back the insurance fees that were collected by them from the group members, in respect of the risk component, commencing from the date the group members reached the age of 65 and onwards, with the addition of linkage differences and interest from the date of the claim and up to the date of the actual refund, as well as an order to disclose documents which relate to the group members.
The personal damage that the claimants contend was caused to them amounts to about NIS 39 thousand. The claimants contend that according to their calculations, the damage that they claim for all the members of the group, which is estimated for the period of 10 years with respect to all the defendants (Migdal Insurance, and the additional companies) is about NIS 900 million.
Migdal Insurance has submitted its reply to the request for approval. A hearing on the request for approval is scheduled to take place on April 6, 2010.
12. In April 2007 a claim was filed with the Tel Aviv Jaffa District Court, together with a request to approve the claim as a class action (hereunder – the request for approval), against Migdal Stock Exchange Services (Securities) Ltd. (hereunder – Stock Exchange Services”) and against a number of banks and other stock exchange members (hereunder – the defendants). Stock Exchange Services is a company held, indirectly, and wholly owned by the Company.
The request for approval was filed pursuant to the Class Actions Law.
The claimants contend that they own participation units in various mutual funds that were managed by subsidiaries of the defendants, including participation units in mutual funds managed by subsidiaries of the banks and that were sold, among others, to stock exchange members.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
12. (Cont.)
The grounds for the claim is, among others, collection of commission in respect of the acquisition and sale of securities (brokerage commission) and/or foreign exchange rate differences in respect of the acquisition/sale of foreign currency, from the mutual funds managed by the subsidiaries of the aforementioned entities, at rates that are considerably higher than the rates that were collected from their other clients. In addition, it was also alleged that in the framework of the transactions for the acquisition of the mutual funds from the banks, subsidiaries of the stock exchange members agreed that the banks will continue to serve as the securities agents of the mutual funds that were sold, hence enabling the banks to continue collecting excessive commissions, unlawfully. In doing so, the claimants claim that the defendants allegedly acted, among others, against the provisions of Section 69 to the Law for Joint Investments in Trust.
The group that the claimants wish to represent consist of all those who acquired, hold and/or held during the periods relevant to the claim, participation units in mutual funds managed by the managers of mutual funds that were and/or are controlled by any of the defendants.
The personal damage that was caused to the claimants, as they allege, as a result of the alleged actions of the defendants amounts to the total sum of about NIS 1.7 thousand. The claimants estimate, according to calculations they made, among others, based on the assumption that the commissions that the mutual funds were supposed to pay would have amounted to about 50% of the commissions that were actually paid, and the exchange rate differences that the mutual funds would have had to pay were lower by about NIS 0.015 per dollar from what was actually paid, the alleged damages for the relevant period (from January 1, 2004) in respect of all the defendants at NIS 386 million.
The claimants allege that from the above amount Stock Exchange Services is responsible for the sum of NIS 48.5 million. Stock Exchange Services is sued alone for part of the amount and in respect of the other part it is sued together and separately with the Israel First International Bank Ltd., from which the claimants allege that a subsidiary of Stock Exchange Services acquired the mutual funds of Dikla. The remedy that is demanded in this claim is that the defendants be ordered to pay back the sums that the claimants contend were collected unlawfully, as well as a mandatory injunction ordering the defendants to change the manner of their operations and to refrain from collecting the sums that are illegally collected by them and to order the defendants to disclose to the claimants materials and data for the clarification of the claim.
Stock Exchange Services has not yet submitted its reply to the request for approval.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
13. In August 2007 a claim was filed with the Tel Aviv District Court against Migdal Insurance together with a request to approve the claim as a class action.
The claim is regarding the reduced insurance benefits the claimant alleges were paid by Migdal Insurance to its policyholders in disability policies, which the claimant alleges is a result of not applying the linkage mechanism provided in the insurance policies with respect to monthly compensation for disability. The claimant alleges that over the entire period of the disability Migdal Insurance linked the monthly compensation to the Consumer Price Index, whereas according to the policy it should have linked the monthly compensation, as from the 25th month, to the yields of the profit participating portfolio. The claimant alleges that he was caused heavy damages as a result of the said linkage mechanism not being used since the yield of the investment portfolio was significantly higher than the increase in the Consumer Price Index in those years.
The request to approve the claim as a class action was filed pursuant to the Class Actions Law (hereunder – the request for approval).
The group the claimant wishes to represent consists of all the customers of Migdal Insurance who for periods exceeding 24 months received from Migdal Insurance monthly compensation in respect of disability that was not linked to the yield of Migdal Insurance’s investment portfolio, over the three year period from August 2004 to July 2007.
In the claim the Court is requested to state that the group is entitled to the linkage described above and to order Migdal Insurance to pay the differences due to the group members, as alleged by the claimant, as a result of the monthly compensation for disability for a period exceeding 24 months not being linked to the yields of the investment portfolio.
The personal damage that was allegedly caused to the claimant as a result of the said actions of Migdal Insurance amounts to about NIS 20 thousand. The claimant contends that according to the calculations and estimates regarding the number of the group members and the monthly compensation that was paid to them, the total amount of the damage caused to the group as defined above is about NIS 30 million. On May 18, 2008, the Court allowed the claimant to amend the claim and request to approve the claim as a class action, whereby the damages claimed are in respect of a period of 7 years and therefore the personal damage to the claimant amounts to about NIS 30 thousand.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
13. (Cont.)
On March 18, 2009, Migdal Insurance came to a compromise agreement with the plaintiff in the above case and it submitted to the Tel Aviv District Court a request to approve the compromise agreement in accordance with the provisions of the Class Actions Law, 2006.
The compromise agreement determines a compensation system for the group members who are policyholders who were supposed to receive a monthly compensation during the relevant period as follows: a. for the period from August 2004 until the date the compromise agreement was signed, the group members will receive full compensation (subject to deductions that were agreed upon). b. for the period from August 2000 until July 2004, the group members will receive a 50% compensation (subject to deductions that were agreed upon).
On May 26, 2009 the Court appointed an external expert to examine the data that forms the basis for the compromise agreement. The validity of the agreement is subject to the Court’s approval. A hearing on the request to approve a compromise agreement took place on March 1, 2010, and in it the plaintiff announced that due to the intervention of the Supervisor of the Capital Market, Insurance and Savings Division of the Ministry of Finance in the matters being considered in the request for approval, he will consider withdrawing from the proceeding. A pre-trial on the matter is scheduled for April 7, 2010.
14. In August 2007 a claim and request to approve the claim as a class action (hereinafter – the request for approval) were filed against Migdal Insurance with the Tel Aviv Jaffa District Court.
The request for approval was filed in accordance with the Class Actions Law.
The claimant contends that contrary to the directives of the Regulator of Insurance, Migdal Insurance did not inform the claimant in the insurance proposal, before signing the insurance contract, the rules that will apply to calculation of the insurance benefits when an insurance event occurs (total loss, constructive total loss and theft of a vehicle). The claimant contends that Migdal Insurance unlawfully reduced the amount of the insurance benefits paid to the claimant following an accident that occurred to the motor vehicle of the claimant as a result of which the motor vehicle was declared a total loss. In doing this, according to the claimant, Migdal Insurance breached its duty according to the circular of the Regulator of Insurance to pay the full amount of the insurance benefits without taking into consideration any reducing variables.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
14. (Cont.)
The Group the claimant wishes to represent consists of any person and/or other legal entity that purchased from Migdal Insurance, between January 1, 2001 and the date of filing the request for approval, insurance and/or an insurance contract in respect of a private vehicle and/or commercial vehicle and/or motor vehicle, for any period of insurance, and during that period an insurance event occurred following which the insured vehicle was declared a “constructive total loss” and/or the insured vehicle was caused damage defined as a “total loss”, including a stolen motor vehicle, and in respect of that insurance event Migdal Insurance incurred an insurance and/or monetary liability towards that same person and/or other legal entity, and Migdal Insurance did not pay that same person and/or other legal entity the full amount of the insurance benefits and/or the full value of the vehicle on the date of the insurance event and/or did not replace the vehicle with a vehicle of the same type and quality.
The remedies requested by the claimant are as follows: an order instructing Migdal Insurance to act precisely according to the directives of the Regulator of Insurance; an order requiring Migdal Insurance to return to its policyholders the amounts that were deducted unlawfully, as argued by the claimant, from the insurance benefits; and the awarding of special compensation to the claimant.
The claimant contends that he was caused personal damages in the amount of NIS 509 by the alleged actions of Migdal Insurance and that the overall damage for the group defined above is NIS 122 million.
Migdal Insurance has not yet submitted its reply to the request for approval. An preliminary hearing is scheduled for June 29, 2010.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
15. In January 2008 a claim was filed with the Tel Aviv Jaffa District Court against Migdal Insurance, together with a request to approve the claim as a class action (hereinafter – the request for approval). The request for approval was filed in accordance with the Class Actions Law.
The claim and the request for approval filed by seven claimants (hereinafter – the claimants) were filed against 4 other insurance companies (Migdal Insurance and the other 4 insurance companies are hereinafter referred to as – the defendants).
The claimants allege, that the “sub-annual factor” payment (hereinafter – “sub- annual payment”) is a payment the insurance company is entitled to collect from its policyholders when the insurance rate is fixed at an annual sum, but such payment is actually made in installments. The claimants allege that the defendants collected from their policyholders sub-annual payments which contradicts the circulars of the Regulator of Insurance. The claimants allege, that the defendants were not entitled to collect sub-annual payments in relation to the “policy factor” which, according to the claimants, is a payment collected out of necessity to collect the premium from the policyholder and to distribute it between the various policy components. The claimants also allege that the defendants collected sub-annual payments at a rate higher than that permitted, that the defendants collected sub- annual payments with respect to policies other than life assurance policies, while it was permissible to collect sub-annual payments with respect to life assurance policies only, and that the defendants collected sub-annual payments with respect to the savings component of the policy, contrary to the Circular of the Regulator of Insurance on the matter.
The group the claimants wish to represent consists of: Anyone who engaged with the defendants or in possession of an insurance contract and payment with respect to the “sub-annual” component was collected from him in unlawful circumstances or amounts.
The remedies demanded by the claimants are as follows: refund of the sub-annual amount unlawfully collected from the Group members as defined above, and an injunction instructing the defendants to change their mode of operation.
The claimants contend they were caused personal damages with respect to one insurance year in the amount of about NIS 1,600. The claimants contend the overall damage to the group defined above is approximately NIS 3 billion, out of which the amount attributed to Migdal Insurance, the claimants contend, is approximately NIS 826 million.
Migdal Insurance’s reply to the request for approval has not yet been submitted. On February 1, 2010 the District Court approved a procedural arrangement pursuant to which the allegation that Migdal had charged a sub-annual payment higher than the rate allowed in the circulars of the Regulator of Insurance in respect of insurance policies that were issued before 1992 will be stricken from the claim and from the request for approval, and ordered the claimant to submit a revised claim and request accordingly. A preliminary hearing on the request is scheduled for September 5, 2010.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
16. In March 2008, a claim was filed with the Tel Aviv Jaffa District Court against Migdal Insurance, together with a request to approve the claim as a class action (hereinafter – the request for approval).
The request for approval was filed in accordance with the Class Actions Law.
The claimant contends that when a third party files a claim for insurance benefits with Migdal Insurance, Migdal Insurance does not pay the full amount of the insurance benefits to the third party if the third party has elected not to repair the motor vehicle. The plaintiff alleges that Migdal Insurance demands proof from the third party that the motor vehicle has been repaired, and without such proof it does not pay the full amount of the insurance benefits it should have paid to the third party, all while illegally and contrary to the directives of the Regulator of Insurance signing the third party on a statement of payment.
The group the plaintiff wishes to represent is: any person and/or other legal entity that was entitled to have received from Migdal Insurance as a third party monies and/or insurance benefits for damage to a motor vehicle, in the three years prior to filing of this claim and Migdal Insurance failed to transfer to them the full monies and/or insurance benefits to which they were entitled, because of not having proven to Migdal Insurance that the damage had been repaired.
The remedies demanded are to instruct to pay the sum of about NIS 88 million to the members of the group, either directly and/or by means of compensating the public, and also to award special compensation to the plaintiff.
The personal damage the plaintiff allegedly incurred amounts to about NIS 2,000. According to the plaintiff, damages in the amount of about NIS 88 million were caused to the entire group, per its above definition, over the period of three years.
Migal Insurance has submitted its reply to the request for approval. The plaintiff has submitted its reply to the reply of Migdal Insurance. Migdal Insurance has submitted a request to strike the reply of the plaintiff.
17. In April 2008, a claim was filed with the Tel Aviv Jaffa District Court against Migdal Insurance, together with a request to approve the claim as a class action (hereinafter – the request for approval).
According to the plaintiff, Migdal Insurance disregards the directive according to which, where a claim is filed for insurance benefits, and the money is paid to the plaintiff 30 days after presentation of the claim, the insurer must add to the insurance benefits annual interest of 4%, for the period that commenced 30 days after filing of the claim until date of actual payment.
According to the plaintiff, Migdal Insurance inclusively disregards this directive by paying the money 30 days after filing the claim while refraining from adding interest, and as alleged by the plaintiff, signs the plaintiffs illegally and contrary to the directives of the Rupervisor of Insurance on statements of payment.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
17. (Cont.)
The group the plaintiff wishes to represent is: any person who in the 7 years prior to filing this claim, received from Migdal Insurance insurance benefits for damage to a private vehicle, whether insured by Migdal Insurance with comprehensive insurance or received insurance benefits as a third party, where insurance benefits were paid to this person 30 days or more after submitting a claim to Migdal Insurance, without having added to the insurance benefits annual interest of 4% as required by law.
The plaintiff alleges that the personal damage that was caused to him amounts to about NIS 11. The plaintiff estimates the amount of damage to the entire group, as defined above, at about NIS 11 million for a period of 7 years.
Migal Insurance has submitted its reply to the request for approval. In a hearing that was held on October 15, 2009 an outline for a compromise in the proceeding was examined in the spirit of the court’s recommendation. On December 8, 2009 the parties to the procedure as well as representative plaintiffs and other insurance companies in identical requests for approval that the hearing in there respect has been consolidated, submitted to the court a draft of a compromise agreement. On December 22, 2009 the Court ordered an amendment to the compromise agreement. The amended compromise agreement was submitted on December 29, 2009 and approved by the Court on December 31, 2009. On January 14, 2010 the parties sent the compromise agreement to the attorney general and the courts administration. On January 24, 2010 a notice was issued to the public with respect to the compromise agreement. An additional hearing on the request for approval is scheduled for February 14, 2010.
18. In January 2008, a claim was filed with the Tel Aviv Jaffa District Court against Migdal Insurance, together with a request to approve the claim as a class action (hereinafter – the request for approval).
The request for approval was filed in accordance with the Class Actions Law.
The claim and the request for approval filed by four claimants (hereinafter – the claimants) were also filed against 4 other insurance companies (Migdal Insurance and the other 4 insurance companies are hereinafter called – the defendants).
The claimants allege that the defendants collected from their policyholders management fees in “profit-participating” type life assurance policies, contrary to the Regulations for the Supervision of Insurance Business (Conditions in Insurance Contracts), 1981 (hereinafter – Supervision Regulations) and contrary to the Circular of the Regulator of Insurance. The claimants allege that the defendants collected fixed management fees at a rate higher than the permissible rate (above 0.05% per month of the estimated value of the investment portfolio of each one of the defendants) and collected from their policyholders variable management fees on a monthly basis rather than at year end, thereby depriving the policyholders of the return on those variable fees collected during the year.
The Group the claimants wish to represent consists of anyone who was or is a policyholder of one or more of the defendants in a “profit-participating” type life assurance blended with savings policy issued from 1992 through 2003, inclusive.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
18. (Cont.)
The remedies that are demanded are as follows: a refund to each of the Group members as defined above of the excess management fees unlawfully collected from him or the return lost, as well as an injunction instructing them to change their mode of operation.
The claimants contend the personal damages caused to one of the claimants who was a Migdal Insurance policyholder with respect to one year is NIS 7.06. The claimants contend the overall damage to the group defined above is the nominal amount of approximately NIS 244 million, out of which the amount attributed to Migdal Insurance, the claimants contend, is approximately NIS 101 million.
Migal Insurance has not yet submitted its reply to the request for approval.
19. In April 2008, a claim was filed with the Jerusalem Labor Court against Migdal Insurance, together with a request to approve the claim as a class action (hereinafter – the request for approval).
The request for approval was filed in accordance with the Class Actions Law.
The plaintiff contends that Migdal Insurance pays to its insured women who reach the age of retirement a monthly pension that is lower than the pension it pays to an insured man under the same circumstances, on the basis of the higher life expectancy of women. Conversely, as alleged by the plaintiff, Migdal Insurance charges its women policyholders the same “risk” premium that it charges its men policyholders even though the mortality rates of women are much lower.
The plaintiff contends that Migdal Insurance takes into account the gender of the policyholder only when it is in its favor, and lowers the amount it is required to pay. On the other hand Migdal Insurance disregards the policyholder’s gender when it is inconvenient for it and it is required to charge a lower premium.
According to the plaintiff, sometime after 2000, Migdal Insurance and the other insurance companies amended the policies by removing the said discrimination, and established different “risk” premiums for women that are lower than the accepted rates for men. Nevertheless, according to the plaintiff, Migdal Insurance did not amend the discrimination in the old policies that were issued before the date of the change, and the plaintiff alleges that it continues such discrimination through the present.
The plaintiff also alleges that Migdal Insurance tried to conceal the said discrimination, by specifying in the policy the different pension coefficients for men and women, but that it did not state anything regarding the rate of the risk premium.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
19. (cont’d)
The group the plaintiff seeks to represent is all women who purchased from Migdal Insurance “Executive Pension Plan” insurance policies in which distinctions were made between men and women in respect of pension payments but no distinctions were made between them in respect of the risk premium, including – but not only – policies called “Yoter”, “Atid”, “Adif”, etc.
The remedies sought from the court are to rule and/or order that: (a) The discrimination practiced by Migdal Insurance, as alleged by the plaintiff, is against the law, and any provision and/or action based on this discrimination is null and void; (b) The plaintiff and the other members of the group are entitled to select between the following alternatives: (1) To equalize the pension coefficient for an insured woman and an insured man of the same age and to order that in the event of a one-time payment instead of a pension, the one-time payment shall be increased to the insured woman, in the ratio of the pension coefficient of an insured man to the pension coefficient of an insured woman at the relevant age; (2) To reduce the amounts for risk charged to the plaintiff in respect of the policy in question and to the other policyholders of this kind of insurance, and to set them at appropriate risk amounts for an insured woman, whereby the reduced amounts shall be added to the accumulated amount of savings; (c) To issue appropriate orders regarding the other members of the group who have not been located and/or have not exercised their right to chose between these alternatives.
The plaintiff does not stipulate the amount of damage allegedly caused her. She estimates that in light of the size of the group (estimated at tens of thousands of women), the overall amount of damage to the members of the group is hundreds of millions of shekels.
On September 28, 2008, the Court ordered to dismiss the claim and the request for approval due to lack of material jurisdiction to discuss it. On November 20, 2008, the claimant filed an appeal against the above decision to the National Labour Court. In the appeal the claimant requests that the Court will instruct to cancel the aforementioned decision and that it will determine that the jurisdiction to discuss the above claim should be in the hands of the regional court, and alternatively it should only instruct to dismiss the causes that are not under the Labour Court’s unique material jurisdiction, or according to another alternative, the Court will instruct to transfer the hearings to the Jerusalem District Court. Migdal Insurance has replied to the appeal of the claimant and a hearing was held before the National Labor Court.
On September 17, 2009 the National Labor Court accepted the appeal of the claimant and decided that the Court has material jurisdiction to hear the request for approval and the claim only with respect to salaried women (hereinafter – “the material jurisdiction decision”). The Court decided that the parties should amend their statement briefs according to the decision of the National Labor Court and a preliminary hearing on the request for approval was scheduled.
On November 24, 2009 the plaintiff submitted an amended claim and request for approval. Migdal Insurance has not yet filed its reply to the request for approval.
On December 15, 2009 Migdal Insurance submitted a motion to the Supreme Court convened as the High Court of Justice with respect to the material jurisdiction decision (hereinafter – “the motion”). The regional court decided to postpone the hearing on the request for approval until a ruling is rendered on the motion.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
20. In August 2008, a claim was filed with the Tel Aviv District Court against Migdal Insurance, together with a request to approve the claim as a class action (hereinafter – the request for approval). The request for approval was filed in accordance with the Class Actions Law.
The plaintiff contends that in the vehicle insurance plan, Migdal Insurance refrains from paying and/or refunding a third party, extensively and in violation of the provisions of the law and the Regulator of Insurance, the total appraiser’s fees which the third party paid for the preparation of the appraiser’s opinion.
The plaintiff alleges that Migdal Insurance offsets sums of money and it pays only part of the sum the third party paid for the appraiser’s fees, and it signs the third parties on bills of discharge, illegally and against the Regulator of Insurance’s directives.
The group the plaintiff wishes to represent is: any person and/or any other legal entity who was entitled to receive from Migdal Insurance, as a third party, monies and/or insurance benefits due to damage to the vehicle, including sums of money in respect of an appraiser’s fees, which he had paid to an appraiser, in order to prepare the assessment of the damage to the vehicle, during the seven years prior to the date the claim was filed, and Migdal Insurance did not reply and/or pay him the full amount he paid for the appraiser’s fees and/or part of it.
The personal damage that was caused to the plaintiff, as she contends, is NIS 49. The plaintiff alleges that the estimated damage that was caused to the entire group, as defined above, with respect to the period of seven years, amounts to about NIS 13 million.
The Court ordered that the hearing be combined with the hearing on the requests for approval on a similar matter that were filed against other insurance companies.
Migdal Insurance has submitted its reply to the request for approval.
21. In September 2008, a claim was filed with the Tel Aviv District Court against Migdal Insurance, together with a request to approve the claim as a class action (hereinafter – the request for approval). The request for approval was filed in accordance with the Class Actions Law.
The plaintiff contends that it acquired from Migdal Insurance a life insurance policy which states that under certain circumstances, mainly in the event of losses as a result of Migdal’s investments (namely, when “the balance of the accumulated bonus”) is negative as stated in the policy), the policyholder will have to pay Migdal Insurance an addition to the premium (hereunder – “the addition to the premium”) in order to confirm the payment of the sum of insurance. The plaintiff contends that commencing from the year 2007, Migdal Insurance began to charge the plaintiff for the addition to the premium of above 15% without providing a written notice, which is against the terms of the policy. The plaintiff contends that in the absence of a written notice from Migdal with respect to charging the plaintiff for the addition to the premium of above 15%, Migdal is not allowed to collect the addition to the premium. The plaintiff also contends that in the event that the payment of the amount of insurance at the time of collection of the premium was secured, the policyholders are entitled to the full refund of the addition to the premium.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
21. (Cont.)
The group the plaintiff wishes to represent is: Migdal Insurance’s group of policyholders who have a life insurance policy in which there is a stipulation similar to that of paragraph 7 to the plaintiff’s policy (regarding the collection of the addition to the premium), and the premium that was collected from them was raised by more than 15% of its value in real terms and they were not provided with a notice about it and/or policyholders that the policy they acquired included a fixed “amount of insurance” and they were not refunded for the addition to the premium that was collected from them, during the period of 7 years prior to filing the claim.
The remedies that are demanded are: to order Migdal Insurance to pay a compensation at a rate and manner that will be determined for each of the group members whose entitlement for compensation or remedy was proven; to order to grant any other remedy in favour of the group, as a whole or in part, or in favor of the public, according to the court’s discretion; to order the payment of remuneration to the representing plaintiff at a rate that will not be lower than 5% of the value of the total remedy that will be ordered to be paid to the group members; to determine the plaintiff’s lawyer’s fees at a rate that will not be less than 15% of the value of the total remedy that will be ordered to be paid to the group members.
The personal damage that was caused to the plaintiff, as she alleges, is about NIS 1,000. The plaintiff claims that the estimated damage that was caused to the entire group, as defined above, amounts to about NIS 30.5 million.
Migal Insurance has submitted its reply to the request for approval (hereinafter – the reply). The plaintiff has submitted to the Court her response to the reply. Migdal Insurance has submitted to the Court a request to remove the reply from the court file. The request of Migdal Insurance was accepted for the most part and the Court ordered to delete sections from the reply and affidavit of the plaintiff.
A hearing was held on the request for approval on October 29, 2009. On December 28, 2009 the Court ordered the parties to the proceeding to submit their summations regarding the request for approval. On February 9, 2010 the parties submitted to the Court a request to approve a compromise agreement of granting a declaratory order and awarding compensation and legal fees to the representative plaintiff and her representative. On March 2, 2010 the Court ordered the parties to publish in the newspapers notices regarding the compromise agreement and to transfer a copy of the agreement to the attorney general, and also determined that after the notices are published a hearing will be scheduled in order to examine conclusion of the proceeding.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
22. In January 2009, a claim was filed with the Tel Aviv District Court against Migdal Insurance, together with a request to approve the claim as a class action (hereinafter – the request for approval). The request for approval was filed in accordance with the Class Actions Law.
The plaintiffs contend that Migdal Insurance acts unlawfully when it rejects, either in whole or in part, third party claims for receiving the full insurance benefits due to impairment in value as a result of damages that were caused to the third party’s vehicles. The plaintiff contends that Migdal Insurance should pay the third party the total amount of the insurance benefits due to impairment in value, according to the third party’s appraiser’s opinion.
The group the plaintiff wishes to represent consists of: any person and/or legal entity who was entitled to receive monies and/or insurance benefits from Migdal Insurance as a third party, due to a damage of impairment in value of the vehicle during the seven years prior to filing the claim, and Migdal Insurance did not transfer to him the full amount of money and/or insurance benefits that were due to him as a result of the impairment in the value of the vehicle.
The personal damage that the plaintiff contends was caused to him, amounts to NIS 829. The plaintiff claims that he does not have the correct information in order to make an accurate estimate of the size of the group and the compensation for the public. Nevertheless, the plaintiff estimates that the damage that was caused to the entire group amounts to about NIS 32 million.
The remedies that are demanded are: to order Migdal Insurance to pay the sum of about NIS 32 million to the group members, either directly or indirectly by a compensation in favour of the public; to order a special compensation for the plaintiff; to order the payment of legal fees to the representing lawyers, at a certain percent of the total compensation that will be ruled in favour of the group members.
The Court ordered that the hearing on the request for approval be combined with the hearing on the requests for approval on a similar matter that were filed against other insurance companies.
Migal Insurance has submitted its reply to the request for approval.
23. In February 2009, a claim was filed with the Petach Tikva Central District Court against Migdal Insurance, together with a request to approve the claim as a class action (hereinafter – the request for approval). The request for approval was filed by three plaintiffs, in accordance with the Class Actions Law. The claim and the request for approval were filed against Migdal Insurance and two other insurance companies (hereunder together – “the defendants”).
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
23. (Cont.)
The plaintiffs contend that the defendants collect from their policyholders who are insured by a business premises insurance policy, a premium that is higher than the premium they had defined in the policy chapters relating to natural disasters and earthquakes. The plaintiffs contend that for the insurance coverage of natural disasters and earthquakes, the defendants charge their policyholders for the payment of a full annual premium instead of calculating the premium according to the lower amount of insurance that will be paid to the policyholder, on the basis of the shorter compensation period, as reflected according to the plaintiffs in the calculation of the premium in the policy itself under the chapter regarding loss of profits due to fire damages. Hence, the plaintiffs contend that since the defendants did not disclose, in the various chapters of the policy, the different manner of calculation of the insurance premiums in respect of the loss of profits component, they breached the prohibition to mislead the policyholder and breached the bona fides duty towards their policyholders during the stage of negotiations, before signing the insurance contract.
The group that all the plaintiffs under this claim wish to represent, is all those who are insured by business insurance policies of any of the defendants, under which the policyholders’ business was insured against loss of profits for a period shorter than twelve months, as well as natural disasters and/or earthquakes, at any time during the seven years prior to filing the request for approval (hereunder – “the group members”).
The personal damage that was caused, as contended by the plaintiff who was insured by Migdal Insurance under a business premises insurance policy, following the alleged actions of Migdal Insurance, amounts to NIS 149.
The plaintiffs contend, according to calculations they made, that the total alleged damage that was caused to the group as defined above, by all the defendants, is about NIS 205 million (not including interest), without stating a specific amount that relates to each of the defendants separately.
The remedies that are demanded by all the plaintiffs under this claim are, among others, the refund of all the amounts that were overcharged from the group members under the business premises insurance policies that were paid during the seven years prior to filing the request for approval, as well as an injunction to order the defendants to refrain from overcharging the group members under the business premises insurance policies, in the future. Migal Insurance has submitted its reply to the request for approval.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
24. In March 2009, a claim was filed with the Petach Tikva Central District Court against Migdal Insurance, together with a request to approve the claim as a class action (hereinafter – the request for approval). The request for approval was filed in accordance with the Class Actions Law.
The plaintiff contends that in the framework of health insurance which contains a component that is called overseas transplants and special treatment insurance (hereunder – “transplants insurance”), Migdal Insurance continued to collect insurance fees for this component, despite the fact that as a result of legislation changes in the Transplants Law, 2008 (hereunder – “the Transplants Law”), the risk regarding the transplants component was eliminated in the manner that the insurance event became impossible after signing an insurance contract. Alternatively, the plaintiff contended that in view of the changes in circumstances, there was a significant decrease in the insurer’s risk and this required a significant deduction in the insurance fees after signing the insurance contract.
The plaintiff contends that the personal damage that was caused to him amounts to about NIS 197. The plaintiff did not estimate that amount of the alleged damage for the entire members of the group.
The remedy that is demanded by the plaintiff under the claim is that the court will instruct Migdal Insurance to deduct the insurance fees for the period beginning from May 1, 2008, in the manner that it will reflect a 100% deduction of the risk in respect of the transplants insurance component. Namely, a 100% deduction of the insurance fees for the transplants insurance component. The alternative remedy that was demanded was to instruct Migdal Insurance to deduct the insurance fees for the period beginning on May 1, 2008, in the manner that it will reflect the difference between the total risk applicable to insurance companies before the Transplants Law, and that of the risk applicable to the insurance companies from the date the law entered into effect, as a result of the fact that an insurance event arising from an overseas transplant of organs is no longer possible (according to the plaintiff).
Migal Insurance has submitted its reply to the request for approval. On January 12, 2010 the plaintiff submitted a motion to inspect and copy specific documents (“hereinafter – the inspection motion”). In accordance with the ruling of the Court from January 13, 2010 the hearing on the inspection motion will be held in the framework of the pre-trial.
25. In July 2009, a claim was filed against Migdal Insurance with the Petach Tikva Central District Court together with a request to approve the claim as a class action (hereinafter – the claim and the request for approval, respectively). The request for approval was filed in accordance with the Class Actions Law. The claim and the request for approval were filed against Migdal Insurance and four other insurance companies (hereinafter – the defendants).
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
25. (Cont.)
The claim pertains to the alleged short payment of compensation to taxi drivers in third party claims for the shut down of taxis damaged in car accidents. According to the plaintiff, the defendants determined the monetary compensation in an arbitrary manner that raises questions and suspicions of coordination. The plaintiff also contends that the defendants condition the payment of the insurance benefits on the signing of “acceptance and release” forms in bad faith and against the law.
The group which the plaintiff wishes to represent is every taxi driver whose vehicle was involved in a car accident and who filed, in the seven years preceding the date of filing the claim, consequent third party claims against the defendants and received (as settlement and not by court order) funds for "shut down days" originating from property damage (hereinafter – the group members).
The plaintiff claims personal damages in the amount of NIS 470 as a result of the alleged actions of Migdal Insurance.
According to the plaintiff, on the basis of his calculations, the defendants caused the group members damages in the amount of NIS 132 million (not including interest and linkage differences from the date of the partial payment until the actual date of payment), without attributing amounts to each one of the defendants.
The remedies requested by the plaintiff in the claim are, inter alia, monetary relief of the amounts the defendants did not pay to the group members in the 7 years preceding the filing of the request for approval, a mandatory injunction ordering the defendants to pay the group members from that date on amounts that reflect their actual damages and to prohibit the defendants from conditioning the payment of undisputed insurance benefits on the group members signing an “acceptance and release” form.
Migdal Insurance has submitted its reply to the request for approval.
26. In September 2009 a claim and request for approval of the claim as a class action were filed with the Central District Court in Petach Tikva (hereinafter – “the claim” and “the request for approval”, respectively) against Migdal Insurance, Migdal Makefet Pension and Provident Funds Ltd. (hereinafter – Makefet) and Migdal Gemel Platinum Ltd. (hereinafter – Migdal Platinum) by members of provident funds managed by Migdal Insurance, Makefet and Migdal Platinum (hereinafter – the defendants). The request for approval was submitted in accordance with the Class Actions Law.
The claim and request for approval were also filed against Psagot Provident Funds Ltd., The Phoenix Insurance Company Ltd., Excellence Nessuah Gemel and Pension Ltd., Clal Gemel Ltd., Menorah Mivtachim Insurance Ltd., DS Provident Fund Management Ltd., Harel Gemel Ltd. and Meitavit Atudot Pension Fund Management Co. Ltd. (hereinafter together with Migdal Insurance, Makeft and Migdal Platinum – “the defendants”).
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
26. (Cont.)
The plaintiffs allege that the defendants were not allowed to deduct from the amounts recorded with the defendants in the name of each individual of the group of plaintiffs, under the provident, pension and insurance funds of the defendants, the effective cost of investing their money in exchange traded notes.
The group the plaintiffs request to represent consists of anyone who is (or was) a member of the funds defined in the request for approval (including provident funds, pension funds and insurance funds) that are managed by the defendants, and which invested part of the monies managed by them in exchange traded noted between November 10, 2005 and the date of filing the request for approval.
The plaintiffs are alleging that damages in the amount of NIS 214 million were caused to the entire group as a result of the actions of the defendants, of which NIS 70.7 million is attributed to Migdal Insurance, NIS 12.7 million is attributed to Makefet and NIS 10.3 million is attributed to Migdal Platinum. The damages were estimated by the plaintiffs on the basis of data regarding the defendants’ investments in exchange traded notes and an estimate of the plaintiffs regarding the effective cost.
The remedy that is being claimed, inter alia, from the Court by the claim’s plaintiffs is to order each one of the defendants to return to its members who are included in the group the effective costs that were illegally deducted, as alleged by the plaintiffs, from the assets of the members and to declare that the defendants are not allowed to deduct this cost.
Migdal Insurance, Makefet and Migdal Platinum have submitted their replies to the request for approval.
27. In September 2009 a claim and request for approval of the claim as a class action were filed with the Tel Aviv District Court (hereinafter – “the claim” and “the request for approval”, respectively) against subsidiaries of the Company, Migdal Gemel Platinum Ltd. (hereinafter – Migdal Platinum) and Migdal Capital Markets (1965) Ltd. (hereinafter – Migdal Capital Markets, hereinafter together – the defendants). The request for approval was submitted in accordance with the Class Actions Law. The claim and request for approval were filed in accordance with the plaintiff’s status as a member of K.H.L. Advanced Study Fund for Employees Ltd. (hereinafter – K.H.L.), which is managed by Migdal Platinum, which in turn is owned by Migdal Capital Markets.
The plaintiff alleges, inter alia, that in 2008 the defendants, jointly and severally with their managers continued to transfer, also throughout the crisis on the capital market, new money of the members of K.H.L. and did not separate between the money of new deposits and the money of previous deposits so that the members would not incur damages and losses.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
27. (Cont.)
The group the plaintiff requests to represent consists of anyone who as at July 15, 2007 had an account with K.H.L., and on that date or proximate to it the management of the member’s account was transferred to the defendants, and the member’s account could have been withdrawn and/or repaid in 2008 at an exemption from tax and/or was a member in K.H.L. for at least 5 years (hereinafter – the group members).
The plaintiff alleges that damages in the amount of NIS 829 million were caused to the entire group as a result of the alleged actions, on the basis of the plaintiff’s estimate that the group consists of 33,333 members.
The plaintiff contends that his personal damages from the actions of the defendants amounted to NIS 24,875.
The remedies claimed by the plaintiff are, inter alia, to order the defendants to return and/or compensate the group members for the entire amount of the losses accumulated in the K.H.L. accounts of the group members in 2008 (with the addition of linkage differences and interest) and to order the defendants to reveal various data and documents with respect to, inter alia, the amount of the losses in the group members’ accounts.
Migdal Capital Markets and Migdal Platinum have not yet submitted their replies to the request for approval.
28. In September 2009 a claim and request for approval of the claim as a class action were filed with the Tel Aviv District Court (hereinafter – “the claim” and “the request for approval”, respectively) by a career soldier in the IDF who is insured under a group life assurance policy for IDF professional soldiers and retirees (hereinafter – the policy and the plaintiff, respectively) against Migdal Insurance, an additional insurance company and Hever Professional Army Personnel and Retired Personnel Ltd. (hereinafter – the defendants). The request for approval was submitted in accordance with the Class Actions Law.
The plaintiff alleges that contrary to the instructions of any law, the professional solders and retirees of the IDF were charged premiums in respect of the policy without them being able to cancel the policy. The plaintiff also alleges that over the years the defendants raised the premium payments contrary to the terms of the policy, thus violating them and acting contrary to the law. Furthermore, the plaintiff alleges that the defendants do not comply with their duties in accordance with the law and do not transfer to the group members the full terms of the policy and updates as required by law.
The group the plaintiff requests to represent consists of all the professional army soldiers and retirees of the IDF including those who had this status in the last seven years and whose lives were insured under the policy (hereinafter – the group members). The plaintiff contends that the group consists of 70,000 members on the basis of newspaper publications.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
28. (Cont.)
The plaintiff alleges to having incurred personal damages from the actions of Migdal Insurance in the amount of the premiums that he paid in respect of the policy in the nominal amount of NIS 2,165. Alternatively, the plaintiff alleges to have incurred personal damages from the actions of Migdal Insurance in the amount of the excess amount that he paid in the amount of NIS 483.
According to the plaintiff, on the basis of his calculations, the group defined above was caused overall general damages by the defendants in respect of the collection of premiums on the policy in an estimated amount of NIS 490 million (with the addition of linkage differences and interest). Alternatively, the plaintiff alleges that according to his calculations the overall general damages the defendants caused to the group, as defined above, in respect of the collection of excess premiums on the policy from all the members of the group are estimated to amount to NIS 85 million (with the addition of linkage differences and interest).
The remedy requested by the plaintiff in the claim is to annul the policy and refund all the amounts that were collected in the last seven years in respect of the policy from the group members, except for those group members who forego their right to a refund of the money and request in writing to be insured under the said insurance policy. Alternatively, the requested remedy is a refund of all the excess amounts that were collected (beyond that specified in the policy), as alleged by the plaintiff, from the group members in the last seven years. In addition, a mandatory injunction is requested for the deliberate disclosure of a full copy of the policy to each of the group members and monetary compensation in the amount of 20% of the amount of the excess premiums the plaintiff alleges were charged to the group members in respect of infringement on autonomy.
Migdal Insurance has not yet submitted its reply to the request for approval.
29. In November 2009 a claim and request for approval of the claim as a class action were filed with the Tel Aviv District Court (hereinafter – “the claim” and “the request for approval”, respectively) against Stock Exchange Services by an owner of a securities trade account (hereinafter – “the plaintiff”). The request for approval was submitted in accordance with the Class Actions Law.
The plaintiff alleges that as from January 2009 Stock Exchange Services began charging its customers management fees on the securities trade account (hereinafter – “the account”) in the amount of NIS 15 per month. According to the plaintiff, Stock Exchange Services was not entitled to charge its customers the account management fees according to the account opening form and agreement.
The group the plaintiff requests to represent consists of all the customers of Stock Exchange Services who opened an account with it before 2009 and were charged account management fees after January 2009 (hereinafter – “the group members”).
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
29. (Cont.)
The plaintiff alleges to having incurred personal damages from the collection of the account management fees in the amount of NIS 150. The plaintiff estimates that all the group members were caused damages from the alleged actions of Stock Exchange Services in the amount of NIS 4.5 million, on the basis of the plaintiff’s assessment that the group consists of about 30,000 customers.
The remedies requested by the plaintiff in the claim are a mandatory injunction stopping the collection of the account management fees and compensation in the amount of the account management fees that were collected from each of the group members.
Stock Exchange Services has not yet submitted its reply to the request for approval.
30. In December 2009 a claim and request for approval of the claim as a class action were filed with the Petakh Tikva District Court (hereinafter – “the claim” and “the request for approval”, respectively) against Migdal Platinum by a member of Maoz Educational Fund (hereinafter – “the fund”) which is managed by Migdal Platinim (hereinafter – “the plaintiff”). The request for approval was submitted in accordance with the Class Actions Law.
According to the plaintiff, the fund was publicized and marketed by Migdal Platinum as being a “conservative” educational fund. The plaintiff alleges that in 2007 and 2008 the fund held unrated debentures in the amount of 50% of its assets, which reflects a high level of risk that is inappropriate for a “conservative” fund. According to the plaintiff, in 2008 the fund lost 35% of the assets of the fund’s members, a rate indicating that the fund was managed carelessly and unprofessionally.
The group the plaintiff requests to represent consists of any person who was a member of the fund at any time from August 8, 2006 until the date of submitting the request for approval (hereinafter – “the group members”).
The plaintiff alleges to have incurred pecuniary (the loss of a reasonable return according to the plaintiff) and non-pecuniary damages in the amount of NIS 33,916 as the result of the actions of Migdal Platinum. Alternatively, the personal damage that was caused amounts to NIS 13,415 according to the plaintiff for the refund of management fees Migdal Platinum charged the plaintiff and non-pecuniary damages.
According to the plaintiff all the group members were caused damages in the amount of NIS 62,898,000 as the result of the alleged actions of Migdal Platinum in respect of pecuniary and non-pecuniary damages. Alternatively, the alleged damage for all the group members is estimated at NIS 49,977,118 for the refund of management fees and compensation to the group members for non-pecuniary damages.
The remedy requested in the claim is monetary and consists of paying to all the group members the aforementioned amounts of damage.
Migdal Platinum has not yet submitted its reply to the request for approval.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
31. In February 2010 a claim and request for approval of the claim as a class action were filed with the Tel Aviv Jaffa District Court (hereinafter – “the claim” and “the request for approval”, respectively) against Migdal Insurance by a policyholder of motor vehicle insurance (property and third party property) (hereinafter – “the plaintiff”). The request for approval was submitted in accordance with the Class Actions Law.
According to the plaintiff, Migdal Insurance does not pay and/or compensate its policyholders in respect of the damage caused to the protection measures installed in their motor vehicles at its request. Furthermore, the plaintiff alleges that Migdal Insurance illegally and contrary to the directives of the Regulator of Insurance demands from the policyholders to sign settlement letters.
The group the plaintiff requests to represent is any person who as from April 1, 2004 received insurance benefits from Migdal Insurance in respect of damages to a private car or a commercial motor vehicle of up to 4 tons, including for total loss, constructive loss or theft, at the time of being insured by Migdal Insurance, for motor vehicle insurance according to Chapter A of the addendum to the Supervision of Insurance Business Regulations (Terms of Private Motor Vehicle Insurance Contract) – 1986, all or part, and did not receive all and/or part of the insurance benefits in respect of the loss or damage that was caused to the protection measures that were installed in the motor vehicle at the request of Migdal Insurance (hereinafter – “the group members”).
The plaintiff alleges to have incurred personal damages in the amount of NIS 6,000. According to the plaintiff, he does not have the information required for accurately assessing the size of the group and the compensation to the public. Nevertheless, the plaintiff estimates that all the group members were caused damages in the amount of NIS 81.9 million.
The remedies requested in the framework of the claim consists of monetary compensation in the amount of NIS 81.9 million to the group members, either directly or by means of compensating the public, compensation to the plaintiff and fees to the attorneys representing the plaintiff, as a percentage from the overall compensation awarded to the group members.
Migdal Insurance has not yet submitted its reply to the request for approval.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities (Cont.)
b) Claims that were concluded
32. In June 2007 a claim was filed against Dikla Insurance Company Ltd. (hereunder – Dikla”) with the Tel Aviv Jaffa District Court together with a request to approve the claim as a class action.
The claimants allege in the claim that Dikla collected excess insurance premiums in its Mashlim Lagimla policies (hereunder – “the policy”), which is a long term care group policy. Migdal Insurance was not a party to these proceedings. Migdal Insurance has a 20% share in the policy.
The parties to the proceedings submitted a mutually agreed request to withdraw the claim and the request for approval in accordance with Section 16 of the Class Actions Law, 2006. On April 5, 2009 the request for withdrawal was accepted by the District Court thus brining the proceeding to its conclusion.
As regards a claim that was filed together with a request for approval as a class action in respect of the Mashlim Lagimla insurance, see Paragraph 7 above.
33. In February 2008, a claim was filed with the Tel Aviv Jaffa District Court against Migdal Insurance, together with a request to approve the claim as a class action (hereinafter – the request for approval).
The request for approval was filed in accordance with the Class Actions Law.
The claim and the request for approval were filed by 13 claimants (hereinafter – the claimants) also against 9 other insurance companies (Migdal Insurance and the other 9 insurance companies are hereinafter called – the defendants).
The claimants allege that the defendants collected from their policyholders premiums pertaining to additional insurance coverage (rider) from theft or damage to the integral sound system in the framework of a comprehensive automobile insurance policy whereas, the claimants allege, theft of the integral sound system is rare and its likelihood is virtually zero. In such circumstances, the claimants allege, their obligation to pay a premium with respect to the theft of the integral sound system is unreasonable.
On June 30, 2009 the Court accepted the request of the claimants to withdraw from the request for approval and from the claim. Accordingly, the Court ordered to strike out the request for approval and to dismiss the claim.
34. In August 2008, and in September 2008, a claim and amended claim were filed with the Nazareth District Court (respectively,) against Migdal Insurance by three plaintiffs (hereinafter – the plaintiffs). Together with the above claim and the amended claim, the plaintiffs filed a request to approve the claim as a class action as well as an amended request to approve the claim as a class action pursuant to the Class Actions Law (hereunder – “the request for approval”.
The claim and the request for approval were also filed against other defendants (Migdal and the above other defendants will be called together hereunder – “the defendants”).
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities
Requests to approve claims as class actions (Cont.)
34. (Cont.)
The plaintiffs contend that the defendants breached the duty of disclosure according to the Regulator of Insurance’s circular, the Supervision of Insurance Business Law, and the Insurance Contract Law, by insuring policyholders under a collective health insurance policy without obtaining their consent and without informing them about that insurance. They also collected from the policyholders insurance fees for the policy without their permission.
A hearing was held on April 20, 2009 with respect to the request for approval. In the hearing, at the recommendation of the Court, the plaintiffs withdrew from the request for approval and requested to continue with their personal claim. On the basis of the plaintiffs’ notice, the Court dismissed the request for approval and ordered the plaintiffs to file a claim in respect of their personal damages.
35. In August 2007 a claim was filed with the Tel Aviv Jaffa District Court against Migdal Insurance and 4 other insurance companies (hereinafter – the defendants), together with a request to approve the claim as a class action (hereinafter – the request for approval).
The claimants alleged that the defendants unlawfully collect premiums in their health and/or surgery policies during the initial exclusion period of three months from the date the policies come into effect (hereinafter – the initial exclusion period). The claimants alleged that this is done even though the defendants do not provide any insurance coverage to the policyholders of such policies in the initial exclusion period.
Migdal Insurance submitted its response to the request for approval. On September 14, 2009 the parties to the proceeding (the plaintiffs and the defendants) submitted to the Court a mutually agreed request to withdraw the request for approval and the claim. On October 16, 2009 the plaintiffs submitted to the Court withdrawal affidavits in accordance with Section 16 of the Class Actions Law. On October 29, 2009 the Court approved the withdrawal of the plaintiffs and ordered to strike the request for approval and the claim.
36. In September 2008, a claim was filed with the Nazareth District Court against Clal Insurance Company Ltd. (hereunder – “Clal”), together with a request to approve the claim as a class action (hereunder – the request for approval).
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities (Cont.)
b) Claims that were concluded
36. (cont’d)
The claim and the request for approval were not filed against Migdal Insurance. The plaintiff contends that he was employed by Hassneh Israel Insurance Company Ltd. (hereunder – “Hassneh”), which terminated its activities and was purchased in 1992 by Migdal Insurance and Clal. The plaintiff contends that he had a life insurance policy through Hassneh (hereunder – “the policy”) and that on January 1, 1993, the policy was transferred in practice from Hassneh to Clal, and after the policy was transferred Clal issued three policies in his name and ownership (hereunder – “the policies”) and since then up to the present date the policies are managed by Clal. The plaintiff contends that although the policy was transferred from Hassneh to Clal on January 1, 1993, Clal used the index of December 1992 (that was published only on January 15, 1993) for calculating the policy rates, instead of using the previous indices as follows: (a) the plaintiff contends that with respect to one policy for which the linkage mechanism was semi annual, Clal should have calculated the policy’s value according to the index that was published in July 1992 in respect of June 1992; (b) the plaintiff contends that with respect to the other policies that their linkage mechanism is monthly, Clal should have calculated the policy value on the basis of the index that was published in December 1992 in respect of November 1992.
On May 17, 2009 Clal submitted its reply to the request for approval and a statement of defense. On September 29, 2009 a hearing was held on the request for approval and the Court ordered the plaintiff to submit a reply to the reply of Clal to the request for approval, while reserving the parties’ right to request a hearing on the request for approval, or else a ruling will be made on the basis of the statements of claims. On November 8, 2009 at the request of the representative plaintiff and with the agreement of Clal, the Court dismissed the request for approval and struck out the claim.
The claim and the request for approval were not filed, as mentioned, against Migdal Insurance. Nevertheless, the claim and the request for approval are detailed in this Note since they relate to a life insurance policy that used to belong to Hassneh and due to the fact that Hassneh’s life insurance portfolio was acquired jointly by Migdal and Clal.
37. In September 2009 a claim and request for approval of the claim as a class action were filed with the Petach Tikva Central District Court (hereinafter – “the claim” and “the request for approval”, respectively) by policyholders of compulsory motor vehicle insurance (hereinafter – “the plaintiffs”). The request for approval was filed against Migdal Insurance and 9 other insurance companies (hereinafter – “the defendants”) in accordance with the Class Actions Law.
The plaintiffs contended that they had acquired from the defendants compulsory motor vehicle insurance and that on the date of the acquisition they were requested by the defendants and/or their employees and/or their agents and/or persons acting on their behalf to pay an addition for the insurance coverage in respect of the age and/or years of driving experience of an authorized and additional driver of the motor vehicle. The plaintiffs alleged that the age of the driver or years of driving experience are irrelevant to determining the insurance coverage.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities (Cont.)
b) Claims that were concluded
37. (cont’d)
The plaintiffs contended that the defendants charged the policyholders additional amounts for an expansion of the insurance coverage that was not done, all while misleading and/or non-disclosing and/or misrepresenting the expansion of the insurance coverage.
On September 30, 2009 the plaintiffs filed a request to withdraw from the request for approval and the claim. On November 9. 2009 the Court approved the request for withdrawal and ordered to strike out the request for approval, and dismissed the personal claim of the representative plaintiffs.
38. In September 2009 a claim and request for approval of the claim as a class action were filed with the Nazareth District Court (hereinafter – “the claim” and “the request for approval”, respectively) against Migdal Insurance, The Phoenix Insurance Company Ltd. (hereinafter – “the Phoenix”), Tzevet – Israel Defense Forces Veterans Association (hereinafter – “Tzevet”) and Medi Gap Ltd. Health Division – Madanes Group (hereinafter – “Medi Gap”) (hereinafter – the defendants) with respect to a group health insurance policy (hereinafter – “the policy”). The request for approval was filed in accordance with the Class Actions Law.
The plaintiff alleges that the defendants breached their duty of disclosure under the circular of the Regulator of Insurance, the Supervision of Insurance Business Law and the Insurance Contract Law in that they added persons to the policy without receiving their consent and without notifying them of the insurance, renewed the policy without their knowledge and charged the policyholders insurance fees for the policy without their knowledge.
On September 10, 2009 the plaintiff submitted a motion to strike the request for approval and the claim (hereinafter – “the motion to strike”). Migdal Insurance has submitted a reply in which it requested, inter alia, to dismiss in limine the request for approval and to order the plaintiff to pay the real expenses of the proceeding. On September 17, 2009 the plaintiff filed an additional motion in which it requested to take back the motion to strike. On December 1, 2010 Migdal Insurance submitted its reply to the request for approval. On January 6, 2010 the plaintiff submitted a request to amend the claim and the request for approval.
On December 11, 2009 in the framework of a hearing that was held on the request for approval the Court denied the request for approval. In an additional decision rendered on the date of the hearing, the Court decided that if the plaintiff does not submit a motion to transfer the personal claim to the appropriate court, the claim will be struck out.
With respect to an additional claim and request to approve such claim as a class action that are essentially similar to the aforementioned claim and request for approval and were denied by the Nazareth District Court see (34) above.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
a. Contingent liabilities (Cont.)
c) Material legal and other proceedings
Below is a description of additional material legal and other proceedings against the Company and/or the subsidiaries. In management’s opinion, based, among others, on legal opinions it received, in claims where it is more likely than not that the defense arguments of the Company will be accepted and the claim will be rejected no provision has been made in the financial statements. In actions where it is more likely than not that the defense arguments of the Company will be rejected, in part of in whole, provisions have been made in the financial statements to cover the exposure estimated by the Company and/or the subsidiaries. In the opinion of management, which is based on, inter alia, legal opinions it received, the financial statements include appropriate provisions where provisions are required in order to cover the exposure assessed by the Company and/or the subsidiaries. The overall provision that was set-up in respect of the exposure to additional material legal and other proceedings, including applications to the Regulator of Insurance as detailed below, is immaterial.
39. In the year 2004 Migdal Insurance completed the acquisition of all the issued and paid-up share capital of Te’utza. Te’utza merged with Migdal Makefet in April 2006. In February 2003 a third party filed a claim against Te’utza and another five defendants, to the Tel Aviv District Court.
Following the filing of an amended claim, the claimant pleads for declaratory remedy that he be allocated at no consideration, among others, shares in Te’utza in the sum that will reflect its share in Teshura Tushiya Insurance Agency Consultants (1965) Ltd. (Teshura) (one of the aforementioned defendants), namely 25%, as well as a plea for monetary remedy of about NIS 400 thousand from Teshura. On November 30, 2008, summations were submitted on behalf of the plaintiff in this claim and the summations on behalf of the defendants were submitted on April 23, 2009. On June 23, 2009 the plaintiff submitted the summary of its replies on its behalf. On January 4, 2010 a court ruling denying the claim was made.
40. The Company and/or the subsidiaries are parties to additional legal proceedings, which are not insurance claims, brought by customers, former customers and various third parties for a total amount of approximately NIS 66 million. The grounds for the claims against the Company and/or its subsidiaries under these proceedings, are varied.
41. In addition there is a general exposure that is due to complaints being filed from time to time against the Group, including complaints to the Supervisor of Capital Market, Insurance and Savings Division of the Ministry of Finance (hereinafter – “the Supervisor”) with respect to rights of policyholders according to insurance policies and/or the law. These complaints are handled regularly by the public complaints departments of the Group. The Supervisor’s decisions on these complaints, if and insofar as a decision has been made, are sometimes across the board decisions relating to a group of policyholders. Furthermore, some of the Supervisor’s requests from the Group included, inter alia, requirements for changes in the insurance policies and/or requests to receive various information regarding the Group’s treatment of the insurance policies in the past.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
b. Commitments
1. Commitments for acquisition of real estate assets
a. In February 2008 Migdal Insurance entered into an agreement for the acquisition of undetermined 40% of an office building in Tel Aviv. The building is in process of construction and the building is expected to be completed in the first half of the year 2010. Migdal Insurance acquired 40% of the building in the framework of profit participating policies. The acquisition cost amounted to about NIS 96 million. Up to now Migdal Insurance paid the sum of about NIS 15 million. The balance will be paid according to a certain formula for settlement of the account, as determined in the agreement, at the time the building will be transferred to Migdal Insurance’s holding. Another undetermined 10% of the office building was acquired by the Makefet Fund.
b. In August 2008, the Company entered into an agreement for the acquisition of 70% (most of the money is from profit participating policies) of a commercial income generating asset in the overall area of the Dan Agglomeration. Another 5% was purchased by the Makefet Fund. The transaction is composed of two stages. The first stage, in connection with the area that is already built, is completed and paid for. Regarding the portion that is under construction, the consideration will be paid according to a formula that was determined in the agreement for the settlement of the account, at the time the asset will transferred to the Company’s holding. The construction of the second part is expected to end in the first half of 2011.
c. In August 2008, the Group purchased land on an area of 17,800 square meters, including building rights on the area of about 42,000 square meters, for the amount of about NIS 60 million. This area is near the Group’s office buildings in Petach Tikva. The acquisition of this land was in order to construct an additional office building and to concentrate most of the Group’s activities in once central site.
The Group has building rights on the area of about 42,000 square meters, to be built above the ground level and 27,000 square meters of basements (parking) At this stage the Group intends to build office buildings on an area of about 35,000 square meters above ground and all the basements. The construction is expected to be completed at the end of 2011.
2. With respect to other financial investments, the Company has commitments for future investments in investment funds as at December 31, 2009, in the total sum of about NIS 599 million, of which the sum of NIS 467 million is in respect of yield dependent contracts (in the preceding year the sum of about NIS 572 million, out of which the sum of NIS 445 million is in respect of yield dependent contracts).
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
b. Commitments (Cont.)
3. In November 2003, after receiving the approval of the Audit Committee, the Company’s Board of Directors approved that Migdal will enter into an agreement with Ness A. T. Ltd. (hereunder – Ness), whereby Ness will render to the Migdal Group the operation of its computer infrastructure services, through outsourcing. The agreement was signed on December 31, 2003.
This engagement is estimated at about NIS 180 million, including V.A.T. and is spread over 8 years. The company has the right to end the engagement or reduce the volume of activity, at any time and at its discretion, after a 90 days advance notice.
4. The balance of liabilities for additional investments of Migdal Insurance in acquired companies amounts to about NIS 170 million, of which the sum of about NIS 137 million is out of the monies of profit participating policies (previous year NIS 149 million, of which NIS 120 million is out of the monies of profit participating policies). In addition, Migdal insurance undertook to provide credit, upon request, in the amount of about NIS 996 million, of which about NIS 889 million is out of the monies of profit participating policies (previous year about NIS 612 million was from the monies of profit participating policies).
5. Migdal Insurance undertook to purchase from Femi Premiums Ltd. (“Femi”), beginning from March 2007, all the assistance services that are provided to the policyholders, according to the service riders that are sold in the framework of the motor casco insurance area (towing, windowpanes, replacement vehicles, etc.) and most of the related services under the comprehensive residential and health insurance policy, including the operation of a national center that is manned 24 hours a day. Migdal Insurance undertook to purchase these services from Femi, exclusively, for the period of five years commencing from March 2007 and under the conditions as determined in the agreement.
The amounts that were paid to Femi in 2009 for the purchase of assistance services amounted to about NIS 46 million.
6. An engagement that relates to the replacement of the Group’s computer infrastructure – the Group began with a project for replacing its central computer infrastructure which are presently MF computers of I.B.M, to Unix computers of Sun Microsystems Israel Ltd. (“Sun”).
The engagement with Sun is from February 2008 and the expected date for concluding the project is April 2010. The entire project is estimated at amount NIS 47 million, out of which the share of Sun and the suppliers on its behalf is about NIS 36.5 million. Under the engagement with Sun, it will engage a number of sub-contractors, including the Ness company. Sun is responsible to the Group for performing the obligations according to the agreement, including the performance of the obligations by the sub-contractors and Ness.
In 2009, the Group paid Sun the sum of about NIS 12 million, which forms about 2.2% of the administrative and general expenses which do not include wages.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
b. Commitments (Cont.)
7. S.P.L Software Ltd. and its subsidiaries (“S.P.L”) – the Group purchases from S.P.L infrastructure products, maintenance services for data base and manpower services for development and maintenance of software systems.
The cost of the services and products that the Group purchased from S.P.L in 2009 amounted to about NIS 14 million, which forms about 2.7% of the administrative and general expenses that do not include wages.
8. I.B.M Israel Ltd. and its subsidiaries, including a supplier who operates on its behalf (“I.B.M.“) – the purchases from I.B.M. in 2009 amounted to about NIS 6.5 million, which forms about 1.2% of the administrative and general expenses that do not include wages.
9. An engagement that relates to the storage of the Group’s central computer room – in October 2006, the Group entered into an engagement with MD-1 E.C.I. 1 (1999) Ltd., which has an underground secured site in Petach Tikva, and it provides hosting and communication services to store the Group’s central computer room in this site. This engagement is for the period of 180 months with the right to extend the period by an additional 12 months, under the conditions that are determined in the agreement. The engagement can be terminated by the Group at its discretion, before the end of the first period, subject to the payment of a certain amount of money as determined in the engagement agreement. The current payments that are paid under this engagement are immaterial.
10. In June 2009 the Migdal Group entered into an agreement for the acquisition, maintenance and resale of motor vehicles (hereinafter – “the agreement”). The motor vehicles are scheduled to be supplied two years from the date of signing the agreement with an option for an additional two years. The maintenance period shall begin when the first motor vehicle is supplied and for as long as the customer holds motor vehicles that were acquired in accordance with the agreement.
The agreement provides that the Group will acquire motor vehicles in an amount of no less than 225 and no higher than 300.
11. Migdal Insurance rendered indemnity letters to officeholders in investees and other corporations in which they serve by virtue of their capacity as officeholders in a subsidiary as well as to a number of the Group employees, whereby Migdal will indemnify them under the circumstances and reservations as detailed in the indemnity letter in respect of a monetary liability that will be imposed on them as a result of actions they will carry out by virtue of their post as officeholders in the aforementioned corporations, or in respect of activities as detailed in the indemnity letter.
12. The Company and Migdal Insurance rendered waiver letters to officeholders in investees and other corporations in which they serve by virtue of their capacity as officeholders in a subsidiary, whereby the Company and Migdal, under the circumstances and reservations as detailed in the waiver letter, had waived any claims against officeholders with respect to any action and/or omission that they will perform as officeholders in the aforementioned corporations.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
b. Commitments (Cont.)
13. The Company and Migdal rendered indemnity letters to officeholders of the subsidiary and its investees, whereby they will be indemnified, in the amount, circumstances and reservations as detailed in the indemnity letters, in respect of any monetary liability that will be imposed on them with respect to the following issues:
(1) The prospectus of Migdal Holdings from the year 1996.
(2) Liabilities that will be applicable to the Company and/or the Migdal Group companies due to the fact that the Company is a company whose shares are held by the public and are listed for trade on the stock exchange, providing that the liability for indemnification will be applicable only to liabilities deriving from operations that were performed during the period of up to one year from the date of the prospectus.
14. The Company and Migdal rendered waiver letters and an undertaking to dismiss claims regarding officeholders in corporations that belong to the Migdal Group, whereby the Company and Migdal, under the circumstances and reservations as detailed in the waiver letters and the undertaking, had waived the claims against the officeholders with respect to any action and/or omission that will be performed by them in their capacity as officeholders in each of the corporations, including actions with respect to the areas detailed below:
(1) The prospectus of Migdal Holdings from the year 1996.
(2) Liabilities that will be applicable to the corporation due to the fact that the Company is a company whose shares are held by the public and are listed for trade on the stock exchange.
The Company and Migdal also undertook, under the circumstances and reservations as detailed in the waiver letters and the undertaking, to dismiss any claim that will be filed against the corporations or any one of them, if as a result of the claim, as mentioned, the officeholders will be sued by any of the corporations by a claim that will not be dismissed in limine.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
b. Commitments (Cont.)
15. Amendment to release of liability, insurance and indemnification of officeholders
On November 27, 2006 the special Shareholders' General Meeting of the Company resolved to grant a liability to release and indemnify officers of the Company according to the amended version of the letter of indemnity, which when received by the officers of the Company it replaced, for all intents and purposes, the previous letters of indemnity that were mentioned in paragraphs c. and d. above (“updated letter of indemnity”).
The updated letter of indemnity was prepared in order to adjust it to the provisions of the Companies Law after Amendment No. 3. In the framework of the changes, the indemnity will be expanded also to expenses related to an investigation or proceeding held against an officer by a body authorized to conduct an investigation or proceeding, and which has ended without an indictment against the officer and without any monetary liability being imposed on the officer instead of a criminal proceeding, or which had ended without an indictment but with a monetary liability being imposed instead of a criminal proceeding with respect to a violation that does not require proving criminal intent, and qualifies the release from the requirement of prudence with respect to a non-permissible distribution.
The maximum amount of the indemnity will be equal to 25% of the shareholders’ equity (on a consolidated basis) according to the most recent annual consolidated financial statements preceding the provision of the actual indemnification, this in addition to the amounts that are received from the insurance company, if received, in the framework of an insurance that the Company acquired.
16. Within the framework of the acquisition agreement, the purchasers undertook that the letters of indemnity given by Makefet to its officeholders, will not be cancelled or changed to the extent they relate to events that have occurred up to the acquisition date.
In addition, the purchasers have given an undertaking that if any claim or allegation whatsoever will be filed in connection with Makefet, against the seller or a party acting on its behalf or for it, whether it relates to the period before the acquisition date or to the period after the acquisition date, they will compensate the seller or the party acting on its behalf or for it for the said claim.
17. Migdal Insurance granted Old Yozma a letter of indemnity unlimited by time, whereby a subsidiary will indemnify Old Yozma under the circumstances as determined in the letter of indemnity, in respect of any monetary liability that Old Yozma will be charged for, with respect to the transfer of shares of Migdal Pension Funds Management Ltd. (hereinafter – “Migdal Pension”) to the direct ownership of Migdal (Migdal Pension was merged within Makefet and the determining date for the merger was December 31, 2005). The undertaking to indemnify includes an undertaking to indemnify in connection with any debt or expense that Old Yozma will be charged for by virtue of the letter of indemnity that will be issued by Old Yozma to its officeholders.
18. Regarding investments in the Group companies – see Note 7.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
c. Guarantees by a subsidiary
1) Within the framework of the membership of a company owned by a subsidiary, in the clearing house of the Tel-Aviv Stock Exchange, this company gave a reciprocal guarantee, together with the other members of the stock exchange, to cover damages which might be caused to the clearing house by a shortage of quoted securities or a financial shortage of one of its members.
Similarly, this company supplies securities as collateral for the activities of its customers at the Maof clearing house.
As at balance sheet date the cash liability of the insurer amounted to NIS 49,078 thousand (previous year - NIS 7,122 thousand).
2) According to the decision of the Board of Directors of the Tel-Aviv Stock Exchange clearing house on January 13, 2002, a risk fund of the clearing house was created to secure the liabilities of the clearing members for activities in Israel and abroad (including activities of the clearing house for rendering foreign transactions to the members through City Bank).
The company’s share in the fund is NIS 18,048 thousand (previous year – NIS 20,332 thousand).
As from May 15, 2005, this company’s entire share in the risk fund is secured by a deposit.
d. Holdings in trust
A subsidiary of Migdal Capital Markets holds in trust, for its customers (which include, inter alia, mutual funds managed by another subsidiary of Migdal Capital Markets (Migdal Funds)), securities’ investment portfolios and cash having a value of NIS 13.843 billion as at December 31, 2009 (December 31, 2008 – NIS 4.92 billion).
Furthermore, the Capital Markets group manages investment, mutual fund and provident fund portfolios for customers who are not related parties in the total amount of NIS 28 billion as at December 31, 2009 (December 31, 2008 – NIS 19 billion).
e. Leases
1. Leases under which Group has operating leases
The Group has entered operating lease agreements with respect to vehicles. The average leasing term is three years and the contract does not include an option to extend the lease.
The minimum leasing fees that will be paid for the irrevocable operating lease contracts as at December 31, are: 2009 2008 First year 22,766 18,835 Second year up to five years 19,828 16,907 More than five years - - 42,594 35,742
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 38:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
e. Leases (cont’d)
Capitalized leasing rights on real estate from the Israel Land Administration for operating lease
The group has entered leasing agreements in connection with real estate it owns. As generally accepted in the Israeli market, most of these leases are capitalized leases from the Israel Land Administration and the balance of the leasing term in most cases is 20 years and more.
The amount attributed to the leasing rights in respect of the operating lease is reported in the balance sheet under debtors and receivables in the item leasing fees and prepaid expenses and is amourtized over the period of lease.
Leases in which the Group is the operating Lessor
The Group leases out real estate assets for investment to external entities. The lease agreements are for an average period of 3 to 7 years, not including an option period. Usually the leasers have an option to extend the period of lease according to the conditions that were set in the agreement.
Hereunder are the minimum leasing fees that will be received for irrevocable lease contracts as at December 31:
2009 2008 First year 226,584 213,411 Second year up to five years 682,842 575,877 More than five years 714,974 376,635 1,624,400 1,165,923 Of which the minimum future leasing fees receivable that relate to assets in which the Group is a financing lessee 524,631 592,778
During the year ended as at December 31, 2009 the Group recognized the sum of NIS 4,964 thousand as an income in the statement of profit and loss in respect of contingent leasing fees (2008 and 2007 – NIS 2,653 thousand and NIS 1,910 thousand, respectively).
For additional information regarding income recognized in respect of investment property, see Notes 8 and 26.
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NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009
NOTE 39:- EVENTS AFTER THE BALANCE SHEET DATE
a. In February 2010 the board of directors of Migdal Insurance approved a dividend distribution in the amount of NIS 240 million. For further details on the dividend distribution, see the Company’s immediate report from February 23, 2010.
In accordance with a clarification that was issued by the Regulator in March 2010, Migdal Insurance will be entitled to distribute a dividend without obtaining the approval of the Regulator.
In March 2010 the Company’s Board of Directors approved a dividend distribution in the amount of NIS 240 million. For further details on the dividend distribution, see the Company’s immediate report from March 17, 2010.
The dividend (of both Migdal Insurance and the Company) is scheduled to be distributed in April 2010.
b. In March 2010 the Group entered into a transaction with Bituach Haklai Central Cooperative Society Ltd. (hereinafter – Bituach Haklai) with respect to the acquisition of 50% of the participation units in Bituach Haklai.
The units will be acquired by means of an allotment of 50% of the participation units in Bituach Haklai in consideration for an investment of NIS 140 million in Bituach Haklai.
In the framework of the transaction and as a precondition, Bituach Haklai shall execute a restructuring by which all the holdings after the restructuring and upon the completion of the transaction with Bituach Haklai will be held by the holding society and the Migdal Group in equal parts (50% each).
The transaction is subject to a number of preconditions including, inter alia, the approval of the Supervisor of the Capital Market, Insurance and Savings Division of the Ministry of Finance to the transfer of the split off activities, and the Supervisor awarding control permits, approval by a privileged majority of the cooperative’s council and the cooperative’s committee, court approval to the restructuring, the approval of the Commissioner of Restrictive Trade Practices, the approval of the Registrar of Cooperative Societies, the approval of the head of the headquarters for kibbutz creditor arrangements and the tax authorities with respect to the tax exemption of the restructuring and the subsequent transaction and consents of third parties related to, inter alia, the transfer of the split off activities.
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APPENDIX - DETAILS OF ASSETS FOR YIELD DEPENDENT CONTRACTS AND OTHER FINANCIAL INVESTMENTS OF AN INSURANCE SUBSIDIARY IN ACCORDANCE WITH THE DIRECTIVES OF THE REGULATOR OF INSURANCE
A. Quoted debt assets
Composition: December 31 Carrying amount Amortized cost 2009 2008 2009 2008 NIS in thousands Government bonds – available-for-sale 2,644,447 2,424,600 2,633,314 2,345,339 Other debt assets Non-convertible – available-for-sale 931,863 782,416 880,474 936,866 Convertible 3,406 1,165 7,464 2,020
Total quoted debt assets 3,579,716 3,208,181 3,521,252 3,284,225 Impairment carried to profit and loss (on a cumulative basis) 22,487 44,982
B. Shares December 31 Carrying amount Cost *) 2009 2008 2009 2008 NIS in thousands
Quoted – available-for-sale 1,124,206 533,796 867,115 510,491 Unquoted – available-for-sale 19,823 69,285 15,667 79,463 Total shares 1,144,029 603,081 882,782 589,954 Impairment carried to profit and loss (on a cumulative basis) 33,248 228,301
C. Other financial investments
Other financial investments include mainly investments in basket certificates, participation certificates in mutual funds, investment funds, financial derivates, future contracts, options and structured products. December 31 Carrying amount Cost *) 2009 2008 2009 2008 NIS in thousands Quoted Available-for-sale 569,073 239,224 463,045 222,911 Derivative instruments 465 1,715 200 142 Total quoted 569,538 240,939 463,245 223,053 Unquoted Presented at fair value through profit or loss 58,740 7,797 63,305 9,819 Available-for-sale 316,699 362,258 289,307 386,712 Derivative instruments 29,646 14,626 457 128 Total unquoted shares 405,085 384,681 353,069 396,659 Total shares 974,623 625,620 816,314 619,712 Impairment carried to profit and loss (on a cumulative basis) 85,754 82,911 *) Net of impairment provisions - 266 - WorldReginfo - 46d726c5-4d68-401f-9270-2f760ed6a13f