Harel Insurance Investments and Financial Services Ltd
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HAREL INSURANCE INVESTMENTS & FINANCIAL SERVICES LTD. Interim Statement As at march 31, 2012 The original language of these Interim Consolidated Statements is Hebrew. The Hebrew version shall prevail over any translation thereof. WorldReginfo - aedb5ad8-8a31-4ce4-8523-f5314907d50c Contents Page Condensed Interim Financial Statements at March 31, 2012 Board of Directors' Report on the state of the Company at March 31, 2012: 1-1 Auditors' Review 2-2 Condensed Interim Consolidated Financial Statements March 31, 2012 (Unaudited): Condensed interim consolidated statements on the financial position 2-4 Condensed interim consolidated statement of income and loss 2-6 Condensed interim consolidated Statements of comprehensive income 2-7 Condensed interim consolidated statements of changes in capital 2-8 Condensed interim consolidated statements of cash flows 2-11 Notes to the Condensed interim consolidated Financial Statements 2-15 Annex to the Condensed Consolidated Financial Statements: 2-73 Annex A - Harel Insurance Company Ltd. - Details of Assets in respect to yield dependent contracts and other financial investments. Annex B - Dikla Insurance Company Ltd. - Details of Assets in respect to yield dependent contracts and other financial investments. Annex C - EMI Ezer Mortgage Insurance Company Ltd. - Details of other financial investments Financial data from the consolidated statements relating to the Company itself 3-1 Report concerning the effectiveness of internal control 4-1 over financial reporting and disclosure Reports concerning Embedded Value in long-term policies WorldReginfo - aedb5ad8-8a31-4ce4-8523-f5314907d50c Board of Directors' Report WorldReginfo - aedb5ad8-8a31-4ce4-8523-f5314907d50c Harel Insurance Investments & Financial Board of Directors'' Report Services Ltd Three-months period ended March 31, 2112 Harel Insurance Investments & Financial Services Ltd. Board of Directors' Report For the three months ended March 31, 2012 The Board of Directors' Report for the three months ended March 31, 2012 ("the Reporting Period"), reflects the principal changes in the business situation of Harel Insurance Investments & Financial Services Ltd. ("Harel Investments" or "The Company") during this period, and it was prepared taking into account that the reader is also in possession of the Group's full Periodic Report for 2111 which was published on March 29, 2012 ("the Periodic Report"). The Board of Directors' Report in this chapter of the Periodic Report, also contains forward-looking information, as defined in the Securities Law, 5728-1968. Forward-looking information is uncertain information regarding the future, based on information that the Company has at the time of preparing the report and including the Company's estimates or intentions at the date of the report. Actual performance may differ substantially from the results estimated or inferred from this information. In certain instances, sections can be found that contain forward-looking information, where words such as: "the Company/the Group estimates", "the Company/the Group believes", "the Company/the Group anticipates", and the like appear, and such forward-looking information may also be worded differently. 1. Description of the Company 1.1. General Harel Insurance Investments and Financial Services Ltd. ("Harel Investments" or "the Company") is a public company, whose shares have been traded on the Tel Aviv Stock Exchange since 1982. The Company, together with its subsidiaries ("the Group") operates principally in the following areas: a) In various sectors of the insurance industry, the Company operates through the subsidiaries: Harel Insurance Company Ltd. (wholly controlled) ("Harel Insurance"); Dikla Insurance Company Ltd. (wholly controlled) ("Dikla"); Interasco Societe Anonyme General Insurance Company S.A.G.I. (in which the Company owns 9665% stake ("Interasco"), which operates in Greece in non-life insurance; Turk Nippon (in which the Company owns a 99698% stake), which operates in Turkey; ICIC - Israel Credit Insurance Company Ltd. (ICIC) (in which the Company has a 33.3.% stake); and E.M.I. - Ezer Mortgage Insurance Company Ltd. (wholly controlled), ("EMI"). In the long-term savings sector, the Company operates through subsidiaries which are provident funds and pension funds management companies, as follows: Provident funds management companies: Harel Gemel and study Ltd. (wholly controlled) ("Harel Gemel"), Atidit Provident Fund Ltd. (wholly controlled) ("Atidit Gemel"), and the Tzva Hakeva Savings Fund - Provident Funds Management Company Ltd. (wholly controlled) ("Tzva Hakeva"). Pension funds management companies: Harel Pension Funds Management Ltd. (wholly controlled) ("Harel Pension"); Manof Pension Funds Management Ltd. (wholly controlled) ("Manof"); and 1 -1 WorldReginfo - aedb5ad8-8a31-4ce4-8523-f5314907d50c Harel Insurance Investments & Financial Board of Directors'' Report Services Ltd Three-months period ended March 31, 2112 LeAtid Pension Funds Management Company Ltd. (in which the Company has a 79% stake), which manages an old pension fund ("LeAtid"). b) In the financial services and capital market sector, the Company operates through Harel Finance Ltd. ("Harel Finance") (wholly controlled by the Company) and its subsidiaries: Harel Pia Mutual Funds Ltd. ("Harel-Pia"), Harel Finance Securities and Trade Ltd. (which is a stock exchange member), Harel Finance Investments Management Ltd. (has a licensed investment advisor), Harel Financial Products Ltd. ("Harel Products") (which engages in financial products such as: ETFs, covered warrants and more). The products are offered to the public through the subsidiary Harel Sal Ltd. ("Harel Sal") which is a reporting corporation under the Securities Law and issues index products (covered warrants and ETFs) ) and through the subsidiary, Harel Sal Currencies Ltd. ("Harel Currencies"), which is a reporting corporation that issues deposit certificates on different currencies. The Group has been active in the insurance industry for approx. 75 years. According to the financial statements for 2011, the Group is Israel's third-largest Insurance Group, with a market share of approx. 20%. In health insurance the Group is the largest and most prominent in the market. In the non-life sectors the Group is the second-largest insurance group, and it holds fourth place regarding the volume of life-assurance premiums. In the new pension fund management sector, the Group has a market segment of about 13%. In the provident fund management sector, the Group has a market segment of about 7.6%. In the mutual fund management sector, the Group has a market segment of about 12%. The Company's own operations center on the management, control and supervision of the subsidiaries, on-going planning of the Group's operations, and the initiating of activity and investments both directly and through the Group's companies. 1.2. Companies share holders The Hamburger family (Yair Hamburger, Gideon Hamburger and Nurit Manor, through a holding company) holds 49.61% of the Company's shares. 2. Financial situation and results of operations, shareholders' equity and cash flow 2.1. Material changes in the Company's business during the Reporting Period 2.1.1. Merger of provident funds Pursuant to the provisions of the fourth amendment to the Control of Financial Services (Provident Funds) Law, 5765-2005, and the sixth amendment to the Economic Efficiency (Legislative Amendments for implementation of the Economic Plan for 2009 and 2010) Law, as amended in the eighth amendment to the Economic Efficiency (Legislative Amendment for the implementation of the Economic Plan for 2009 and 2010) Law, 5771-2011, a provident fund management company shall not manage more than one provident fund in each of the categories listed in the law from January 1, 2012. The Law also stipulates that the aforesaid provision does not apply to central severance pay provident funds. 1 -2 WorldReginfo - aedb5ad8-8a31-4ce4-8523-f5314907d50c Harel Insurance Investments & Financial Board of Directors'' Report Services Ltd Three-months period ended March 31, 2112 On January 1, 2012, Harel Gemel performed a merger of the provident funds that it manages: Harel-Taoz (a fund owned by Harel Insurance and managed by Harel Gemel), and Harel Provident Fund (a fund owned by Harel Gemel) (hereinafter together: "the Merging Funds") were merged into Harel Otzma such that the ownership structure of the merging funds' tracks is to be preserved. The merged fund will be called Harel Otzma-Taoz. Similarly, as part of the merger, the shekel investment track that had been part of Harel-Otzma was changed and became a short shekel track. The merger took place in accordance with the Commissioner's approval from October 5, 2011 and the approval of Income Tax from December 29, 2011. 2.1.2. Add 16 floors to the Crystal House On February 29, 2012, the subsidiary Harel Insurance Company Ltd. ("Harel Insurance") entered into agreement with El-Har Engineering & Construction Ltd. ("the Contractor") to add 16 floors of office space to the Crystal House, including related works required for the construction of these 16 floors ("the Project"). The Crystal House is an office block located at 12 Hachilazon St., Ramat Gan (Parcel 365, Block 6109, and part of Parcel 366 in Block 6109), consisting of 9 floors of offices above a gallery and lobby as well as a 5-story underground parking lot. The Crystal House was acquired by Harel Insurance on December 31, 2007 in consideration of NIS 200 million. The Project