Migdal presents: 22.4% return on equity - but what happened to the profit?

Migdal Holdings published its results for the second quarter of 2026, centered on one figure that stands out: a 22.4% return on equity for the quarter. This is a metric that measures how much profit the company generates for every shekel of equity, and at this level, Migdal positions itself among the leaders in the industry. For comparison, the strategic target set by Migdal for 2028 stands at only 16%-18% — so this quarter surpasses it by a nice margin.

Migdal's core profits — profit from ongoing insurance and operational activity, excluding capital market fluctuations — reached a record of 731 million shekels for the quarter, an increase of 5% compared to the corresponding quarter. But the total profit after tax amounted to only 575 million shekels, a meager increase of only 1% compared to 571 million last year.

This gap explains a lot. The corresponding quarter last year was already strong, so the basis for comparison is high. In addition, the current quarter recorded special effects that offset part of the profit. The bottom line: Migdal's core engine is working better than ever, but the tailwind from the stock market that existed last year no longer provides the same addition.

Cutting core profits by sector reveals an uneven picture. Long-term savings (LTS) was the star with a 32% jump to 239 million shekels, driven mainly by an increase in the CSM balance and an update to the actuarial model. Health insurance rose by 10%, and the agencies and financial services arm added 17%.

On the other hand, general insurance plummeted 38% to 111 million shekels — mainly due to a loss in property car insurance, where erosion in the average premium led to a transition to a loss. This is a weak point that should be monitored in future reports.

A central term that recurs in every insurance company report is the CSM — Contractual Service Margin. This is effectively a pool of future profit accumulated in savings and life policies, which is released to the report gradually. As it grows, the company has more "fuel" for profits in the coming years. The notable figure: the CSM created from new business in the quarter almost doubled to 242 million shekels, a growth of 97%. The total CSM balance reached 15.3 billion shekels.

In addition, Migdal collected variable management fees of about 656 million shekels in the half-year — management fees on old policies that are collected when the market is strong, and according to IFRS 17 standard, they do not enter the profit immediately but increase the CSM and feed future profit.

Migdal manages about 631 billion shekels — the pension, provident, and training fund money of millions of Israelis. The company emphasizes that it is the fastest-growing pension fund in Israel, with consistent positive migration. Premiums and contributions in the quarter rose 21% to 9.5 billion shekels — real growth in market share.

And the news for investors: the solvency ratio stands at 119% without transition provisions, above the 115% threshold that allows for dividend distribution. Migdal plans to return to distributing dividends as early as 2027 — after long years of avoidance.

Migdal's quarter is a story of quality versus quantity: the quality of core activity is excellent (record and 22.4% return on equity), but growth in the bottom line moderated due to a high comparison base. For the long-term investor, the filling CSM and the approaching dividend are the real story.

Migdal Insurance and Finance CEO, Ronen Agassi, stated:

"We are concluding the first half with a record profit from core activity, which is a result of the tight implementation of our business strategy across all lines of activity. The group presented a total profit of about 897 million shekels — growth of about 9% compared to the corresponding period last year, resulting from a significant increase in both core profits and investment profits. We are presenting growth of about 20% in premiums and contributions, alongside consistent growth in revenues and profitability. Our main growth engines continue to yield strong results, led by pension activity which grew by 16%, alongside a 38% jump in the provident sector. Migdal is establishing its position today as the fastest-growing pension fund in Israel, benefiting from consistent positive migration. The volume of assets under management, which constitutes a central pillar in our strategy, continued to grow and crossed the 631 billion shekel mark. These assets constitute a solid infrastructure for the continued profitable growth of the group. The upward trend in revenues from asset management continues (variable management fees amounted to about 656 million shekels in the half-year). The continuous increase is evidence of the quality of Migdal's asset portfolio and the competitive advantage inherent in the asset portfolio mix. At the same time, we are working to accelerate growth in general insurance, with an emphasis on retail products, and we expect that these moves will be reflected in profitability. We view Migdal's agency arm as a strategic asset. An important platform that allows for providing a shell for the end customer while improving the value proposition for them in a variety of areas. We are working to achieve dual-channel growth in the field, both organically and through mergers and acquisitions. This is an activity that generates stable and predictable cash flow, with low capital requirements and low dependence on capital market fluctuations. The results we are presenting today are a result of meticulous execution of work plans. The current momentum, which is already reflected in these reports, is expected to continue with greater force and bring us closer to achieving the strategic goals for 2028."