Bethel Finance: Insurance cos: Management fees reform will hurt

www.bethelfinance.com
In notices to the Tel Aviv Stock Exchange (TASE) today, insurance companies say that the management fees reform passed by the Knesset Finance Committee will have a material effect on their business, and that they were assessing the effects. The reform will cap management fees on provident and pension funds at substantially lower levels than the current prevailing rates.

Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), controlled by Nochi Dankner's controlled IDB Holding Corp. Ltd. (TASE:IDBH), said, "The coming into effect of the regulations and the change in the cap on management fees will likely result in a substantial reduction in the management fees that the group's investment institutions will collect as a consequence of the reduction of management fees on the accumulation at provident funds, and also with regard to current members… The introduction of the new regulations is also liable to increase the rate of cancellations of policies with high management fees previously sold by the company."

Clal Insurance added, "The management fees regulations will affect the company's profitability, the value of new transactions that will be sold in the future, the potential value of life insurance activity and supplementary pension funds, and the value of provident fund operations in the books. The coming into effect of the regulations is also liable to increase operating expenses, especially for finding new members and beneficiaries."

The reform caps management fees at 1.05% on the accumulation and 4% of deposits, beginning in 2014. Current fees range up to 2% on the accumulation.

Clal Insurance's statements were echoed by Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL), Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), Menorah Mivtachim Holdings Ltd. (TASE: MORA), and Yitzhak Tshuva-controlled The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) and its subsidiary Excellence Investments Ltd. (TASE: EXCE).

Insurance companies' share prices were mixed following the announcements. Clal Insurance's share price rose 0.8% by midday to NIS 52.20, giving a market cap of NIS 2.9 billion, Migdal's share price rose 1.8% to NIS 51.9, giving a market cap of NIS 5.4 billion, and Menorah's share price rose 0.4% to NIS 27.20, giving a market cap of NIS 1.7 billion. However, Harel's share price fell 0.2% by midday to NIS 122.80, giving a market cap of NIS 2.6 billion, and Phoenix and Excellence's share prices Insurance's share price were unchanged at NIS 9.23, giving a market cap of NIS 2 billion, and at NIS 0.42, giving a market cap of NIS 715 million, respectively.