Jul.12, 2012 | 6:45 AM–Israelis are living longer and as a result insurance stocks plunged yesterday, wiping out NIS 850 million of their value.

The two seemingly disconnected developments came together eysterday after the Finance Ministry administered a shock to the insurance industry by making changes in pensions for all Israelis who invested in whole life (as distinct from term ) insurance policies for their retirement (known in Israel as bituah menahalim, or executive insurance policies ).

Investors in insurance stocks panicked and shares plunged, wiping out NIS 850 million in value.

Oded Sarig, the commissioner of capital markets, insurance and savings in the Finance Ministry, informed insurance companies yesterday the treasury would require them to make huge accounting provisions for certain existing whole life insurance policies, and ban their sale as of the beginning of next year – because Israelis are living longer.

Sarig called a meeting in his office in Tel Aviv with senior executives of all the major insurance companies. He informed insurance company executives of the urgent meeting at the ministry’s Tel Aviv offices only on Tuesday – in a surprise move.

The upheaval in the insurance industry is the result of Israelis living much longer. The treasury expects life expectancy to rise by another year or two, both for men and women, when new statistics are released. The life expectancy tables the insurance companies now use were last updated in 2008. This will require insurance companies to increase their reserves for future payouts enormously, and cut their profits by an estimated NIS 700 million to NIS 800 million this year – and the Finance Ministry is worried about the stability of the entire industry.

Insurance company CEOs told Sarig yesterday they were disappointed and upset with how he chose to inform them of the changes, and only after first conducting a press briefing on the matter the previous day. Sarig apologized, saying he did not intend the story to leak out to the press first. The CEOs were also upset that the meeting was not held in secrecy, with the treasury leaking the location of the meeting to the press, resulting in the CEOs being greeted by a large media presence when they arrived at the Finance Ministry offices…Read More>>

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