Rating Action: Moody's Ratings downgrades The Phoenix Insurance Company's IFSR to Baa1 following sovereign rating action, outlook remains negative

9 October 2024

London, October 9, 2024 - Moody's Ratings (Moody's) has today downgraded to Baa1 from A2 the insurance financial strength ratings (IFSRs) of The Phoenix Insurance Company Ltd. (Phoenix Insurance). Phoenix Insurance is the principal insurance operating subsidiary of Phoenix Financial Ltd. (Phoenix, or Group), a diversified financial services group based in Israel. The outlook remains negative.

Today's rating action follows the downgrade on the Government of Israel's issuer rating to Baa1 from A2, with a negative outlook, on 27 September 2024. For further information on the sovereign rating action, please refer to our press release: "Moody's Ratings downgrades Israel's ratings to Baa1, maintains negative outlook" (https://ratings.moodys.com/ratings-news/429502).

RATINGS RATIONALE

The IFSR downgrade and negative outlook on Phoenix Insurance reflects the weakening credit profile of the Israeli government, as indicated by the two notch downgrade of the Government of Israel's issuer rating to Baa1 from A2 and the continuation of the negative outlook. We believe that, longer term, Israel's economy will be more durably weakened by the military conflict than previously expected, potentially leading to some pressure on Phoenix's financial profile.

We consider its credit fundamentals (profitability, asset quality, capitalisation and financial flexibility) to be correlated with - and thus linked to - the economic and market conditions in Israel, where Phoenix is domiciled, and derives its revenues and earnings. Moreover, Phoenix's investments are predominantly in domestic Israeli assets, including government bonds, corporate bonds and equities. At 30 June 2024, around 78% of its Nostro (shareholder) investments were held in a range of domestic assets (around 23% of which were designated government bonds[1] that specifically support guaranteed yield liabilities) amounting to around 227% of the Group shareholders' equity (approximately 160% without the designated government bonds).

The insurer's capital and liquidity buffers are substantial, resilient to a range of stress scenarios, including volatility in invested assets, and position Phoenix to absorb significant stress in the operating environment and on asset prices. However, we believe that the level of uncertainty, fluidity and downside risk inherent in the current operating environment preclude the insurer from being rated above the sovereign at this juncture.

Phoenix Insurance has maintained strong solvency and liquidity and continued to generate solid earnings since the start of the military conflict in October 2023, which is reflected in the resilience of its standalone credit profile which remains unchanged at an A2 score before the sovereign constraint.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Phoenix Insurance's ratings could be downgraded in the event of a further downgrade on the sovereign rating.

The outlook could be changed back to stable if the sovereign rating is affirmed with stable outlook or we consider that deterioration in the economy and operating environment will not have a material or sustained negative impact on Phoenix Insurance.

PRINCIPAL METHODOLOGIES

The methodologies used in these ratings were Life Insurers published in April 2024 and available at https://ratings.moodys.com/rmc-documents/418351, and Property and Casualty Insurers published in April 2024 and available at https://ratings.moodys.com/rmc-documents/418354. Alternatively, please see the Rating Methodologies page onhttps://ratings.moodys.comfor a copy of these methodologies.

REGULATORY DISCLOSURES

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REFERENCES/CITATIONS

[1] Designated government bonds in Israel are CPI linked, fixed-interest bonds issued to insurance companies to back life insurance liabilities with guaranteed yields.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Brandan Holmes VP-Sr Credit Officer Financial Institutions Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

Simon James Robin Ainsworth Associate Managing Director Financial Institutions Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London, E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

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