The Phoenix Holdings Ltd.

Regulatory Filings • Nov 30, 2022

Economic Solvency Ratio Report of The Phoenix Insurance Company Ltd. As of June 30, 2022

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Table of Contents

Page

Overview and Disclosure Requirements………………3
Definitions ………………4
Calculation Methodology ………………6
Section 1 - Economic Solvency Ratio and Minimum Capital Requirement….13
Section 2 - Economic Balance Sheet………………15
Section 2.A - Information about Economic Balance Sheet………………17
Section 2.B - Composition of liabilities in respect to insurance contracts and investment contracts ………………23
Section 3 - Shareholders' Equity in respect of SCR ………………24
Section 4 - Solvency Capital Requirement (SCR) ………………26
Section 5 - Minimum Capital Requirement (MCR)………………27
Section 6 - Effect of the Application of the Directives for the Transitional Period………………28
Section 7 - Dividend Distribution Restrictions………………30

Overview and Disclosure Requirements

Solvency II-based Economic Solvency Regime

The information provided below was calculated in accordance with the provisions of Circular 2020-1-15 of the Commissioner of the Capital Market, Insurance and Savings (hereinafter - the "Commissioner") - "Amendment to the Consolidated Circular concerning Implementation of a Solvency II-Based Economic Solvency Regime for Insurance Companies" (hereinafter - the "Economic Solvency Regime Directives"), was prepared and presented in accordance with Chapter 1, Part 4 Section 5 of the Consolidated Circular as revised in Circular 2022-1-8 (hereinafter - the "Disclosure Provisions").

The Economic Solvency Regime provisions set a standard model for calculating eligible capital and the regulatory solvency capital requirement (SCR), with the aim of bringing insurance companies to hold buffers to absorb losses arising from the materialization of unexpected risks to which they are exposed. The solvency ratio is the ratio between the eligible equity and the regulatory solvency capital requirement.

The eligible equity is composed of Tier 1 Capital and Tier 2 Capital. Tier 1 Capital includes equity calculated through assessing the economic value of an insurance company's assets and liabilities in accordance with the circular's provisions, and Additional Tier 1 Capital. Additional Tier 1 Capital and Tier 2 Capital include equity instruments with loss absorption mechanisms, including Subordinated Tier 2 Capital, Hybrid Tier 2 Capital and Tier 3 Capital, which were issued prior to the circular's effective date. The circular places restrictions on the composition of eligible equity for SCR and MCR purposes (see below), such that the rate of Additional Tier 1 capital shall not exceed 20% of the Tier 1 capital???, and such that the rate of components included in Tier 2 Capital shall not exceed 40% of the SCR without taking into account the transitional provisions and the equity scenario adjustment, and shall not exceed 50% of the SCR under the transitional provisions and taking into account the equity scenario adjustment.

The eligible capital is compared to the required capital when there are two levels of capital requirements:

• The capital required to maintain an insurance company's solvency (hereinafter "SCR"). The SCR is risk-sensitive, and is based on forward-looking calculation of the impact of the materialization of different scenarios, while taking into account the correlation of the different risk factors, based on the guidance in the Economic Solvency Regime Directives.
• Minimum capital requirement (hereinafter "MCR" or "Capital Threshold"). In accordance with the Economic Solvency Regime Directives, the Capital Threshold shall be equal to the highest of the amount of the minimum Tier 1 capital required under the "Requirements of the Previous Capital Regime" and an amount derived from insurance reserves and premiums (as defined in the Solvency Circular), with a floor of 25% and a cap of 45% of the SCR.

The eligible capital and the required capital are calculated using data and models which are based, among other things, on forecasts and assumptions that rely mainly on past experience. These calculations are highly complex.

The Economic Solvency Regime Directives include, among other things, transitional provisions and adjusting the stock scenario, as follows:

A. Selecting on of the following alternatives:

• 1. Gradual transition to the required capital until 2024 (hereinafter the "Transitional Period"), such that the required capital shall increase gradually by 5% per year, starting with 60% of the SCR up to the full SCR amount.
• 1. Increasing the eligible capital by deducting from the insurance reserves an amount that will be calculated in accordance with Section c below. The deduction amount will decrease gradually until 2032 (hereinafter: the "Deduction During the Transitional Period").

The Company opted for the second alternative of using the Deduction During the Transitional Period, after receiving the Commissioner's approval.

B. In addition to Section A above, the Economic Solvency Regime includes a reduced capital requirement, that will increase gradually until 2023, in respect of certain investment types.

Forward-looking information

The data included in this Economic Solvency Ratio Report, including the eligible and the required capital for solvency purposes are based, among other things, on forecasts, assessments, and estimates of future events, the materialization of which is uncertain and is not under the Company's control, and which should be considered as "forward-looking information" as the term is defined in Section 32A to the Securities Law, 1968. Actual results may differ from the results reflected in this Economic Solvency Ratio Report, if such forecasts, assessments and estimates, either in whole or in part, fail to materialize or materialize in a manner different than anticipated, including, among other things, with respect to actuarial assumptions (including mortality rates, morbidity rates, recovery rates, cancellations, expenses, uptake of pension benefits, rate of release of the risk margin and underwriting earnings rate), assumptions regarding future management actions, risk-free interest rates, capital market returns, future revenue, and damage in catastrophe scenarios.

Definitions

The Company	-	The Phoenix Insurance Company Ltd.
The Economic Solvency Regime Directives	-	The provisions of Circular 2020-1-15 of the Commissioner of the Capital Market, Insurance and Savings (hereinafter - the "Commissioner") - "Amendment to the Consolidated Circular concerning Implementation of a Solvency II-Based Economic Solvency Regime for Insurance Companies" (hereinafter - the "Solvency Circular"), including its explanations.
Best estimate	-	Expected future cash flows from insurance contracts and investment contracts throughout their term, without conservatism margins and discounted by an adjusted risk-free interest.
Long-term health insurance (SLT)	-	Health insurance that is conducted similarly to life insurance.
Short-term health insurance (NSLT)	-	Health insurance that is deemed to be written on a similar technical basis as property and casualty insurance.
Basic solvency capital requirement (BSCR)	-	The capital required from an insurance company to maintain its solvency, calculated in accordance with the Economic Solvency Regime Directives, without taking into account the capital required due to operational risk, adjustment to loss absorption due to deferred tax and required capital due to management companies.
Solvency capital requirement (SCR)	-	Total capital required from an insurance company to maintain its solvency, calculated in accordance with the Economic Solvency Regime Directives.
Recognized shareholders equity	-	Total Tier 1 Capital and Tier 2 Capital of an insurance company, after deductions and amortization in accordance with the provisions of Part B of the Appendix to the Solvency Circular.
Basic Tier 1 capital	-	Excess of assets over liabilities in the economic balance sheet, net of unrecognized assets and dividend declared subsequent to balance sheet date and until the report's initial publication date.
Additional Tier 1 capital	-	Perpetual capital note, non-cumulative preferred shares, Restricted Tier 1 capital instrument, Additional Tier 1 capital instrument - valued in accordance with the provisions of Part A of the Appendix to the Solvency Circular.
Tier 2 capital	-	Tier 2 Capital instruments, Subordinated Tier 2 Capital, Hybrid Tier 2, Additional Tier 1 Capital instrument that was not included in Tier 1 and Hybrid Tier 3 Capital - valued in accordance with the provisions of Part A of the Appendix to the Solvency Circular.
The Commissioner	-	Commissioner of the Capital Market, Insurance and Savings Authority.

Effect of diversification of risk components	-	Effect of the partial correlation between different risks in the model on their amounts; the greater the diversification between operating segments in the portfolio and the diversification between risks, the greater is the effect of the correlation, which reduces the overall risk.
Solvency ratio	-	The ratio between the eligible equity of an insurance company and the solvency capital requirement.
Symmetric Adjustment (SA)	-	Anti-cyclical component designed to adjust the capital required in respect of the shares risk to the changes in share prices, as set out in the provisions in Part C in the Economic Solvency Regime directives.
Stock scenario adjustment	-	A reduced capital requirement for certain types of investments that will gradually increase until 2023, when the capital requirement in respect of these investments will reach its maximum rate.
Economic balance sheet	-	The Company's balance sheet with the value of assets and liabilities adjusted in accordance with the provisions of Part A of the Solvency Circular.
Risk margin (RM)	-	An amount that reflects the total cost of capital that is expected to be required from another insurance company or reinsurer in order to assume the Company's insurance liabilities.
Deduction During the Transitional Period (hereinafter - the "Deduction Amount")	-	The amount deducted from insurance reserves during the Transitional Period, as described in Section 2a(2) above, and in accordance with the Economic Solvency Regime Directives.
Minimum capital requirement (MCR)	-	The minimum capital required from an insurance company, calculated in accordance with Chapter C of the Solvency Circular.
EPIFP	-	Expected Profit in Future Premiums; the future profit from liabilities in respect of existing life and health insurance contracts arises from future premiums.
Transitional Period	-	Under the transitional provisions for the implementation of an Economic Solvency Regime - a period running until December 31, 2032.
UFR	-	Ultimate Forward Rate - the latest forward interest rate derived from the expected long-term real interest rate and the long-term inflation expectations to which the adjusted interest-rate curve converges, in accordance with the Economic Solvency Regime Directives.
Volatility Adjustment (VA)	-	A component reflecting the margin implicit in a representative debt assets portfolio of insurance companies and added to the adjusted interest-rate curve in accordance with Economic Solvency Regime Directives.

Audited	- The term refers to an audit held by an independent auditor in accordance International Standard on Assurance Engagement (ISAE) 3400 – "The Examination of Prospective Financial Information".
Investment Rules Regulations	- Supervision of Financial Services Regulations (Provident Funds) (Investment Rules Applicable to Institutional Entities), 2012.
Adjusted Risk Free Interest	Interest-rate curve set by the Commissioner which is based on the real yield to maturity of bonds of the Government of Israel ("risk-free interest"), with convergence in the long-term to a fixed real rate of 2.6% (UFR) plus a margin (VA) that was set by the Commissioner

Calculation Methodology

The Economic Solvency Ratio Report as of June 30, 2022, and December 31, 2021, was calculated and prepared in accordance with the Economic Solvency Regime Directives.

Economic balance sheet

The economic balance sheet is calculated in accordance with the detailed rules and directives published by the Commissioner, which are based on the European Solvency II rules, with adjustments to reflect the characteristics of the economic environment and products in Israel. The purpose of the rules is to reflect the economic value of the balance sheet items in accordance with the Commissioner's approach. In accordance with the Directives, the insurance liabilities are calculated based on the best estimate of all expected future cash flows from existing businesses, without conservatism margins and plus a risk margin, which represents the addition to the insurance liabilities that is expected to be required from another insurance company to assume the insurance company's insurance liabilities. In accordance with the Directives, the risk margin is calculated using the cost of capital method, at a rate of 6% per year of the expected required capital in respect of insurance risks over the life of the existing businesses as described below. The economic balance sheet is prepared based on the Company's standalone financial statements plus investees, whose main occupation is holding rights in real estate. The economic balance sheet attributes zero value to intangible assets and deferred acquisition costs other than investment in "Insurtech" as defined in the Economic Solvency Regime Directives, and the Commissioner's approval in that respect was obtained, as required.

Increasing economic capital according to the transitional provisions

As aforesaid, the Company opted for the current alternative provided by the transitional provisions, whereby the economic capital may be increased by gradually deducting from the insurance reserves until 2032 (hereinafter - the "Deduction During the Transitional Period" or the "Deduction Amount"). With regard to the Deduction during the Transitional Period, a letter was addressed to insurance companies managers titled "Principles for calculating Deduction during the Transitional Period in the Solvency IIbased Economic Solvency Regime" (hereinafter - the "Letter of Principles"). Pursuant to the Letter of Principles, the Deduction During the Transitional Period shall be calculated by dividing insurance policies issued through December 31, 2016, into homogeneous risk groups. The aforesaid deduction shall be calculated as the difference between insurance reserves (retention) as per the economic balance sheet including the risk margin attributed thereto (without adjusting the fair value of designated bonds) and the insurance reserves (retention) as per the Financial Statements. This difference shall be deducted on a linear basis until December 31, 2032.

The Company should ensure that the deduction balance at each reporting date (hereinafter - the "Deduction Value During the Transitional Period") shall be proportionate to the expected increase in the solvency ratio calculated excluding expedients during the Transitional Period.

The Deduction During the Transitional Period shall be recalculated in subsequent periods in the following instances:

• (a) Every two years, after obtaining the Commissioner's approval;
• (b) If a material change occurred in the risk profile or the business structure of the insurance company;
• (c) At the request of the Commissioner, if he/she believed that circumstances have changed since approval was given.

Additionally, Section 3(C) of the letter "Principles for Calculating the Deduction During the Transitional Period in the Solvency II-based Economic Solvency Regime" of October 15, 2020 (hereinafter – the "Letter of Principles") stipulates that an insurance company will determine qualitative and quantitative tests for cases in which the Deduction During the Transitional Period is recalculated and the Deduction During the Transitional Period will be recalculated, at least, in the following cases:

• 1. A material change in the risk-free interest rate curve;
• 1. A material change in the value of the Company's assets;
• 1. A material change in the demographic and operational assumptions underlying calculation of the insurance reserves;
• 1. A material change in the Company's business structure relevant to the Deduction During the Transitional Period;
• 1. A material change in the reinsurance agreements of businesses relevant to the Deduction During the Transitional Period.

In accordance with the provisions of Subsection (a) above, the Deduction during the Transitional Period as of December 31 2021 was recalculated two years after it was calculated for the first time (after the approval of the Commissioner).

In view of material changes in the interest rate curve, implementation of the study on retirement age and uptake of pension benefits (hereinafter – the "Study"), and adjustment of the demographic assumptions and mortality improvement model for insurance companies and pension funds (hereinafter – the "Circular"), in the period between December 31, 2021 and the calculation date, the Company believed that the conditions for recalculation of the Deduction During the Transitional Period have been fulfilled as at June 30, 2022. The Company obtained the Commissioner's approval for the recalculation. For further information about the Deduction Amount, see Section 2A(2) below.

For further information about the changes in the interest rate curve, the Study, and the Circular, see Section 1A below.

Solvency capital requirement (SCR)

The calculation of the solvency capital requirement is based on an assessment of the economic equity's exposure to the following risk components set in the Economic Solvency Regime: life insurance risks, health insurance risks, property and casualty insurance risks, market risks and counter-party default risks. These risk components include sub-risk components with respect to specific risks to which the insurance company is exposed. The exposure assessment of the economic equity to each sub-risk component is carried out based on a defined scenario set out in the guidance. The determination of the solvency capital

requirement is based on the sum of the capital requirements in respect of the risk components and the sub-risk components, as stated above, net of the effect of the diversification between the risks in the Company in accordance with the correlations assigned to them under the Directives, and net of an adjustment for loss absorption due to deferred tax, as set out below. Furthermore, the calculation of the solvency capital requirement includes components of capital required in respect of operational risk and in respect of management companies (where relevant).

The capital requirement in respect of each of the risks is calculated in accordance with the Company's exposure to that risk, taking into account the parameters set in the Directives. In accordance with the Directives, the amount of the required capital represents the scope of equity that will allow the insurance company to absorb unexpected losses in the forthcoming year and meet its obligations to policyholders and beneficiaries on time, with a 99.5% certainty level.

Loss absorption adjustment due to deferred tax asset

In accordance with the Economic Solvency Regime Directives, an insurance company may recognize a loss absorption adjustment with respect to deferred tax assets up to the amount of the balance of the deferred tax reserve included in the economic balance sheet plus a tax asset against future profits up to 5% of the basic solvency capital requirement (BSCR), provided that the following conditions are met:

• The insurance company is able to demonstrate to the Commissioner that it is probable that it will have future taxable income against which the tax assets may be utilized.
• The future profits shall arise only from property and casualty insurance or from Not Similar to Life Techniques (NSLT) (short term health insurance) only.

C. Comments and clarifications

1. General

The economic solvency ratio report includes, among other things, forecasts based on assumptions and parameters based on past experience, as they arise from actuarial studies conducted from time to time, and on Company's assessments regarding the future, to the extent that it has relevant and concrete information which can be relied upon. The information and studies are similar to those used as the basis for the Company's financial June 30, 2022 report. Any information or studies obtained or completed after the Company's June 30, 2022 report publication date were not taken into account.

In the reporting period, the Company applied a study on retirement age and uptake of pension benefits (hereinafter – the "Study"), and the Company also applied the circular regarding amendment of the provisions of the consolidated circular on the adjustment of demographic assumptions and the mortality improvement model for insurance companies and pension funds (hereinafter – the "Circular"). For further information about the Study and the Circular, see Section 1A below.

It should be emphasized that in view of the reforms in the capital, insurance and savings market and the changes in the economic environment, past data are not necessarily indicative of future results,

and the Company is unable to reliably assess the effect of the reform and the changes. The calculation is sometimes based on assumptions regarding future events and steps taken by management, that will not necessarily materialize or will materialize in a manner different than the assumptions used in the calculation. Furthermore, actual results may materially vary from the calculation, since the combined scenarios of events may materialize in a manner that is materially different than the assumptions made in the calculation.

It should be emphasized that the results of the models used in the calculation of the eligible equity and the solvency required capital are highly sensitive to the forecasts and assumptions included therein, as well as to the manner by which the Directives are implemented. The economic solvency ratio is highly sensitive to market variables and other variables, and accordingly may be volatile.

2. Practical effects of legislation and regulation in the reporting period

Amendment to provisions of the Consolidated Circular on Measurement of Liabilities – Revised Demographic Assumptions in Life Insurance and for Pension Funds – In June 2022, the Commissioner published a circular on "Amendment to the Provisions of the Consolidated Circular on Measurement of Liabilities – Revised Demographic Assumptions in Life Insurance and for Pension Funds". The Circular lists updated default assumptions on the basis of which insurance companies will calculate the liabilities in respect of life insurance policies, which allow them to receive an annuity according to guaranteed conversion rates based on up-to-date demographic assumptions. The Circular refers, among other things, to a change in life expectancy, including future improvements, and the resulting consequences for the level of reserves and how they are created. In addition, the circular includes a new life table for retirees of insurance companies, which is based, among other things, on past experience regarding mortality of retirees of insurance companies. The Company has updated its estimates of pension liabilities based on the new life table and future life expectancy improvements included in the Circular.

For further details, please see section 1.a below.

3. Future effects of legislation and regulatory measures known as of the report's publication date and exposure to contingent liabilities

a) The field of insurance has been subject to frequent changes in relevant legislation and regulatory directives. For more information, see Sections 2.1.2 and 2.3.1. In Part B and Section 4.1 in Part D of the Description of the Corporation Business chapter in the 2021 Periodic Report and in Section 2.2 and Section 2.3 to the Report of the Board of Directors for the period ended September 30, 2022.

Legislation and regulatory measures impact the Company's profits and cash flows and consequently also its economic solvency ratio. The calculation of the solvency ratio does not reflect all potential effects of the aforesaid legislation and regulatory measures and of other developments that are not yet reflected in practice in the data; this is since to date the Company

is unable to assess their entire effect on its business results and solvency ratio. With regard to this matter, it should be noted that there is significant uncertainty in the context of the effect of the application of IFRS 17 and its various components; the standard is due to come into effect in Israel starting in the financial statements as of January 1, 2024. The manner by which this standard will be applied in the financial statements may affect the results of the calculation of the solvency ratio, and at this stage the Company is unable to assess this effect.

• b) In accordance with the Economic Solvency Regime Directives, the value of contingent liabilities in the economic balance sheet is determined based on their value in the accounting balance sheet in accordance with the provisions of IAS 37; this measurement does not reflect their economic value. It is not possible to assess the effect of the uncertainty arising from the exposure to contingent liabilities, including such exposure's effect on the Company's future profits and economic solvency ratio. For further information regarding the exposure to contingent liabilities as at December 31, 2021, please see Note 39 to the financial statements as at December 31, 2021. For an update as to developments in this exposure after reporting date, see Note 6 to the financial statements as of September 30, 2022.
• c) On September 20, 2022, the Commissioner published "Amendment to the Provisions of the Consolidated Circular - Title 6, Part 3, Chapter 1 - Adjusting Rates in Updated Health Policies" (Insurance Circular 1-13-2022), hereinafter - the "Rate Adjustment Circular". The Circular sets out terms and conditions according to which an insurance company may adjust the premium in medical expense policies, without obtaining the Commissioner's approval. The Circular applies to insurance plans for private individual medical expenses that will be marketed or renewed subsequent to the publication date of the Circular. Accordingly, the Circular will apply to medical expense policies sold starting from February 1, 2016 (starting from their next renewal date).

The Company is studying the proper methodology to include the effects of the Rate Adjustment Circular in the calculation of the economic solvency ratio as of December 31, 2022.

The Rate Adjustment Circular is expected to have a positive effect on the Company's solvency ratio, due to the possibility of future rate adjustments if there is a material deterioration in the results of the relevant policies, and accordingly, a reduction in the capital requirement, the risk margin (RM), and the best estimate for these policies.

Section 1 - Economic solvency ratio and minimum capital requirement (MCR)

A. Economic solvency ratio

	June 30, 2022	December 31, 2021
	Unaudited and unreviewed *)	Audited **)
	In NIS thousand
Shareholders equity in respect of SCR - please see Section 3	14,471,436	14,212,110
Solvency capital requirement (SCR) - please see Section 4	7,156,530	7,666,458
Surplus	7,314,906	6,545,652
Economic solvency ratio (in %)	202%	185%
Effect of material capital-related measures taken in the period between the calculation date and the publication date of the solvency ratio report:
Raising of capital instruments***	-	346,133
Shareholders equity in respect of SCR	14,471,436	14,558,243
Surplus	7,314,906	6,891,784
Economic solvency ratio (in %)	202%	190%

• ** Any reference made in this report to the term "Unaudited and unreviewed", shall be construed that the results as of June 30, 2022 was not audited and not reviewed by the company auditor.
• ** Any reference made in this report to the term "audited", shall be construed as an audit held by an independent auditor in accordance with International Standard on Assurance Engagements No. 3400 - The Examination of Prospective Financial Information.
• *** Subsequent to the balance sheet date, on June 30, 2022, the Company issued NIS 400 million Tier 2 capital, which was not recognized in the solvency ratio calculation due to the quantitative limit. The amount of capital raised for December 31, 2021 is composed of raising Tier 2 capital in the amount of NIS 270 million, of which an amount of NIS 8 million was not recognized, since it exceeded the quantitative cap under the transitional provisions, and a capital injection in the amount of NIS 84 million due to the transfer of Phoeniclass Ltd. from The Phoenix Holdings to The Phoenix Insurance, net of the capital requirements. For further details in connection with the transfer of Phoeniclass Ltd., see immediate report dated May 17, 2022 (Ref. No. 2022-02-048480).

For details regarding the economic solvency ratio without applying the transitional provisions for the Transitional Period, and without adjusting the stock scenario, and regarding the economic solvency ratio and restrictions applicable to the Company in connection with dividend distribution, see Section 9 below.

Explanations to main changes in capital surplus and in the economic solvency ratio compared to 31 of December, 2021:

In the reporting period, there was a material increase in the risk-free interest rate curve. The increase in the interest rate significantly increased the capital surplus as well as the solvency ratio of the Company.

• During the reporting period, the Company implemented a study on retirement age and pension uptake rates (hereinafter - the "Study"). The Study affects the assumptions used to estimate liabilities in life insurance policies and has a material positive effect of approximately 19% on the solvency ratio in the transitional period (including the effect on the recalculation of the transitional deduction amount).
• On June 30, 2022, the Capital Market, Insurance and Savings Authority issued a circular amending the provisions of the consolidated circular regarding updating the demographic assumption system and a mortality improvement model for insurance companies and pension funds (hereinafter - the "Circular"). The Circular affects the assumptions used to calculate liabilities and coefficients in life insurance policies and has a material negative effect of approximately 6% on the solvency ratio in the transitional period )including the effect on the recalculation of the transitional deduction amount).
• The Company recalculated the value of the Deduction During the Transitional Period as of June 30, 2022 (in accordance with Section C above and due to material changes in the interest rate curve, application of the Study, and application of the Circular) and obtained the Commissioner's approval. Following the recalculation, there was a material decrease in the Deduction Amount as of June 30, 2022, and accordingly, a decrease in the capital surplus and solvency ratio of the Company. For more information about the recalculation of the Deduction Amount in respect of the Transitional Period, see Section 2A(2) below.
• Negative returns on the planholders' portfolios and the nostro portfolio resulted in a decrease in the Company's Tier 1 capital, and on the other hand, a decrease in the capital requirement, due to the decrease in exposure to risk assets and a decrease in the stock scenario (decrease in the symmetric adjustment component ("SA") in the scenario derived from changes in the Tel Aviv 125 Index). On a cumulative basis, these returns resulted in a decrease in the capital surplus and economic solvency ratio of the Company.
• The expiry of the capital requirement in respect of existing life and health insurance products reduces the solvency capital requirement and the risk margin (RM), and accordingly has a positive effect on capital surplus and on the Company's solvency ratio.
• The economic solvency ratio as of June 30, 2022, include a cash dividend of NIS 115 million, which was distributed in the third quarter of 2022.
• For details regarding capital-related measures subsequent to balance sheet date, see footnote in the above table.

B. Minimum capital requirement (MCR)

	June 30, 2022 Unaudited and	December 31, 2021
	unreviewed Audited In NIS thousand
Minimum capital requirement (MCR) - see Section 5.A	1,835,354	1,916,615
Shareholders equity for MCR - please see Section 5.B	11,260,239	11,024,131

Section 2 - Economic Balance Sheet

		June 30, 2022		December 31, 2021
	Information about economic balance sheet	Balance sheet according to accounting standards	Economic balance sheet	Balance sheet according to accounting standards	Economic balance sheet
		Unaudited and unreviewed			Audited
			In NIS thousand
Assets
Intangible assets	3	762,425	170,219	737,837	182,549
Deferred acquisition costs	4	1,665,776	-	1,546,640	-
Property, plant & equipment		712,947	712,947	664,260	664,260
Investments in investees that are not insurance companies
Other investees	5	1,292,677	1,184,083	1,218,919	1,050,901
Total investments in investees that are not insurance
companies		1,292,67	1,184,083	1,218,919	1,050,901
Investment property in respect of yield-dependent contracts		1,903,600	1,903,600	2,062,862	2,062,862
Investment property - other		1,076,507	1,076,508	1,163,326	1,163,326
Reinsurance assets - see Section 2B	1	3,167,199	2,830,716	2,806,547	2,854,776
Receivables and debit balances	10	1,704,235	1,633,868	1,296,998	1,208,197
Financial investments in respect of yield-dependent contracts		78,267,921	78,267,921	81,098,659	81,098,659
Other financial investments
Marketable debt assets		6,312,247	6,312,247	7,373,137	7,373,137
Non-marketable debt assets, excluding designated bonds	6	6,564,124	6,613,862	5,063,042	5,381,798
Designated bonds	7	7,542,200	10,287,990	7,283,101	10,508,179
Shares		2,144,175	2,144,175	2,602,173	2,602,173
Other		4,358,036	4,358,036	4,401,363	4,401,363
Total other financial investments		26,920,782	29,716,310	26,722,816	30,266,650

		June 30, 2022		December 31, 2021
	Information about economic balance sheet	Balance sheet according to accounting standards	Economic balance sheet	Balance sheet according to accounting standards	Economic balance sheet
		Unaudited and unreviewed			Audited
				In NIS thousand
Cash and cash equivalents in respect of yield-dependent contracts		14,789,357	14,789,357	13,785,593	13,785,593
Other cash and cash equivalents		1,981,770	1,981,769	1,701,538	1,701,538
Other assets				68,796	68,796
Total assets		134,245,196	134,267,298	134,874,791	136,108,107
Total assets in respect of yield-dependent contracts		95,216,686	95,422,038	97,116,663	97,359,035
EQUITY
Basic Tier 1 capital		6,324,500	9,849,450	6,591,521	9,912,145
Total equity		6,324,500	9,849,450	6,591,521	9,912,145
Liabilities
Liabilities in respect of insurance contracts and non-yield dependent investment contracts - see Section 2B	1, 8	24,403,415	18,819,821	24,244,035	19,160,551
Liabilities in respect of insurance contracts and yield-dependent investment contracts - see Section
2B	1, 8	93,188,956	90,010,667	95,691,151	93,633,187
Risk margin (RM)	1	-	7,098,086	-	7,741,372
Deduction During the Transitional Period	2		(3,554,314)		(4,710,468)
Liabilities in respect of deferred taxes, net	9	421,249	2,309,613	740,115	2,553,079
Payables and credit balances	4,10	2,711,309	2,571,719	2,544,900	2,414,757
Financial liabilities	11	7,195,766	7,162,257	5,063,068	5,403,484
Total liabilities		127,920,695	124,417,848	128,283,269	126,195,962
Total equity and liabilities		134,245,196	134,267,298	134,874,790	136,108,107

Main Changes in relation to 31 of December, 2021

• For explanations about key changes in Tier 1 Capital, see Section 3 above.
• For further information about the changes in the Deduction During the Transitional Period, see Section 2A(2) below.

Section 2.A Information about economic balance sheet

The fair value of assets and liabilities in the economic balance sheet was calculated in accordance with the provisions included in the chapter dealing with measurement of assets and liabilities for financial statements purposes in the Consolidated Circular (Regulation Codex), except for items for which other provisions apply as per the Solvency Circular, as follows:

(1) Liabilities in respect to insurance contracts, risk margin (RM) and investment contracts and reinsurance assets

Liabilities in respect of insurance contracts and investment contracts are calculated in accordance with Part A Chapter 4 of the Solvency Circular based on a best estimate (hereafter - "BE" or "Best Estimate") on the basis of assumptions that are mainly a result of projecting to the future existing experience relating to past events, within the environment in which the Company operates, and without conservatism factors. As a rule, with respect to life and Health SLT liabilities, the Company applied the embedded value (EV) calculation methodology in Israel, and with respect to property and casualty insurance - on the basis of the section in the Commissioner Position entitled "Best Practice for Calculation of Insurance Reserves in Property and Casualty Insurance for Financial Reporting Purposes".

The calculation of the liabilities in respect of life insurance contracts and long-term health insurance (SLT) contracts was carried out by discounting the Company's projected cash flows using a model applied to information available in the Company's operational systems as to insurance coverages, and to many demographic, economic and behavioral assumptions. The projected cash flows include, for example, projected premiums in view of the expected cancellation rates, net of the expenses that the Company will incur in respect of the coverages, including fees and commissions to agents, expected claims, etc.

This cash flow is discounted based on an interest-rate curve set by the Commissioner which is based on the real yield to maturity of bonds of the Government of Israel ("risk-free interest"), with convergence in the long-term to a fixed real rate of 2.6% (UFR) plus a margin (VA) that was set by the Commissioner.

The calculation of the liabilities does not include cash flows in respect of future sales; however, it does include an assumption that the Company will continue receiving premiums from existing businesses (excluding in respect of policies without an insurance risk, including investment contracts). Furthermore, the calculation assumes that the Company shall continue as a going concern, i.e., that the Company's activity will not change, and therefore, some of the fixed expenses in the future shall not be allocated to the current portfolio, but rather to a new business which is expected to be sold in the future.

It is likely that the actual cash flows will vary to some degree on another from the estimates made on a best estimate basis, even if the underlying parameters of the calculation will not change in any way. See also Section D1 above - comments and clarifications.

As stated above, the measurement of the insurance liabilities in the economic balance sheet is carried out by discounting the projected cash flows, including future profit, by a risk-free interest plus VAT and

taking the UFR into consideration, on the basis of a best estimate that does not include conservatism margins, where the risk is reflected in the RM component, which is a separate liability. This measurement differs from the measurement applied in the financial statements, where insurance liabilities are estimated with conservatism margins using the discounting methods and rates described in Note 37 to the 2021 financial statements.

Risk margin - In addition to the insurance liabilities based on an optimal assessment, a component of the risk margin is calculated which reflects the total cost of capital that another insurance company would be expected to require in order to receive the insurance company's total insurance liabilities, calculated on the basis of an optimal assessment. The risk margin is calculated in accordance with the Commissioner's Directives, based on a capital cost rate of 6%, and is discounted at an adjusted risk-free interest rate, but excluding the VA component and based on current and future capital requirements. The future capital requirement is calculated in accordance with the "risk factor method", by changing the capital requirement components calculated as of the reporting date in accordance with the projected development of the risk factors attributed thereto. These factors are designed to reflect the development of the standard model risks over time. The calculation does not take into account the capital requirement in respect of market risks.

Limitations and qualifications with regard to calculation of the best estimate

• Generally, the underlying assumptions of the models were formulated mainly on the basis of studies and analyses which are based on Company's experience over the past few years, which did not include extreme events. Although there is low probability that extreme events will occur, the Company is unable to estimate this probability or the extent of the effect of those events. Accordingly, such events were not taken into account in the determination of the models' underlying assumptions.
• The determination of the BE is supposed to be based on an estimation of the distribution of the potential BEs. With no available significant statistical data that can be used to evaluate the distribution of BE for all demographic and operational factors in life and health SLT, the Company used real assumptions of each and every parameter, according to the expected value of each relevant factor, without taking into account any correlation or dependency between the different assumptions, or between the assumptions and external economic parameters such as taxation, interest or employment levels in Israel. Since the Company did not have sufficient data, when calculating the BE, it did not check the level of correlation between demographic and operational assumptions (such as the rate of cancellations) and assumptions pertaining to market conditions (such as the interest rate), which may materially affect the BE.
• In many cases, the future cash flows refer to periods of tens of years into the future. The studies on which the underlying cash flow assumptions rely are based on management's best knowledge, mainly recent years' experience. It is highly uncertain whether the underlying cash flow assumptions will,

indeed, materialize, including as a result of future regulatory changes which may have a material effect.

Limitations and qualifications with regard to calculation of the RM

The risk margin is calculated using the cost of capital method, at a rate of 6% in accordance with the guidance of the Economic Solvency Regime, and this rate does not necessarily reflect the cost of capital that is expected to be required from another insurance company or reinsurer in order to assume the Company's insurance liabilities. In this context, it should be emphasized that the capital requirements are based on the model used to calculate the best estimate, despite its limitations as described above.

Assumptions underlying the insurance liabilities calculation

Demographic and operating assumptions

The calculation's underlying assumptions were set in accordance with the Company's best estimates of relevant demographic and operational factors, and reflect the Company's expectations as to the future in respect of these factors. The demographic assumptions included in the calculation were taken from Company's internal studies, if any, and conclusions reached as a result of exercising professional judgment, based on relevant experience and the integration of information received from external sources, such as information from reinsurers and mortality and morbidity tables published by the Commissioner.

The operational assumptions (general and administrative expenses) were calculated in accordance with the results of the Company's internal pricing model applied to expenses relating to the relevant insurance liabilities, including: allocation of expenses to the different segments and activities (issuance, current management, investments, claims management, etc.) and assumptions regarding their future development (in accordance with the CPI, scope of premiums and assets, etc.).

Set forth below are the key assumptions on which the Company relied in the calculations:

A) Economic assumptions

• Discount rate risk-free interest curve based on the yield to maturity of bonds of the Government of Israel (hereinafter - "risk-free interest") plus a margin (VA), with convergence in the long-term to a fixed real rate of 2.6% (UFR) as set by the Commissioner (hereinafter the "Discount Rate").
• The yield on the assets backing the life and long-term health insurance products is identical to the Discount Rate (except for the assumed yield in respect of designated bonds).

The yield on designated bonds takes into account their interest rate and the best estimate as to the Company's future entitlement to purchase them. In that context, it should be noted that in

February 2022, the Commissioner published a draft for insurance companies' managers, whose aim is to assess the manner of allocating the designated bonds, in accordance with the future implementation IFRS 17. Since the said draft is merely a preliminary draft and the directives are not final, it is not yet possible to assess those effects on the solvency ratio and the economic balance sheet.

B) Operational assumptions (for life and health insurance)

General and administrative expenses - the Company analyzed the expenses allocated in the financial statements to the relevant insurance segments, and allocated them to various products and coverage types and to various activities such as current operating of the coverages, investment management, handling claims, payment of pensions and more. The expenses study is revised periodically and the different types of expenses are carried to the future cash flow in relation to the relevant factors, such as the number of coverages, premiums, reserves or claims. The determination of the future expense and their allocation to future cash flows include many assessments and judgments by the Company, which affect the amount of the liabilities.

C) Demographic assumptions

• Lapses (discontinuation of premium payment, settlement of policies, withdrawals).
• Mortality of pensioners and planholders.
• Morbidity (rate and length of claims) in long-term care, income protection and health products.
• Take up rates in pension tracks.

D) Insurance liabilities in property and casualty insurance

The estimate of the insurance liabilities in the different subsegments in respect of policies earned is based on the provision for the balance sheet. The estimate includes Unallocated Loss Adjustment Expenses (ULAE) and does not include RM and other non-specific margins that were taken into account for reserve adequacy testing for the said balance sheet.

In respect of the unearned portion, the cost is based on the balance sheet calculation, taking into account the unearned portion of the contingent claims; (risk margins and other non-specific margins are deducted from these calculations as well).

(2) Deduction Value during the Transitional Period

The Deduction During the Transitional Period (hereinafter - the "Deduction") is calculated in accordance with the provisions included in the Economic Solvency Regime and in the letter to insurance companies managers: "Principles for Calculating Deduction During the Transitional Period in the Solvency II-based Economic Solvency Regime" of October 15, 2020 (hereinafter - the "Letter of Principles").

The deduction is calculated as the total amount of the positive differences between insurance reserves (retention) as per the economic balance sheet including the risk margin (net of adjustment to the fair value of designated bonds) and the insurance reserves (retention) as of that date in accordance with the Financial Statements. These differences are calculated at homogeneous product group level in accordance with the provisions included in the Letter of Principles. This difference is deducted on a linear basis over 13 years until December 31, 2032.

The Company should ensure that the deduction balance at each reporting date (hereinafter - the "Deduction Value During the Transitional Period") shall be proportionate to the expected increase in the solvency ratio calculated excluding expedients during the Transitional Period, and reflecting at least the expected release of the capital requirements (SCR) and the Risk Margin of the existing portfolio for the calculation date

In accordance with the provisions of the Economic Solvency Regime, as described in section C above, the Deduction During the Transitional Period as of December 31, 2021, which was recalculated two years after it was calculated for the first time, amounted to NIS 4,710 million, after linear amortization.

In view of material changes in the interest rate curve, application of the study on retirement age and uptake of pension benefits (hereinafter – the "Study"), and adjustment to demographic assumptions and a mortality improvement model for insurance companies and pension funds (hereinafter – the "Circular"), in the period between December 31, 2021 and the calculation date, the Company recalculated the Deduction During the Transitional Period as of June 30, 2022. Accordingly, the Deduction During the Transitional Period, which was recalculated after obtaining the Commissioner's approval, amounts to NIS 3,554 million after its linear amortization as at this date.

Other assets and liabilities:

• (3) Intangible assets in accordance with Part A Chapter 2 Appendix A to the provision of the Economic Solvency Regime, an insurance company shall assess the value of intangible assets at zero, except for investment in Insurtech as defined in the solvency circular, for which it obtained the Commissioner's approval, as required.
• (4) Deferred acquisition costs in accordance with Part A Chapter 2 Appendix A to the provisions of the Economic Solvency Regime, an insurance company shall assess the value of acquisition costs at zero. It should be noted that the value of the future profits implicit in the insurance contracts was taken into account in the liability in respect of insurance contracts item.

(5) Investment in investees which are not insurance companies - in accordance with Part A Chapter 2 Appendix B to the provisions of the Economic Solvency Regime, the calculation was carried out using the adjusted equity method, in accordance with the circular on investees which are not insurance companies. In accordance with this method, the Company's stake in investees was included based on its proportionate share in the excess of their assets over their liabilities, calculated in accordance with the economic value of the assets and liabilities in accordance with the circular's provisions, which is calculated based on their financial statements after writing-off intangible assets. In investees where the economic balance sheet reflects an excess of liabilities over assets, the value of the investment will be zero rather than a negative amount, when its value in the accounting balance sheet is a positive amount.

The economic value of the investees does not include the profits implicit in those companies. In the management company, 35% of the balance of the original difference relating to this company is added to the economic value.

• (6) Non-marketable debt assets in accordance with Part A, Chapter 1 to the provisions of the Economic Solvency Regime, the fair value of non-marketable debt assets is calculated on the basis of a discounted cash flow model; the discount rates are determined by a company providing price and interest rate quotes for institutional entities.
• (7) Designated bonds in accordance with Part A Chapter 2 Appendix E to the provisions of the Economic Solvency Regime, the insurance company adjusts the value of designated bonds to their value as per the economic balance sheet in accordance with their economic value that takes into account their interest rate and the best estimate as to the Company's future entitlement to purchase them. See also Section 2A1a above.
• (8) Contingent liabilities as to the value of contingent liabilities in the economic balance sheet, see Section D.2.b above.
• (9) Liabilities in respect of deferred taxes, net in accordance with Part A Chapter 2 Appendix C to the provisions of the Economic Solvency Regime, the calculation is based on the difference between the value attributed to assets and liabilities in the economic balance sheet (taking into account the Deduction Amount) and the value attributed to those assets and liabilities for tax purposes, in accordance with the recognition, measurement and presentation provisions of IAS 12. Deferred taxes may be recognized only if the Company shall meet the criteria included in the Economic Solvency Regime, in addition to the criteria included in the above-mentioned accounting standard.
• (10) Accounts payable and accruals, accounts receivable in accordance with Part A Chapter 1 of the provisions of the Economic Solvency Regime, some of the balances in this item were calculated in accordance with the general principles regarding the economic balance sheet.
• (11) Financial liabilities were calculated in accordance with the general principles set in the provisions of the Economic Solvency Regime and subject to the guidance in Part A Chapter 3, whereby changes in the Company's credit risk may only taken into account in respect of changes in risk-free interest. That is to say, the discount rate is a risk-free interest plus the margin on issuance date.

Section 2.B - Composition of liabilities in respect to insurance contracts and investment contracts

	June 30, 2022
	Best estimate (BE) of liabilities
	Gross	Reinsurance	Retention
	Unaudited and unreviewed
	In NIS thousand
Liabilities in respect of insurance contracts and non-yield-dependent investment contracts
Life insurance contracts and long-term health insurance (SLT)	12,558,753	618,677	11,940,076
Property & casualty and NSLT health insurance contracts	6,261,068	1,879,336	4,381,732
Total liabilities for insurance contracts and non-yield-dependent investment contracts	18,819,821	2,498,013	16,321,808
Liabilities in respect of insurance contracts and yield-dependent investment contracts - life insurance contracts and long-term health insurance (SLT)	90,010,667	332,703	89,677,964
Total liabilities in respect of insurance contracts and investment contracts	108,830,488	2,830,716	105,999,772

	December 31, 2021 Best estimate (BE) of liabilities
	Gross	Reinsurance	Retention
		Audited
	In NIS thousand
Liabilities in respect of insurance contracts and non-yield-dependent investment contracts
Life insurance contracts and long-term health insurance (SLT)	13,138,785	610,284	12,528,501
Property & casualty and NSLT health insurance contracts	6,021,766	1,869,275	4,152,491
Total liabilities for insurance contracts and non-yield-dependent investment contracts	19,160,551	2,479,559	16,680,992
Liabilities in respect of insurance contracts and yield-dependent investment contracts - life insurance contracts and long-term health insurance (SLT)	93,633,187	375,217	93,257,970
Total liabilities in respect of insurance contracts and investment contracts	112,793,738	2,854,776	109,938,962

Main Changes in relation to 31 of December, 2021:

The decrease in liabilities for insurance contracts and non-yield dependent investment contracts is mainly due to an increase in the risk-free interest rate, and application of the Study and the Circular as set out in Section 1A above.

The decrease in liabilities for insurance contracts and yield-dependent investment contracts is mainly due to negative returns in the policyholders' portfolios, as set out in Section 1A above.

Section 3 - Shareholders equity in respect of SCR

	June 30, 2022
	Tier 1 capital
	Basic	Additional	Tier 2 capital	Total
			Unaudited and unreviewed
	In NIS thousand
Equity capital	9,849,450	1,182,601	3,636,831	14,668,882
Deductions from Tier 1 capital (a)	(138,882)	-	-	(138,882)
Deductions (b)	-	-	-	-
Deviation from quantitative limitations (c)	-	-	(58,564)	(58,564)
Shareholders equity in respect of SCR (d)	9,710,568	1,182,601	3,578,267	14,471,436
Out of which - expected profit amount in respect
of future premiums
Post-tax EPIFP	6,523,553			6,523,553
			December 31, 2021
	Tier 1 capital
	Basic	Additional	Tier 2 capital	Total
			Audited
			In NIS thousand
Equity capital	9,912,145	1,296,569	3,571,301	14,780,015
Deductions from Tier 1 capital (a)	(567,905)	-	-	(567,905)
Deductions (b)	-	-	-	-
Deviation from quantitative limitations (c)	-	-	-	-
Shareholders equity in respect of SCR (d)	9,344,240	1,296,569	3,571,301	14,212,110
Out of which - expected profit amount in respect
of future premiums Post-tax EPIFP	6,787,011			6,787,011

Main Changes in relation to 31 of December, 2021:

• Basic Tier 1 capital was positively affected by the increase in risk-free interest rates and application of the Study. On the other hand, application of the Study, as set out in Section A1 and negative yields on the nostro and OPM portfolios, had a negative effect on Basic Tier 1 capital.
• In addition, Basic Tier 1 capital was positively affected by new business sales and the expiry of the underwriting capital requirement for an existing business (which reduces the RM component).
• Distribution of a cash dividend in the amount of NIS 115 million, subsequent to the reporting date, reduced Basic Tier 1 capital (included in the section "Deductions from Tier 1 capital" in the table above).
• Additional tier 1 capital was negatively affected by the increase of the interest rates in the reporting period.

• The balance of Tier 2 capital increased due to capital raising of NIS 270 million in the reporting period. That was offset by the increase in interest rates in the reporting period and the deviation from quantitative limits arising from a decrease in capital requirements.
• For further details regarding these changes, see Section 1a above and Section 4 below.
• (a) Amounts deducted from Tier 1 Capital in accordance with the definitions of "Basic Tier 1 Capital" in Appendix B, Chapter 2, Part 2 of Section 5 in the Consolidated Circular - "Economic Solvency Regime" (hereinafter - "the Economic Solvency Regime Appendix"), these deductions include the amount of assets held against liabilities in respect of non-yield dependent insurance and investment contracts in breach of the investment rules regulations, amount invested by the Company in purchasing Company ordinary shares, and the amount of dividend declared subsequent to the report date and through the publication of the report for the first time.
• (b) Deductions in accordance with the provisions of Chapter 6 in Part B "Directives regarding Insurance Companies' Equity" to the Economic Solvency Regime Appendix.
• (c) Exceeding quantitative restrictions in accordance with the provisions of Chapter 2 in Part B "Directives regarding Insurance Companies' Equity" to the Economic Solvency Regime Appendix.
• (d) Composition of shareholders equity in respect of SCR

	June 30, 2022	December 31, 2021
	Unaudited and
	unreviewed	Audited
	In NIS thousand
Tier 1 capital
Basic Tier 1 capital	9,710,568	9,344,240
Additional Tier 1 capital
Additional Tier 1 capital instruments	1,182,601	1,296,569
Additional Tier 1 capital	1,182,601	1,296,569
Total Tier 1 capital	10,893,168	10,640,809
Tier 2 capital
Tier 2 capital instruments	1,600,228	1,444,620
Restricted Hybrid Tier 2	1,629,682	1,704,914
Hybrid Tier 3 capital instruments	406,922	421,767
Less deduction due to deviation from quantitative limit	(58,564)
Total Tier 2 capital	3,578,267	3,571,301
Total shareholders equity in respect of SCR	14,471,436	14,212,110

• For an explanation about key changes compared with 31 of December, 2021 see Section 3 above.
• For information about equity for purposes of solvency capital requirement without applying the transitional provisions to the Transitional Period and without applying a stock scenario adjustment, see Section 6 "Effect of application of Directives for the Transitional Period", below.

Section 4 - Solvency capital requirement (SCR)

June 30, 2022	December 31, 2021
Capital requirements
Unaudited and unreviewed	Audited
	In NIS thousand
5,005,862	5,339,168
558,239	461,803
2,980,146	3,305,793
4,607,732	5,076,207
1,225,277	1,163,279
(4,884,746)	(5,131,205)
85,110	91,275
9,577,620	10,306,320
359,656	352,399
(2,780,746)	(2,992,261)
7,156,530	7,666,458

* Stock scenario adjustment.

For information about equity for purposes of solvency capital requirement without applying the transitional provisions to the Transitional Period and without applying a stock scenario adjustment, see Section 6 "Effect of application of Directives for the Transitional Period", below.

Key changes in solvency capital requirement compared to 31 of December, 2021:

• The decrease in required capital due to the market risk component is mainly due to a decrease in nostro assets and the assets of policyholders due to negative returns in these portfolios in the reporting period. In addition, the size of the share scenario is small due to a decrease in the symmetrical adjustment (SA) component arising from these negative returns.
• The decrease in the required capital for underwriting risk in life insurance and health insurance is mainly due to the effect of the increase in interest rates and completion of the Study, which reduced the capital requirement, and on the other hand, the effect of publication of the Circular on mortality improvements, which increased the capital requirements and offset some of these effects (for further information about the effect of the interest, the Study, and the Circular, see Section 1A above).
• In addition, changes in solvency capital requirement are affected from the expiry of capital requirement in respect of existing insurance products, which reduce the solvency capital requirements, and, on the other hand, by marketing of new products that increase the solvency capital requirement.

Section 5 - Minimum capital requirement (MCR)

(a) Minimum capital requirement (MCR)

	June 30, 2022	December 31, 2021
	Unaudited and unreviewed	Audited
	In NIS thousand
Minimum capital requirement according to MCR formula	1,835,354	1,797,312
Lower boundary (25% of solvency capital requirement in the Transitional Period)	1,789,133	1,916,615
Upper boundary (45% of solvency capital requirement in the Transitional Period)	3,220,439	3,449,906
Minimum capital requirement (MCR)	1,835,354	1,916,615

(b) Shareholders equity for MCR

	June 30, 2022
	Tier 1 capital	Tier 2 capital	Total
	Unaudited and unreviewed
		In NIS thousand
Shareholders equity in respect of SCR according to Section 3	10,893,168	3,578,268	14,471,436
Deviation from quantitative limitations due to minimum capital requirement*	-	(3,211,197)	(3,211,197)
Shareholders equity for MCR	10,893,168	367,071	11,260,239

	December 31, 2021
	Tier 1 capital Tier 2 capital		Total
		Audited
		In NIS thousand
Shareholders equity in respect of SCR according to Section 3	10,640,809	3,571,301	14,212,110
Deviation from quantitative limitations due to minimum capital requirement*	-	(3,187,979)	(3,187,979)
Shareholders equity for MCR	10,640,809	383,322	11,024,131

(*) In accordance with the provisions of Chapter 3 in Part B to the Economic Solvency Regime Appendix, Tier 2 Capital shall not exceed 20% of MCR.

Section 6 - Effect of the application of the directives for the Transitional Period

	As at June 30, 2022
	Including applying the transitional provisions for the Transitional Period and adjusting the stock scenario	Effect of Deduction During the Transitional Period	Effect of stock scenario adjustment	Effect of a 50% rate Tier 2 capital during the Transitional Period	Total excluding applying the transitional provisions for the Transitional Period and adjusting the stock scenario
	Unaudited and unreviewed
		In NIS thousand
Total insurance liabilities, including risk margin (RM) Basic Tier 1 capital	112,374,259 9,710,568	(3,554,314) 2,339,094	- -	- -	115,928,574 7,371,473
Shareholders equity in respect of SCR	14,471,436	2,339,094	-	60,595	12,071,748
Solvency capital requirement (SCR)	7,156,530	(1,215,220)	(422,430)	-	8,794,180

	December 31, 2021
	Including applying the transitional provisions for the Transitional Period and adjusting the stock scenario	Effect of Deduction During the Transitional Period	Effect of stock scenario adjustment Audited	Effect of a 50% rate Tier 2 capital during the Transitional Period	Total excluding applying the transitional provisions for the Transitional Period and adjusting the stock scenario
			In NIS thousand
Total insurance liabilities, including risk margin (RM) Basic Tier 1 capital	115,824,642 9,344,240	(4,710,468) 3,099,959	- -	- -	120,535,110 6,244,281
Shareholders equity in respect of SCR	14,212,110	3,099,959	-	-	11,112,151
Solvency capital requirement (SCR)	7,666,458	(1,610,509)	(541,921)	-	9,818,889

See description of the transitional provisions applicable to the Company during the Transitional Period in Section 2a - information about economic balance sheet, Subsection 2- the value of the Deduction During the Transitional Period.

Key changes compared with 31 of December, 2021 regarding the effect of the implementation of the provisions for the Transitional Period:

• A recalculation of the Deduction Amount during the Transitional Period led to a decrease of the effect of the inclusion of the Deduction Amount During the Transitional Period. For further details, please see Section 1 and Section 2a(2) above.
• The effect of the share scenario adjustment is small due to the decrease in exposure to shares and the decrease in the intensity of the scenario due to the decrease in the symmetrical adjustment (SA) component.
• For an explanation about other key changes compared with 31 of December, 2021 see Section 1a above.

Section 7 - Dividend Distribution Restrictions

The Company's policy is to have a solid capital base to ensure its solvency and ability to meet its liabilities to policyholders, to preserve the Company's ability to continue its business activity such that it is able to provide returns to its shareholders. The Company is subject to capital requirements set by the Commissioner.

The Company's Board of Directors has set a minimum economic solvency ratio target and target range based on Solvency II. The economic solvency ratio target range was set at 150%-170%, within which the Company aspires to be during and at the end of the Transitional Period, taking into account the Deduction During the Transitional Period and its gradual reduction.

The minimum economic solvency ratio target, taking into account the transitional provisions, was set at 135%, and the minimum solvency ratio target without taking into account the provisions during the Transitional Period is set to reach 135% at the end of the Transitional Period according to the Company's capital plan. On August 24, 2022, the Company's Board of Directors increased the minimum economic solvency ratio target without taking into account the provisions during the Transitional Period by 3 percentage points - from the 108% rate a 111% rate as of June 30, 2022.

As of June 30, 2022, the date of the calculation, the Company has capital surplus in relation to the targets that were set, as described in the table set forth below.

It is hereby clarified that the aforesaid does not guarantee that the Company will meet the set targets at all times.

Dividend

According to the letter published by the Commissioner, in October 2017, (hereinafter - the "Letter") an insurance company shall be entitled to distribute a dividend only if, following the distribution, the company has a solvency ratio - according to the Economic Solvency Regime - of at least 100%, calculated without taking into account the transitional provisions and subject to the solvency ratio target set by the Company's Board of Directors. The aforesaid ratio shall be calculated without the relief granted in respect of the original difference attributed to the acquisition of the provident funds and management companies. In addition, the letter set out provisions for reporting to the Commissioner.

Dividend distribution

In the third quarter of 2022, The Phoenix Insurance distributed a dividend in the amount of NIS 115 million, based on the audited results of the solvency ratio as of December 31, 2021, and in accordance with the results of an estimate, unaudited and unreviewed, for calculation of the Solvency-II based economic solvency ratio as of March 31, 2022; for further information about the dividend distribution, see the immediate report of August 25, 2022.

Subsequent to distribution of the dividend, as set out above, the economic solvency ratio of The Phoenix Insurance and the economic solvency ratio without applying the transitional provisions for the Transitional Period and without adjusting the share scenario, meet the minimum economic solvency ratio target without taking into account the provisions in the Transitional Period as set by the Board of Directors at a rate of 111% and meet the 150%-170% target range, in which the Company seeks to be during and after the Transitional

Period, taking into account the Deduction During the Transitional Period and its gradual reduction, thus, the Company meets the requirements of the letter published by the Commissioner in October 2017 regarding restrictions on dividend distribution, as set out above.

The following are data on the Company's economic solvency ratio, calculated without taking into account the transitional provisions and the solvency ratio target set by the Company's Board of Directors with respect to the solvency ratio calculated without taking into account the provisions during the Transitional Period and adjusting the stock scenario, as required by the letter. As stated, the ratio is higher than the solvency ratio required by the letter.

Solvency ratio without applying the transitional provisions for the deployment period, and without adjusting the shares scenario:

	June 30, 2022	December 31, 2021
	Unaudited and unreviewed	Audited
	In NIS thousand
Shareholders equity in respect of SCR - please see Section 6	12,071,747	11,112,151
Solvency capital requirement (SCR) - please see Section 6	8,794,180	9,818,889
Surplus	3,227,567	1,293,262
Economic solvency ratio (in %)	137%	113%
Effect of material capital-related measures taken in the period between the calculation date and the publication date of the solvency ratio report: Raising of capital instruments*	-	354,205
Shareholders equity in respect of SCR	12,071,747	11,466,356
Surplus	3,227,567	1,647,467
Economic solvency ratio (in %)	137%	117%
Capital surplus after capital-related actions in relation to the Board of Directors' target:
Minimum solvency ratio target without applying the transitional provisions	111%	108%
Capital surplus over target	2,310,207	861,956

* Subsequent to the reporting date, on June 30, 2022, the Company issued NIS 400 million Tier 2 capital which was not recognized in the solvency ratio calculation due to the quantitative limit. The said amount is as of December 31, 2021, and is composed of raising of Tier 2 capital at the total amount of NIS 270 million and a capital injection at the total amount of NIS 84 million, which arises from the transfer of Phoeniclass Ltd. from The Phoenix Holdings to The Phoenix Insurance, net of the capital requirements. For further details in connection with the transfer of Phoeniclass Ltd., see immediate report dated May 17, 2022 (Ref. No. 2022-02-048480).

For an explanation about key changes compared with last year see Section 1a above.

November 29, 2022

Amit Netanel Executive VP, CRO Eli Schwartz Deputy CEO, Chief Financial Officer: Eyal Ben Simon CEO Benjamin Gabbay Chairman of the Board Date