THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares of Fosun International Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss however arising from or in reliance upon the whole or any part of the contents of this circular.

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MAJOR TRANSACTION

ACQUISITION OF PHOENIX HOLDINGS

31 December 2015

		Page
1.	Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
2.	Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
3.	Appendix I — Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
4.	Appendix II — Financial Information of the PH Group. . . . . . . . . . . . . . . . . . . . . . . .	16
5.	Appendix III — Unaudited Pro Forma Financial Information of the Enlarged
	Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	441
6.	Appendix IV — Management Discussion and Analysis of the PH Group. . . . . . . . . . .	453
7.	Appendix V — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	498

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DEFINITIONS

In this circular, the following expressions have the following meanings, unless the context requires otherwise:

“Acquisition” the acquisition of the Target Shares by the Company pursuant to the Share Purchase Agreement “Announcement” the announcement dated 21 June 2015 issued by the Company in relation to the Acquisition “associate(s)” has the meaning ascribed to it under the Listing Rules

“Board” the board of Directors “Business Day” any day (other than a Saturday, Sunday, or public holiday) on which banks located in Israel, the PRC, or Hong Kong are generally open for business

“Closing”

the consummation of the transactions contemplated by the Share Purchase Agreement

“Closing Date” a date that is 12 Business Days following satisfaction or waiver of the last condition to Closing, or a date that the Seller and the Purchaser mutually agree “Company” or “Fosun” Fosun International Limited, a company incorporated under the laws of Hong Kong and the Shares are listed and traded on the main board of the Hong Kong Stock Exchange “Directors” the directors of the Company “Encumbrance” any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim or restriction of any nature, subject to certain exceptions as a result of operation of applicable regulatory requirements and listing rules “Enlarged Group” the Group as enlarged by the Acquisition “EUR” the single, unified, lawful currency of those member states of the European Union participating in the Economic and Monetary Union “Excellence” Excellence Investments Ltd., a subsidiary of Phoenix Holdings “Fosun Holdings” Fosun Holdings Limited “Fosun International Holdings” Fosun International Holdings Ltd. “Fosun Pharma” Shanghai Fosun Pharmaceutical (Group) Co., Ltd. “Group” the Company and its subsidiaries “HKFRS” Hong Kong Financial Reporting Standards

— 1 —

DEFINITIONS

“Hong Kong” the Hong Kong Special Administrative Region of the PRC “Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited “IFRS” International Financial Reporting Standards “ISA” the Israeli Securities Authority ”Israel” State of Israel ”Israel Stock Exchange” or Tel Aviv Stock Exchange “TASE” “Latest Practicable Date” 24 December 2015, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein “Listing Rules” the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange “Main Business” the existing business as conducted by Phoenix Holdings and its subsidiaries, which includes (1) insurance business, (2) marketing and management of investments for third parties, (3) mutual funds management, (4) underwriting and investment banking, (5) issue of structured products and financial products, (6) provision of stock exchange and trading services, (7) management of provident funds, (8) mortgage consulting services and sale of ancillary products, (9) credit card receivables financing, check receivables financing, trade receivables financing, monitoring and reconciliation services for credit card payments and credit advancements, (10) assisted living business, and (11) exporting agricultural products “Material Adverse Effect” any event, fact, circumstance, condition, change or effect that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the operations, financial condition or results of operations of the PH Group taken as a whole, subject to certain exceptions

“Model Code” Model Code for Securities Transactions by Directors of Listed Issuers in Appendix 10 of the Listing Rules
“NIS” New Israeli Shekel, the lawful currency of Israel
“Phoenix Holdings” Phoenix Holdings Ltd., a company incorporated under the laws of Israel
“PH Group” Phoenix Holdings and its subsidiaries
“PRC” the People’s Republic of China “Purchase Price” the price payable by the Purchaser for the Target Shares, which is at a maximum amount of NIS1,868,066,426 (approximately RMB3,024,212,737)

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DEFINITIONS

“Purchaser”	PI Emerald II (UK) Limited, a limited liability company
	incorporated under the laws of England and Wales and an
	indirect wholly-owned subsidiary of the Company as at the
	Latest Practicable Date
“RMB”	Renminbi, the lawful currency of the PRC
“Seller” or “Delek Group”	Delek Group Ltd., a company incorporated under the laws of
	Israel
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong), as amended from time to time
“Shareholder(s)”	holders of the issued ordinary share(s) of the Company
“Share Purchase Agreement”	a share purchase agreement dated 21 June 2015 and entered
	into between the Purchaser and the Seller in relation to the
	sale and purchase of the Target Shares
“Share(s)”	the shares of the Company
“Target Shares”	130,623,262 ordinary shares of Phoenix Holdings issued at a
	par value of NIS1.00 per share

For the purpose of this circular, unless otherwise stated, all amounts in NIS are translated into RMB at an exchange rate of approximately NIS1.00 = RMB1.6189.

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LETTER FROM THE BOARD

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Directors: Executive Directors:

Mr. Guo Guangchang ( Chairman ) Mr. Liang Xinjun (Vice Chairman and Chief Executive Officer) Mr. Wang Qunbin (President) Mr. Ding Guoqi Mr. Qin Xuetang Mr. Chen Qiyu Mr. Xu Xiaoliang

Registered address:

Room 808, ICBC Tower 3 Garden Road Central Hong Kong

Independent Non-Executive Directors:

Mr. Zhang Shengman Mr. Zhang Huaqiao Mr. David T. Zhang Mr. Yang Chao

31 December 2015

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

ACQUISITION OF PHOENIX HOLDINGS

1. INTRODUCTION

Reference is made to the Announcement whereby the Company announced that the Purchaser (an indirect wholly-owned subsidiary of the Company) and the Seller entered into the Share Purchase Agreement on 21 June 2015 (Israel time), pursuant to which the Purchaser has agreed to acquire 130,623,262 ordinary shares of Phoenix Holdings, representing 52.31% of the issued and outstanding share capital of Phoenix Holdings. Subject to certain agreed adjustments, the Purchase Price for the Target Shares shall be NIS1,763,204,090 (approximately RMB2,854,451,101), together with interest accrued on such amount at 4.75% per annum for the period from 30 September 2014 to the Closing Date. As a result, the maximum amount of consideration payable is expected to be not more than approximately NIS1,868,066,426 (approximately RMB3,024,212,737).

The purpose of this circular is, among other things, to provide you with more information in relation to the Acquisition.

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LETTER FROM THE BOARD

The details of the Share Purchase Agreement are as follows:

2. THE SHARE PURCHASE AGREEMENT

Date

21 June 2015 (Israel time)

Parties 1. PI Emerald II (UK) Limited, an indirect wholly-owned subsidiary of the Company, as the Purchaser;
Delek Group Ltd., as the Seller.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiry, the Seller is a third party independent of the Company and connected persons of the Company, and is not a connected person of the Company.

Target Shares to be Acquired 130,623,262 ordinary shares of Phoenix Holdings, representing 52.31% of the issued and outstanding share capital of Phoenix Holdings, shall be purchased free and clear from all Encumbrances.

Purchase Price and Payment Terms

The Purchase Price for the Target Shares shall be NIS1,763,204,090 (approximately RMB2,854,451,101), together with interest accrued on such an amount at 4.75% per annum for the period from 30 September 2014 to the Closing Date, subject to certain agreed adjustments in accordance with the terms of the Share Purchase Agreement. As a result, the maximum amount of consideration payable is expected to be not more than approximately NIS1,868,066,426 (approximately RMB3,024,212,737).

The Purchase Price for the Acquisition was determined through arm’s length negotiations among the parties to the Share Purchase Agreement by reference to, among other matters:

(i) the value of the assets and business of Phoenix Holdings; and
(ii) the factors set out in the section headed “Reasons for and Benefits of the Acquisition”.

The Purchase Price shall be satisfied by the Company’s own funds or a combination of the Company’s own funds and external financing.

The audited net profits (both before and after taxation) attributable to shareholders of Phoenix Holdings for the two fiscal years immediately preceding the Acquisition are as follows:

			For the year ended	31 December
			2014	2013
			(audited)	(audited)
			approximately	approximately
			NIS million	NIS million
Net	profit	before tax	782.86	1,178.09
Net	profit	after tax	531.19	760.13

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LETTER FROM THE BOARD

The audited total assets and net assets of Phoenix Holdings was approximately NIS101,336.65 million (approximately RMB164.05 billion) and NIS3,929.14 million (approximately RMB6.36 billion), respectively, as at 31 December 2014. The unaudited total assets and net assets of Phoenix Holdings was approximately NIS99,513.52 million (approximately RMB161.10 billion) and NIS3,941.90 million (approximately RMB6.38 billion), respectively, as at 30 June 2015.

Conditions to Closing

The obligations of the Purchaser to consummate the Acquisition are subject to the satisfaction (or waiver) as of the Closing of the conditions contemplated by the Share Purchase Agreement, which include, inter alia, the following:

required regulatory approvals from Israeli insurance regulator, securities regulator, TASE, amongst others, have been obtained;
required third party consents in connection with the change of control in Phoenix Holdings have been obtained;
the pledges over certain Target Shares to Bank Hapoalim and Bank Mizrachi-Tefahot have been duly removed; and
there shall not have been any Material Adverse Effect between signing and Closing.

The obligations of the Seller to consummate the Acquisition are subject to the satisfaction (or waiver) as of the Closing of certain conditions contemplated by the Share Purchase Agreement, which include, inter alia, the Purchaser has received required regulatory approvals.

As at the Latest Practicable Date, item 3 relating to the removal of the pledge over certain Target Shares to Bank Hapoalim had been satisfied.

Termination by the Purchaser

Closing

The Purchaser may terminate the Share Purchase Agreement for customary reasons and also has an option to terminate the Share Purchase Agreement if certain labor matters involving the PH Group are not resolved prior to the Closing. If the Purchaser exercises its option to terminate the Share Purchase Agreement under these circumstances, the Seller would be obligated to pay the Purchaser a break up fee of NIS12,000,000 (approximately RMB19,426,800).

The Closing of the Acquisition contemplated by the Share Purchase Agreement shall take place on the twelfth (12th) Business Day following the satisfaction or waiver by the Purchaser or the Seller, as applicable, of the last condition set forth in the Share Purchase Agreement or on such other date as may be mutually agreeable to the Purchaser and the Seller.

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LETTER FROM THE BOARD

Seller Indemnities and The Share Purchase Agreement contains representations, Undertakings warranties and covenants for a transaction of this nature and scale, and the Seller shall indemnify the Purchaser for any breach of representations, warranties and covenants, for a period of 15 months post-Closing for general claims, and longer period in relation to certain claims, such as tax indemnity, certain identified litigations, or investigations by or disputes with regulators, based on the relevant statute of limitations or the estimated reasonable time for resolution of the relevant litigation or dispute (ranging from 5 to 7 years).

The Seller also undertakes not to compete with Phoenix Holdings in relation to its Main Business for a period of 4 years post-Closing, and not to solicit its employees for a period of 4 years post-Closing.

Parent Guarantee The Company provides an irrevocable and unconditional parent guarantee to guarantee the full performance and payment by the Purchaser of each of its covenants, obligations and undertakings under the Share Purchase Agreement.

3. REASONS FOR AND BENEFITS OF THE ACQUISITION

Phoenix Holdings will become a subsidiary of the Company upon Closing and remain principally engaging in insurance and asset management business in Israel, which is a core business, a key growth engine and a strategic priority for the Group. The Group regards the development of the insurance and asset management business as an attractive way to connect the Group’s investment capability to high-quality long-term capital. The Acquisition is another milestone in the Group’s path towards internationalization, will further expand the Group’s insurance and asset management business, and will strengthen the Group’s capability to access high-quality long-term capital.

In particular, the Company believes the following benefits can be achieved:

the audited total assets of Phoenix Holdings as of 31 December 2014 amounted to approximately NIS101.34 billion (approximately RMB164.05 billion). Its assets under management as of 31 December 2014 amounted to approximately NIS160 billion (approximately RMB259.02 billion). The Company plans to apply its investment capabilities to enhance the return on these assets;
the Acquisition will further optimize the Group’s capital structure and lower its cost of funding on a consolidated level; and
synergies could be achieved between other insurance and reinsurance businesses of the Group and the PH Group.

The Directors (including the independent non-executive Directors) are of the view that the Acquisition is in the ordinary and usual course of business of the Group, and that the terms of the Share Purchase Agreement are on normal commercial terms, fair and reasonable and in the interest of the Company and its Shareholders as a whole.

4. FINANCIAL EFFECTS OF THE ACQUISITION

After Closing, the PH Group will become the indirect subsidiaries of the Company and their results would be consolidated into the consolidated financial statements of the Group. 52.31% of the share capital and voting rights of Phoenix Holdings will be held indirectly by the Company after Closing.

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LETTER FROM THE BOARD

According to the unaudited consolidated financial statements of the Group as contained in the Interim Report 2015 of the Company, the unaudited total assets and liabilities of the Group as at 30 June 2015 were approximately RMB353.5 billion and RMB259.3 billion, respectively, whereas according to the unaudited pro forma financial information as contained in Appendix III of this circular, the unaudited pro forma total assets and total liabilities of the Enlarged Group as at 30 June 2015 were approximately RMB510.2 billion and RMB413.5 billion following the consolidation of results and assets and liabilities of the PH Group as at 30 June 2015.

The financial effects of the Acquisition on the Group is set out in Appendix III to this circular and summarised as follows:

a. Assets

As of 30 June 2015, the consolidated total assets of the Group were approximately RMB353.5 billion. According to the unaudited pro forma financial information, the unaudited pro forma consolidated total assets of the Enlarged Group would have been increased to approximately RMB510.2 billion.

b. Liabilities

As of 30 June 2015, the consolidated total liabilities of the Group were approximately RMB259.3 billion. According to the unaudited pro forma financial information, the unaudited pro forma consolidated total liabilities of the Enlarged Group would have been increased to approximately RMB413.5 billion.

c. Total equity

As of 30 June 2015, the total equity of the Group was RMB94,253.4 million. According to the unaudited pro forma financial information, the unaudited pro forma total equity of the Enlarged Group would have been increased to RMB96,662.4 million.

d. Earnings

For the six months ended 30 June 2015, the consolidated net profit of the Group was RMB4,877.9 million and according to the financial information of the PH Group as set out in Appendix II to this circular, the unaudited net profit (on an aggregate basis) for the six months ended 30 June 2015 amounted to NIS40.8 million (approximately RMB66.1 million). The Directors believe the PH Group will be able to continue to generate profit attributable to the Shareholders in the future.

5. INFORMATION ON THE PARTIES

The Company

The principal businesses of the Company include integrated finance (insurance, investment, asset management and banking and other financial business) and industrial operations (health, happy lifestyle, steel, property development and sales and resources).

The Purchaser

PI Emerald II (UK) Limited, an indirect wholly-owned subsidiary of the Company, is principally engaged in investment holding.

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LETTER FROM THE BOARD

The Seller

Delek Group Ltd. is a company organized under the laws of Israel, listed on the Israel Stock Exchange (TASE ticker: DLEKG). It is Israel’s dominant integrated energy company, and a pioneering leader of natural gas exploration and production activities in the Eastern Mediterranean region. In addition, Delek Group Ltd. and its subsidiaries have a number of assets in downstream energy and water desalination.

Phoenix Holdings

Phoenix Holdings is a company organized under the laws of Israel, listed on the TASE (TASE ticker: PHOE). It integrates the operations of the following entities: (1) The Phoenix Insurance Company Ltd., one of Israel’s leading insurance companies that provides life, non-life, health insurance and long-term savings, and (2) The Phoenix Investments and Finance Ltd., which manages its members’ funds, Phoenix Insurance’s portfolio, and holds 90% equity interest in Excellence Nessuah Investment House (“Excellence House”), one of the largest securities houses in Israel. Phoenix Holdings has approximately NIS162 billion of assets (including those of Excellence House) and is one of Israel’s largest financial groups.

6. LISTING RULES IMPLICATIONS

As more than one of the applicable percentage ratios (as defined under Rule 14.04(9) of the Listing Rules) in relation to the Acquisition exceed 25% and are less than 100%, the Acquisition constitutes a major transaction for the Company and is subject to notification, announcement and Shareholders’ approval requirements under the Listing Rules.

To the best of the knowledge, information and belief of the Directors, after having made all reasonable enquiries, no Shareholder or any of their respective associates have any material interest in the Share Purchase Agreement and the Acquisition, thus no Shareholder is required to abstain from voting if the Company were to convene a general meeting for the approval of the Share Purchase Agreement and the Acquisition. The Company has obtained a written shareholder approval from Fosun Holdings Limited, the controlling Shareholder holding approximately 71.37% of the total issued shares of the Company on 21 June 2015, in lieu of holding a general meeting to approve the Share Purchase Agreement and the Acquisition in accordance with Rule 14.44 of the Listing Rules.

7. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Currently, Fosun has adopted CIPC as its new model for investment, which is to select middle-class families and high net worth individuals as clients (Clients), focusing on their consumption and investment demands, through seeking investment opportunities (Investments) worldwide to start opportunistic investments as a small shareholder and gradually to consolidate and merge. Focus on researching and developing highly competitive assets-end and liabilities-end products (Products) to create service experiences that astonish clients and maintain sustainable relationships with clients (Clients) who create frequent and extensive transactions.

Meanwhile, Fosun will continue to identify systematic mismatches and value investing opportunities around the world. These opportunities include (1) the mismatch between reasonably low-priced overseas consumer assets, China’s explosive growing and the world’s largest and second largest consumer markets, which is the “Combining China’s Growth Momentum with Global Resources” investment model that Fosun is proficient in consistently, the key to success rests on helping overseas brands to achieve high growth in China; (2) the mismatch between low-cost capital from the low interest rate environments in Europe, the US and Japan and the high return from RMB and USD assets, the key to success is to identify scalable investment opportunities based on deep and professional industrial capabilities, and to implement Fosun’s investment techniques in the invested

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LETTER FROM THE BOARD

financial institutions on how to achieve high return by investing RMB and USD assets; and (3) sporadic opportunities from the return of China concept stocks, HK-listed stocks and H-shares to A-shares market and opportunities from Asia-listing of Asia-based assets of global consumer enterprises.

For the prospects of the economy in the PRC, Fosun believes although the economy in the PRC is currently under downward pressure, transformation of the economy has been successful in several areas such as Shanghai and Zhejiang; if this success in transformation can be replicated and expanded rapidly nationwide, the long-term growth that the transformation of the economy in the PRC brings about is predictable; the corrections in commodity prices have brought about negative sentiments towards the economy in the PRC, but it has lowered costs in the manufacturing sector in the PRC; the RMB devaluation has inflicted negative impact on the capital markets, but will benefit exports from the PRC.

Looking forward, Fosun will constantly foster “Insurance-oriented Comprehensive Financial Capability” and “Global Industrial Integration Capability Taking Roots in China”, and steadily and proactively implement the “Insurance + Investment” twin driver core strategy to seek for sustainable development under the global complicated economic environment. Fosun will make investment based on clients’ needs, and promote the industry with investment to develop products and services with better content, so as to ultimately serve clients and to create maximum values for the society and the Shareholders. Fosun and its subsidiaries in industrial and insurance sectors have sufficient capital and are well-prepared for the cross-cycle development. Fosun will persistently adhere to value investing discipline and dance with cyclicality on the value floor, as well as identify mismatch of value opportunities around the world and put cross bull-bear low-risk high-yield growth model into practice, with a view to evolving into an intelligent and vital entity.

8. WAIVERS FROM STRICT COMPLIANCE WITH RULE 14.67(6)(a)(i) AND CHAPTER 4 OF THE LISTING RULES

Background

Pursuant to Rule 14.67(6)(a)(i) of the Listing Rules, the Company is required to include in this circular an accountants’ report on the PH Group prepared in accordance with Chapter 4 of the Listing Rules. The accounts on which such report is based must relate to a financial period ended six months or less before this circular is issued, and the financial information on the PH Group must be prepared using accounting policies which should be materially consistent with those of the Company. In this regard, the Company is required under Chapter 4 of the Listing Rules to include an accountants’ report on the PH Group with the financial information of the PH Group for the three financial years ended 31 December 2014 and a stub period of six months ended 30 June 2015 prepared under HKFRS.

Waiver Sought

The Company has applied to the Hong Kong Stock Exchange for waiver from strict compliance with Rule 14.67(6)(a)(i) regarding certain disclosures under Chapter 4 of the Listing Rules on the following grounds:

A. It would be unduly burdensome for the Company to engage professional accountants to prepare an accountants’ report on Phoenix Holding as required by the Listing Rules in light of the substantial time and costs required with reasons below:
(a) Phoenix Holdings is a company organized under the laws of Israel , and its shares are listed on the Israel Stock Exchange (TASE ticker: PHOE). The auditors of the PH Group is Ernst & Young Israel (“EY Israel”);
(b) the PH Group has over 40 subsidiaries and affiliates, which have engaged their own local auditors/accounting firms (mainly Ernst & Young but also KPMG and

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LETTER FROM THE BOARD

PricewaterhouseCoopers), which render the Company and its auditors, Ernst & Young Hong Kong (“EY Hong Kong”) to spend substantial additional time and cost to collate information and liaise with those local auditors, in addition to the liaison with auditors of the PH Group - EY Israel;

(c) there are around 16 main subsidiaries of Phoenix Holdings including one public company, one public affiliate, one private affiliate and several real estate companies which Phoenix Holdings cannot influence them and/or has no control over them, it might be infeasible to get the audited reports for the interim periods. In general, it is the company policy and also the accounting requirements to prepare valuations as part of the audited report on a yearly basis instead of an interim basis. As such, extra time and cost are required for gathering the required information in which Phoenix Holdings is not certain if it is able to do so; and
(d) the unaudited accounts for the six months ended 30 June 2015 and the relevant management accounts of Phoenix Holdings and its subsidiaries are only prepared in local language other than in English, and thus substantial additional time and cost are required just for translation purpose, in addition to the actual work on preparation of the account report for the PH Group;
B. based on the above, it is expected that the required accountants’ report for the PH Group up to 30 June 2015 for incorporation in this circular could only be finalized by the end of 2015 or early 2016. As required under Rule 4.03 of the Listing Rules, the accounts on which the report is based must relate to a financial period ended six months or less before the circular is issued, the Company would by then require to prepare another additional stub period or wait until the audited financial results of the PH Group is ready for incorporation in this circular, which cause further unnecessary delay in depsatch of this circular. The Directors are of the view that it is not in the best interests of, and beneficial to, the Company and the Shareholders as a whole to strictly comply with the requirements of Rule 4.09(2) of the Listing Rules, taking into account the substantial time and cost required;
C. as the PH Group published audited financial statements on a yearly basis (including the last three financial years) and also published unaudited (reviewed) financial statements on a quarterly basis (the unaudited (reviewed) six months financial statements had been published by the end of August 2015), and such financial statements are audited or reviewed by EY Israel in accordance with IFRS, which is basically the same as the accounting standards as used by the Group for its regular financial reports, the HKFRS, the granting of the permission as requested by the Company would unlikely result in undue risks to the Shareholders; and
D. while EY Israel is not registered under the Hong Kong Professional Accountants Ordinance, it is a firm with international name and reputation and registered with a recognised body of accountants, namely The Institute of Certified Public Accountants in Israel (“ICPA”). Ernst & Young Global Limited (“EY”) is one of the big four international professional services firms. EY Israel is a full member firm of EY.

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LETTER FROM THE BOARD

ALTERNATIVE DISCLOSURE

The Company has included the following information (“Audited Consolidated Financial Statements”) in this circular as alternative disclosure to an accountants’ report under Chapter 4 of the Listing Rules:

A. the published audited financial statements for the three financial years ended 31 December 2014 audited by EY Israel prepared under IFRS and the ISA rules, with “true and fair view” audit opinion given by EY Israel, included in Appendix II to this circular;
B. the published unaudited financial statements for the six months ended 30 June 2015 prepared under IFRS and the ISA rules, reviewed by EY Israel, together with unaudited comparatives for the prior year stub period prepared under IFRS and the ISA rules and reviewed by EY Israel, included in Appendix II to this circular; and
C. a line-by-line reconciliation of the PH Group’s financial information for the differences between its accounting policies under the IFRS and the accounting policies of the Company under HKFRS, with an explanation of the differences. The auditors of the Company, Ernst & Young Hong Kong would review the reconciliation in accordance with the applicable standards.

Based on the information provided by the Company and the alternative disclosure above, the Hong Kong Stock Exchange granted the waiver from strict compliance with Rule 14.67(6)(a)(i) regarding certain disclosures under Chapter 4 of the Listing Rules.

9. RECOMMENDATION

Although no general meeting will be convened for approving the Acquisition, the Directors (including the independent non-executive Directors) believe that the transactions contemplated under the Share Purchase Agreement are fair and reasonable and are in the best interests of the Company and the Shareholders as a whole. Accordingly, if the general meeting were convened for approving the Acquisition, the Directors would have recommended the Shareholders to vote in favour of the Acquisition.

10. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the Appendices to this circular.

Yours faithfully, By Order of the Board Guo Guangchang Chairman

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

The Company is required to set out or refer to in this circular the information for the last three financial years and the six months ended 30 June 2015 with respect to the profits and losses, financial record and position, set out as a comparative table and the latest published audited balance sheet together with the notes on the annual accounts for the last financial year for the Group. The financial information of the Group is disclosed in the following documents which have been published on the websites of the Hong Kong Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.fosun.com)/en/index.html:

The unaudited consolidated financial statements of the Group for the six months ended 30 June 2015 are set out in the interim report of the Company (pages 38 - 76) published on 22 September 2015. Please also see below link to the Interim Report 2015:

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0922/LTN20150922441.pdf

The audited consolidated financial statements of the Group for the year ended 31 December 2014 are set out in the annual report of the Company (pages 91 - 247) published on 20 April 2015. Please also see below link to the Annual Report 2014:

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0420/LTN20150420821.pdf

The audited consolidated financial statements of the Group for the year ended 31 December 2013 are set out in the annual report of the Company (pages 77 - 204) published on 14 April 2014. Please also see below link to the Annual Report 2013:

http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0414/LTN20140414375.pdf

The audited consolidated financial statements of the Group for the year ended 31 December 2012 are set out in the annual report of the Company (pages 70 - 189) published on 17 April 2013. Please also see below link to the Annual Report 2012:

http://www.hkexnews.hk/listedco/listconews/SEHK/2013/0417/LTN20130417258.pdf

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. INDEBTEDNESS

At the close of business on 31 October 2015, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining information contained in this indebtedness statement, the Enlarged Group had an aggregate outstanding indebtedness of approximately RMB122,457,398,000, which was comprised of:

As at Interest-bearing bank and other borrowings: Bank loans Guaranteed Secured Unsecured Private placement notes Corporate bonds and enterprise bonds Commercial paper Senior notes Medium-term notes Other borrowings, secured Other borrowings, unsecured Total interest-bearing bank and other borrowings Convertible bonds Loan from related companies Finance lease payables Total Repayable: Within one year In the second year In the third to fifth years, inclusive Over five years	31 Oct 2015 RMB’000 1,589,536 30,839,412 45,759,124
	78,188,072
	7,500,000 11,901,301 5,600,000 2,196,984 6,994,774 3,299,557 6,118,934
	121,799,622 386,419 193,000 78,357
	122,457,398
	66,695,250 19,741,640 25,542,951 10,477,557
	122,457,398

As at the close of business on 31 October 2015, some of the Enlarged Group’s bank loans were secured by the pledge of some of the Enlarged Group’s buildings, plant and machinery, mining infrastructure, investment properties, prepaid land lease payments, properties under development, completed properties for sale, time deposits with original maturity of more than three months, trade and notes receivables, inventories, equity investment at fair value through profit or loss, an investment in a jointly-controlled entity and investment in subsidiaries.

— 14 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent Liabilities:

As at the close of business on 31 October 2015, the Enlarged Group had the following contingent liabilities:

	As at 31 Oct 2015
	RMB’000
Guaranteed bank loans of:
Related parties	379,981
Third parties	0
	379,981
Qualified buyers’ mortgage loans	2,578,660
	2,958,641

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables, at the close of business on 31 October 2015, the Enlarged Group did not have any outstanding debts securities, bank overdrafts, liabilities under acceptances (other than normal trade bills), acceptances credits, material hire purchase commitments, mortgages or charges, which were either guaranteed, unguaranteed, secured or unsecured.

Save as disclosed above, the Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Enlarged Group since 31 October 2015.

3. WORKING CAPITAL

Taking into account the existing cash and bank balances, the present internal resources and the available banking facilities of the Enlarged Group, the Directors, after due and careful enquiry, are of the opinion that the working capital of the Enlarged Group is sufficient for at least twelve months from the date of this circular.

— 15 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

��

— 16 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Auditors’ report to the shareholders of The Phoenix Holdings Ltd.

We have audited the accompanying consolidated statements of financial position of The Phoenix Holdings Ltd. ("the Company") as of December 31, 2014 and 2013 and the related consolidated statements of income, comprehensive income, changes in equity and the cash flows for each of the last three years ended December 31, 2014. These financial statements are the responsibility of the Company's board of directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.

We did not audit the financial statements of certain subsidiaries, whose assets constitute 1.3% and 41% of total consolidated assets as of December 31, 2014 and December 31, 2013, respectively, and whose consolidated revenues constitute 1%, 4.9% and 5.7% of total consolidated revenues for the years ended December 31, 2014, 2013 and 2012, respectively. Furthermore, we did not audit the financial statements of certain investments in companies which are accounted for using the equity method, the investment in which amounted to NIS 419,751 thousands and NIS 315,094 thousands as of December 31, 2014 and 2013, respectively, and the Company’s share of their earnings amounted to NIS 33,827 thousands, NIS 36,825 thousands and NIS 43,211 thousands for the years ended December 31, 2014, 2013 and 2012, respectively. The financial statements of those companies were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for those companies, is based solely on the reports of the other auditors.

We conducted our audit in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors Regulations (Manner of Auditor's Performance), 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles applied and significant estimates made by the Company’s board of directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and on the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2014 and 2013 and the results of their operations, changes in equity and cash flows for each of the last three years ended on December 31, 2014, in conformity with International Financial Reporting Standards (IFRS), and in accordance with the disclosure requirements prescribed in the Control of Financial Services (Insurance) Law, 1981.

Furthermore, in our opinion, these financial statements have been prepared in accordance with the provisions of the Israeli Securities Regulations (Preparation of Annual Financial Statements), 2010, insofar as these regulations are applicable to insurance companies.

Without qualifying our opinion, we draw attention to Note 42 to the financial statements with respect to exposure to contingent liabilities.

We have also audited, in conformity with Audit Standard 104 of the Institute of Certified Public Accountants in Israel, "Audit of Internal Control over Financial Reporting”, internal controls over the Company's financial reporting as of December 31, 2014, and our report of March 26, 2015 includes an unqualified opinion of the effective fulfilment of these components.

Tel Aviv March 26, 2015

Kost Forer Gabbay & Kasierer Certified Public Accountants

— 17 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Auditor's report to the shareholders of The Phoenix Holdings Ltd.

We have audited the accompanying consolidated statements of financial position of The Phoenix Holdings Ltd. ("the Company") as of December 31, 2013 and 2012 and the related consolidated statements of income, comprehensive income, changes in equity and the cash flows for each of the last three years ended December 31, 2013. These financial statements are the responsibility of the Company's board of directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.

We did not audit the financial statements of certain subsidiaries, whose assets constitute 41% and 37% of total consolidated assets as of December 31, 2013 and December 31, 2012, respectively, and whose consolidated revenues constitute 4.9%, 5.7% and 9.6% of total consolidated revenues for the years ended December 31, 2013, 2012 and 2011, respectively. Furthermore, we did not audit the financial statements of certain investments in companies which are accounted for using the equity method, the investment in which amounted to NIS 315.094 million and NIS 304.987 million as of December 31, 2013 and 2012, respectively, and the Company’s share of their earnings amounted to NIS 36.825 million, NIS 43.211 million and NIS 31.827 million for the years ended December 31, 2013, 2012 and 2011, respectively. The financial statements of those companies were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for those companies, is based solely on the reports of the other auditors.

In our opinion, based on our audits and on the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2013 and 2012 and the results of their operations, changes in equity and cash flows for each of the last three years ended on December 31, 2013, in conformity with International Financial Reporting Standards (IFRS), and in accordance with the disclosure requirements prescribed in the Control of Financial Services (Insurance) Law, 1981.

Without qualifying our opinion, we draw attention to Note 42 to the financial statements with respect to exposure to contingent liabilities. Additionally, we draw attention to Note 2(AA) of the financial statements regarding restatement of the financial statements as of December 31, 2012 and the years ended December 31, 2012 and December 31, 2011, to reflect retrospectively the change in accounting policy for assisted living units and their reclassification from fixed assets to investment property, in accordance with the business model of a subsidiary, whereby the nature and extent of the services provided by the subsidiary to the tenants are not significant compared to the overall arrangement with the tenants.

We have also audited, in conformity with Audit Standard 104 of the Institute of Certified Public Accountants in Israel, "Audit of Internal Control over Financial Reporting”, internal controls over the Company's financial reporting as of December 31, 2013, and our report of March 26, 2014 includes an unqualified opinion of the effective fulfillment of these components.

Tel Aviv March 26, 2014

Kost Forer Gabbay & Kasierer Certified Public Accountants

— 18 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Consolidated Statement of Financial Position

Note		December 31
	2014	*2013() NIS thousands**	*2012()**

4 22 5 6 7 8 8 16,17 9 10 11 12 12A 12A 13B 13C 13E 13F 12A 14A 14B 12	1,754,454 7,906 1,358,127 370,604 582,819 1,094,954 1,857,433 1,398,926 160,000 42,083 261,933 596,844 31,438,806 39,026,300 - 5,503,979 10,570,471 745,245 1,236,905 18,056,600 - 2,651,399 677,461 101,336,649 35,339,231	1,702,838 6,844 1,216,702 376,954 488,913 1,005,774 1,725,908 1,364,409 165,000 35,314 312,162 556,774 27,634,603 35,478,244 - 5,424,370 10,085,236 646,193 1,023,270 17,179,069 - 2,240,940 585,981 92,076,429 31,043,062	1,714,984 36,835 1,101,493 428,533 465,054 444,906 1,326,156 1,352,112 237,000 40,680 440,150 571,841 23,231,004 - 11,455,979 5,277,927 8,784,551 585,409 850,571
			15,498,458
			14,367,000 1,700,297 965,632
			75,378,114
			25,586,781

The accompanying notes are an integral part of the consolidated financial statements.

— 19 —

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statement of Financial Position

Note		December 31
	2014	*2013() NIS thousands**	*2012()**

15 16 17 22 23 24 25 26 26	304,258 667,842 (36,637) 200,709 2,668,873 3,805,045 124,097 3,929,142 18,381,210 35,149,671 425,226 113,254 8,560 1,330,301 38,404,175 3,595,110 - 97,407,507 101,336,649	304,216 667,268 (31,848) 256,512 2,361,357 3,557,505 96,840 3,654,345 17,545,565 30,892,508 426,332 114,707 12,318 1,207,373 34,911,165 3,312,116 - 88,422,084 92,076,429	301,603 641,414 (31,862) 257,645 1,943,203
			3,112,003
			137,406
			3,249,409
			15,918,319 25,521,266 376,160 119,178 15,486 1,390,708 25,148,994 3,552,587 86,007
			72,128,705
			75,378,114

(*) Restated, see Note 2 (AA)

The accompanying notes are an integral part of the consolidated financial statements.

. Asi Bartfeld Eyal Lapidot Chairman of the Board of CEO Directors

Financial statements approved on March 26, 2015

. Dr.Moshe Bareket Eyal Lapidot Chairman of the Board of CEO Directors

Omer Ziv Deputy CEO and CFO Omer Ziv Deputy CEO and CFO

Financial statements approved on March 26, 2014

— 20 —

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statements of Income

Note	Year ended December 31	Year ended December 31
	2014	2013 NIS thousands	2012

27 27 27 28 29 30 31 32 33 34 35 37 38 7 22 39	7,698,273 644,363 7,053,910 2,774,430 857,811 259,231 202,822 41,949 11,190,153 8,397,290 450,734 7,946,556 1,313,780 1,030,271 36,056 126,560 10,453,223 45,933 782,863 251,678 531,185 504,480 26,705 531,185 2.05 2.05	7,474,057 647,954 6,826,103 4,547,484 875,490 263,923 178,525 34,716 12,726,241 9,553,515 448,941 9,104,574 1,187,296 1,027,442 99,299 181,203 11,599,814 51,666 1,178,093 417,967 760,126 739,033 21,093 760,126 3.02 3.02	7,153,960 670,322
			6,483,638 3,316,941 637,758 247,562 177,987 38,119
			10,902,005
			8,579,205 386,217
			8,192,988 1,121,062 941,986 67,417 201,616
			10,525,069
			41,079
			418,015 138,511
			279,504
			249,554 29,950
			279,504
			1.02
			1.02

The accompanying notes are an integral part of the consolidated financial statements.

— 21 —

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statements of Comprehensive Income

Note	ended December 31 2013 2012 NIS thousands 760,126 279,504 314,349 325,812 (310,444) (147,831) 13,707 78,014 (3,529) 22,255 (11,663) (93,321) 2,420 184,929 4,949 1,762 (1,832) (593) 3,117 1,169 5,537 186,098 765,663 465,602 744,468 435,652 21,195 29,950 765,663 465,602	ended December 31 2013 2012 NIS thousands 760,126 279,504 314,349 325,812 (310,444) (147,831) 13,707 78,014 (3,529) 22,255 (11,663) (93,321) 2,420 184,929 4,949 1,762 (1,832) (593) 3,117 1,169 5,537 186,098 765,663 465,602 744,468 435,652 21,195 29,950 765,663 465,602
	2013 NIS thousands
22	760,126 314,349 (310,444) 13,707 (3,529) (11,663) 2,420 4,949 (1,832) 3,117 5,537 765,663 744,468 21,195 765,663
		184,929
		1,762 (593)
		1,169 186,098
		465,602 435,652 29,950
		465,602

The accompanying notes are an integral part of the consolidated financial statements.

— 22 —

					Total	Equity		3,654,345	531,185		(60,492)		470,693	7,742	(199,384)		(465)	(4,789)	-		1,000		3,929,142
				Non-	controlling	interests		96,840	26,705		17		26,722	-	-		(465)	-	-		1,000		124,097
						Total		3,557,505	504,480		(60,509)		443,971	7,742	(199,384)		-	(4,789)	-		-		3,805,045
	Capital	reserve for	financial	assets	available for	sale		234,480	-		(69,331)		(69,331)	-	-		-	-	-		-		165,149
Attributed to Company shareholders	Capital	Premium reserve for Capital	and transactions reserve for Reserve	capital with non- share- from	reserves Treasury Retained controlling based translation	Share capital on shares shares earnings interests payment differences	NIS thousands	Balance as of January 1, 2014 304,216 667,268 (31,848) 2,361,357 (4,804) 30,627 (3,791)	Net income - - - 504,480 - - -	Other comprehensive income	(loss) - - - 2,420 - - 6,402	Total comprehensive income	(loss) - - - 506,900 - - 6,402	Share-based payment - - - - - 7,742 -	Dividends - - - (199,384) - - -	Dividend paid to holders of non-	controlling interests - - - - - - -	Acquisition of treasury shares - - (4,789) - - - -	Exercise of employee options 42 574 - - - (616) -	Issue of capital to holders of	non-controlling interests - - - - - - -	Balance as of December 31,	2014 304,258 667,842 (36,637) 2,668,873 (4,804) 37,753 2,611	The accompanying notes are an integral part of the consolidated financial statements.

					Total	Equity		3,249,409	760,126	5,536	765,662	5,433	(323,996)	(1,618)	1,836		(11,533)	-			(30,746)	(102)		3,654,345
				Non-	controlling	interests		137,406	21,093	102	21,195	-	-	-	20		(11,533)	-			(50,146)	(102)		96,840
						Total		3,112,003	739,033	5,434	744,467	5,433	(323,996)	(1,618)	1,816		-	-			19,400	-		3,557,505
	Capital	reserve for	financial	assets	available for	sale		228,634	-	5,846	5,846	-	-	-	-		-	-			-	-		234,480
Attributed to Company shareholders	Capital	Premium reserve for Capital	and transactions reserve for Reserve	capital with non- share- from	reserves Treasury Retained controlling based translation	Share capital on shares shares earnings interests payment differences	NIS thousands	Balance as of January 1, 2013 301,603 641,414 (31,862) 1,943,203 (24,204) 53,477 (262)	Net income - - - 739,033 - - -	Other comprehensive income - - - 3,117 - - (3,529)	Total comprehensive income - - - 742,150 - - (3,529)	Share-based payment - - - - - 5,433 -	Dividend paid - - - (323,996) - - -	Treasury shares - - (1,618) - - - -	Reissuance of treasury shares - 184 1,632 - - - -	Dividend to holders of non-	controlling interests - - - - - - -	Exercise of employee options 2,613 25,670 - - - (28,283) -	Acquisition (sale) of non-	controlling interests, net (see	Note 7(4A)) - - - - 19,400 - -	Deconsolidation - - - - - - -	Balance as of December 31,	2013 304,216 667,268 (31,848) 2,361,357 (4,804) 30,627 (3,791)	The accompanying notes are an integral part of the consolidated financial statements.

					Total	Equity		2,801,655	279,504	186,098	465,602	3,656		(13,561)	(8,012)	7,378		(7,309)		3,249,409
				Non-	controlling	interests		122,739	29,950	-	29,950	-		(13,561)	-	54		(1,776)		137,406
						Total		2,678,916	249,554	186,098	435,652	3,656		-	(8,012)	7,324		(5,533)		3,112,003
	Capital	reserve for	financial	assets	available for	sale		65,960	-	162,674	162,674	-		-	-	-		-		228,634
Attributed to Company shareholders	Capital	Premium reserve for Capital	and transactions reserve for Reserve	capital with non- share- from	reserves Treasury Retained controlling based translation	Share capital on shares shares earnings interests payment differences	NIS thousands	Balance as of January 1, 2012 301,603 640,952 (30,712) 1,692,480 (18,671) 49,821 (22,517)	Net income - - - 249,554 - - -	Other comprehensive income - - - 1,169 - - 22,255(*)	Total comprehensive income - - - 250,723 - - 22,255	Share-based payment - - - - - 3,656 -	Dividend paid to holders of non-	controlling interests - - - - - - -	Treasury shares - - (8,012) - - - -	Reissuance of treasury shares - 462 6,862 - - - -	Acquisition of non-controlling	interests - - - - (5,533) - -	Balance as of December 31,	2012 301,603 641,414 (31,862) 1,943,203 (24,204) 53,477 (262)	See Note 7(4)(h)	The accompanying notes are an integral part of the consolidated financial statements.

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statements of Cash Flows

Appendix	Year ended December 31 2014 *2013() 2012()* NIS thousands 531,185 760,126 279,504 161,827 237,756 534,094 693,012 997,882 813,598 (32,306) (26,900) (30,398) 552 7,272 219 (58,543) (10,611) (11,538) 18,317 39,306 14,760 - - (5,000) - (518) - 1,048 789 - (1,876) (1,925) (247) (208,312) (197,992) (175,890)	Year ended December 31 2014 *2013() 2012()* NIS thousands 531,185 760,126 279,504 161,827 237,756 534,094 693,012 997,882 813,598 (32,306) (26,900) (30,398) 552 7,272 219 (58,543) (10,611) (11,538) 18,317 39,306 14,760 - - (5,000) - (518) - 1,048 789 - (1,876) (1,925) (247) (208,312) (197,992) (175,890)	Year ended December 31 2014 *2013() 2012()* NIS thousands 531,185 760,126 279,504 161,827 237,756 534,094 693,012 997,882 813,598 (32,306) (26,900) (30,398) 552 7,272 219 (58,543) (10,611) (11,538) 18,317 39,306 14,760 - - (5,000) - (518) - 1,048 789 - (1,876) (1,925) (247) (208,312) (197,992) (175,890)
(A) (B) (C) (D) (D)	531,185 161,827	760,126 237,756
	693,012	997,882
	(32,306) 552 (58,543) 18,317 - - 1,048 (1,876) (208,312)	(26,900) 7,272 (10,611) 39,306 - (518) 789 (1,925) (197,992)
	(281,120)	(190,579)	(208,094)
	(199,384) 1,000 - (4,789) - 159,286 (254,987) - 394,786 (465) (5,400)	(323,996) - (11,267) (1,618) 1,632 82,809 (408,502) (87,062) 173,225 (11,533) (60,000)	- - (6,309) (8,012) 6,862 175,275 (436,863) (96,673) 38,630 (13,561) (11,000)
	90,047	(646,312)	(351,651)
	501,939 2,826,921	160,992 2,665,929	253,853 2,412,076 2,665,929
	3,328,860	2,826,921

(*)Restated, see Note 2(AA)

The accompanying notes are an integral part of the consolidated financial statements.

— 26 —

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statements of Cash Flows

Year	ended December 31	ended December 31
2014	*2013()**	*2012()**
	NIS thousands
) 1,864,764 ( (14,487) ) 100,498 ( 160,812 21,320 ) 13,530 ( 220,527 43 (81,712) 106 - (10,995) 251,678 (45,933) 7,742 - - 835,645 4,257,163 3,492,010 (3,548,056) (141,425) (34,517) 770 10,159 98,355 5,000 (318) (74,694) (1,939,439) (1,055,006) (49,813) (254,931) 30,615 161,827	(3,188,991) (8,044) 141,362 293,892 130,073 175,588 238,718 (525) (84,238) 22,686 101 39,475 417,967 (51,666) 5,433 4,000 1,055 829,246 5,371,242 9,576,171 (9,529,922) (115,209) (12,297) (1,362) 35,647 (71,227) 72,000 (137) (552,824) (1,214,608) (1,609,710) (312,699) (412,721) 49,279 237,756	2,396,547 (4,844) 139,798 250,226 43,446 116,904 185,257 (32) (60,062) 115 23,347 48,872 138,511 (41,079) 3,656 14,000 8,469 885,054 4,064,619 2,650,651 (2,833,341) (71,462) 5,662 537 (91,108) 141,997 (53,000) (6,115) (128,488) (5,899,789) (1,166,687) (101,193) (141,640) 15,266 534,094

(*)Restated, see Note 2(AA)

The accompanying notes are an integral part of the consolidated financial statements.

— 27 —

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statements of Cash Flows

Year	ended December 31 2013 2012 NIS thousands - (3,000) - (2,807,000) - 2,000 - 2,000 - 2,801,000 - (5,000) 459 - 40 - (567) - 106 - (102) - (82) - (270) - (101) - (517) - 965,632 1,136,050 1,700,297 1,276,026 2,665,929 2,412,076 585,981 965,632 2,240,940 1,700,297 2,826,921 2,665,929 393,759 146,256 697,827 792,808 139,853 73,384	ended December 31 2013 2012 NIS thousands - (3,000) - (2,807,000) - 2,000 - 2,000 - 2,801,000 - (5,000) 459 - 40 - (567) - 106 - (102) - (82) - (270) - (101) - (517) - 965,632 1,136,050 1,700,297 1,276,026 2,665,929 2,412,076 585,981 965,632 2,240,940 1,700,297 2,826,921 2,665,929 393,759 146,256 697,827 792,808 139,853 73,384
2014	2013
	NIS thousands
- - - - -	- - - - -
-	-
- - - - - - - -	459 40 (567) 106 (102) (82) (270) (101)	- - - - - - - - - 1,136,050 1,276,026 2,412,076 965,632 1,700,297 2,665,929 146,256 792,808 73,384
-	(517)
585,981 2,240,940	965,632 1,700,297
2,826,921	2,665,929
677,461 2,651,399	585,981 2,240,940
3,328,860	2,826,921
173,658 829,903 29,597	393,759 697,827 139,853

(*) Restated, see Note 2(AA)

The accompanying notes are an integral part of the consolidated financial statements.

— 28 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 1 – GENERAL

A. Reporting Entity

The Phoenix Holdings Ltd. ("the Company" or "The Phoenix") is an Israeli resident company incorporated in Israel. The official address of the Company is 53 Derech Hashalom, Givatayim, Israel. The Company's consolidated financial statements as of 31 December 2014, 31 December 2013 and 31 December 2012 include the statements of the Company and its subsidiaries (together: "the Group") and investments in associates. The Group's main business is insurance, pension, provident, and financial services. The securities of the Company are listed for trading on the Tel Aviv Stock Exchange.

B. Definitions

In these financial statements -

The Company	-	The Phoenix Holdings Ltd.
The Group	-	The Phoenix Holdings Ltd. and its subsidiaries
Consolidated	-	Companies or partnerships whose financial statements are consolidated,
companies/subsidiaries		directly or indirectly, with the financial statements of the Group
Associates	-	Companies in which the Company exercises material influence, but not
		control, over the financial and operating policies, and the Company's
		investment in these companies is accounted for using the equity method
Investees	-	Subsidiaries, and companies or partnerships, the Company's investments in
		which is included in the financial statements on the equity basis
Related parties	-	As defined in IAS 24, Related Parties
Interested parties and		As defined in the Israeli Securities Regulations (Annual Financial
controlling shareholder		Statements), 2010
The Commissioner	-	The Commissioner of the Capital Market, Insurance and Savings
The Supervision Law	-	The Financial Services (Insurance) Supervision Law, 1981
The Capital Regulations	-	The Insurance Business Supervision Regulations (Minimum Equity Required
		of an Insurer),1998 and its amendments
Investment Regulations	-	The Financial Services Supervision Regulations (Provident Funds)
		(Investment Rules Applicable to Institutions), 2012, and the circular
		"Investment Rules Applicable to Institutions”
Reporting Regulations	-	The Insurance Business (Reporting Details) Regulations, 1998 and its
		amendments
Insurance contracts	-	A contract under which one party (the insurer) accepts significant insurance
		risk from another party (the policyholder) by agreeing to compensate the
		policyholder if a specified uncertain future event (the insured event)
		adversely affects the policyholder
Investment contracts	-	Policies that are not insurance contracts
Unit linked contracts	-	Insurance contracts and investment contracts for life insurance and
		healthcare insurance in which the liabilities for the saving component or the
		risk are linked to the profits of the investment portfolio (profit-sharing policy),
		or arise from these contracts
Assets for unit linked	-	Total assets against liabilities arising from unit linked contracts
contracts
Reinsurance assets	-	Reinsurers' share in insurance reserves and outstanding claims
Liabilities for insurance	-	Insurance reserves and outstanding claims in life insurance, general
contracts		insurance and healthcare insurance
Premiums	-	Premiums including fees.
Premiums earned	-	Premiums relating to the reporting period

— 29 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

A. Basis of presentation

The financial statements of the Company have been prepared on a cost basis, except for investment property, financial assets available for sale, financial assets and liabilities (including derivative instruments) at fair value through profit and loss and insurance liabilities.

For further information about the measurement of these assets and liabilities see sections I and K below.

B. Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).

The accounting policies applied in the financial statements have been applied consistently to all the periods presented unless otherwise stated.

C. Significant accounting judgments, estimates and assumptions used in the preparation of the financial statements

Judgments

When applying the main accounting principles of the Group, management took the following issues into account, which have the most significant effect on the amounts recognized in the financial statements:

1. Classification of insurance contracts and investment contracts

Insurance contracts are contracts in which the insurer takes a significant insurance risk for another party. Management considers each contract, or group of similar contracts, whether they involve significant insurance risk and should be classified as either insurance contracts or investment contracts.

2. Classification and designation of financial investments

The Group's management exercises judgment when classifying and designating the financial investments into the following groups:

∗ Financial assets at fair value through profit or loss
∗ Held-to-maturity investments
∗ Loans and receivables
∗ Available-for-sale financial assets See Note 2(I) below.
Measurement of investment property at fair value - see Note 8.

4. Effective control

The Company assesses whether it has control in a company in which it holds less than the majority of the voting rights, inter alia, according to its proportionate share in the voting rights compared to the share held by other holders of voting rights and the distribution of other holdings and voting patterns at prior shareholder meetings.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. Significant accounting judgments, estimates and assumptions used in the preparation of the financial statements (Continued)

Estimates and assumptions

The preparation of the financial statements requires management to use estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

The preparation of accounting estimates used in the preparation of the Company’s financial statements requires management to make assumptions regarding circumstances and events that involve considerable uncertainty. Management of the Company prepares the estimates on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the relevant circumstances of each estimate.

Estimates and underlying assumptions are reviewed on an ongoing basis. Changes in the accounting estimates are reported in the period of the change in estimate.

Critical estimates made when applying accounting policy that have a significant effect on the financial statements are as follows:

1. Liabilities for insurance contracts

These liabilities are based on actuarial assessment methods and on assessments of demographic and economic variables. The actuarial estimates and assumptions arise mainly from past experience and are based on the past behavior and claims which represent what will happen in the future. Changes in risk factors, in the frequency or severity of the events, and the changes in the legal situation could have a material effect on the amount liabilities for insurance contracts. For further information see Note 40(5).

For information about changes in the main assumptions used to calculate insurance liabilities in life insurance, including the supplementary reserve for annuities, see Note 21 and Note 40.

2. Contingent liabilities

There are contingent claims and motions for certification of class actions against the Group. When assessing the possible outcomes of legal claims that were filed against the Company and its investees, the Group companies relied on the opinions of their legal counsel. These opinions are based on the best of their professional judgment, and take into consideration the current stage of the proceedings and the legal precedents for various matters. Since the outcomes of the claims will ultimately be determined in the courts, these outcomes could differ from the assessments. For further information see Note 42.

In addition to these claims, the Company is exposed to unasserted legal claims, inter alia, where there is any doubt as to the interpretation of the agreement and/or the provisions of the law and/or their implementation. This exposure is brought to the attention of the Company and its investees in several ways, including through customer applications to Group entities, in particular to the Group's public complaints officer, through customer complaints to the public inquiries unit in the supervisor's office, and through claims (other than class action suits) filed at the court. These issues are brought to the attention of the Group's management insofar as the relevant entities identify that the claims could have widespread implications. When assessing the risk arising from these unasserted allegations/claims, the Group companies rely on internal assessments of the relevant parties and the management, which assess the prospects of a claim being filed and the chances for its success, if filed. The assessment is based on experience gained with respect to filing claims and the analysis of each claim.

By their nature, in view of the preliminary stage of the clarification of the legal claim, the actual outcome could be different from the assessment made before the claim was filed.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. Significant accounting judgments, estimates and assumptions used in the preparation of the financial statements (Continued)

Estimates and assumptions (Continued)

3. Determining fair value of an unquoted financial instrument

The fair value of non-marketable debentures, loans and deposits is based on the discounted cash flow model. The interest rates used for discounting are determined by a company that provides interest rates and price quotes for institutions.

4. Impairment of financial investments

When there is objective evidence of impairment loss on loans and receivables recorded at amortized cost, or the value of available-for-sale financial assets is impaired, the amount of the loss is recognized in profit or loss. See Note 13 below.

At each reporting date, the Group reviews whether there is objective evidence as described above

5. Investment property

Investment property that can be measured reliably is presented at fair value at the reporting date with fair value changes recognized in the statement of income. The fair value is usually determined by external, independent valuation assessors using economic valuations, including the use of valuation techniques and assumptions as to estimates of projected future cash flows from the asset and estimated suitable discount rate for these cash flows. If possible, fair value is determined in relation to recent transactions in real estate with similar characteristics and in a similar location to the assessed property.

When measuring the fair value of investment property, the Company's appraisers and management use certain assumptions for the rate of return required in respect of the Group's assets, future rental prices, occupation rates, contract rates, probability of leasing vacant space, operating expenses of the assets, financial robustness of the tenants and the consequences arising from investments required for future development, in order to assess the future cash flows from the assets. Changes in assumptions used to measure the investment property may result in a change in fair value. See Note 8 below.

6. Impairment of goodwill

The Group reviews goodwill for impairment at least once a year. This requires management to assess the expected future cash flows from continued use of the cash-generating units to which goodwill has been allocated. Management is also required to estimate the appropriate discount rate for these cash flows. See Note 4 below.

7. Determining recoverability of deferred acquisition costs

Recoverability of deferred acquisition costs is assessed once a year using assumptions regarding the cancellation, mortality and morbidity rates and other variables. If these assumptions are not realized, accelerated amortization or even derecognition of the deferred acquisition costs could be required. See Note 5 below.

D. Reporting framework and operating cycle period

The Group's regular operating cycle generally exceeds one year, in particular in the branches of life insurance and long-term savings, long-term care and disease and hospitalization, general insurance and compulsory motor and liabilities insurance.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. Reporting framework and operating cycle period (Continued)

The consolidated statements of financial position, which include mainly the assets and liabilities of a consolidated insurance company, were presented according to liquidity, with no distinction made between current and non-current. This presentation, which provides more relevant information, is consistent with IAS 1, Presentation of Financial Statements.

E. Functional currency and foreign currency

1. Functional currency and presentation currency

These financial statements are presented in NIS, which is the Company’s functional currency, and have been rounded up the nearest thousand. This currency most effectively reflects the economic environment in which the Company operates.

2. Transactions, assets and liabilities in foreign currency

Transactions denominated in foreign currency (other than the functional currency) are recorded on initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at each balance sheet date into the functional currency at the exchange rate at that date. Exchange differences, other than those capitalized to qualifying assets or carried to equity in hedging transactions, are recognized in the statement of income. Non-monetary assets and liabilities measured at cost are translated at the exchange rate at the date of the transaction.

Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the fair value was determined.

3. CPI-linked monetary items

Monetary assets and liabilities linked to the changes in the Israeli Consumer Price Index ("the CPI") are adjusted at the relevant index at each reporting date according to the terms of the agreement.

F. Consolidated financial statements, business combinations and goodwill

The consolidated financial statements include the statements of companies that are controlled by the Company (subsidiaries). Control exists when the Company has the power to affect the investee, is exposed, or has rights, to variable returns from its involvement with the investing entity, and it has the ability to affect those returns arising from the investee. When assessing the existence of control, all potential voting rights are taken into account only if they are exercisable. The financial statements are consolidated from the date that control is obtained and ends when such control ceases.

The financial statements of the Company and its subsidiaries are prepared as of the same dates and periods. The accounting policies in the financial statements of the subsidiaries are applied uniformly and consistently with the accounting policies in the Company’s financial statements. Material intercompany balances and transactions and profits or losses arising from transactions between the Company and the subsidiaries have been eliminated in full in the consolidated financial statements.

Intra-group balances and any unrealized income and expenses arising from intra-group transactions, are eliminated in the preparation of the consolidated financial statements. Unrealized gains arising from transactions with associates and jointly controlled entities are eliminated against the investment to the extent of the Group’s interest in these companies. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

F. Consolidated financial statements, business combinations and goodwill (Continued)

Business combinations are accounted for by the acquisition method. The cost of the acquisition is measured at the fair value of the consideration transferred at the acquisition date, including any non-controlling interests in the acquiree. In any business combination, the Company elects whether to measure the non-controlling interests in the acquiree at fair value at the acquisition date or in accordance with the proportionate share of the fair value of the net identifiable assets of the acquiree.

Direct acquisition costs are recognized in the statement of income as incurred.

In a business combination achieved in stages, the acquirer remeasures its previously held equity interest in the acquiree at its acquisition date at fair value and recognizes the revalued prior investment in the statement of income at the date control was established.

Contingent consideration is recognized at its fair value at the acquisition date. Contingent consideration is classified as a financing asset or liability according to IAS 39. Subsequent changes in the fair value of the contingent consideration are recognized in the statement of income or in the statement of other comprehensive income. If the contingent consideration is classified as an equity instrument, it is measured at fair value on the acquisition date without subsequent measurement.

Goodwill is initially measured at cost which represents the difference between the acquisition consideration and the amount of non-controlling interests over the net identifiable assets acquired and liabilities assumed. If the resulting amount of goodwill is negative, the acquirer will recognize the resulting gain on the acquisition date.

Non-controlling interests

Measurement of non-controlling interests on the date of the business combination

Non-controlling interests for subsidiaries represent the equity of the subsidiaries that cannot be attributed, directly or indirectly, to the parent company. Non-controlling interests are measured separately under the Company's equity and measured at the date of the business combination at fair value, or according to their proportionate share in the assets and liabilities identified with the acquiree, on a separate basis for each transaction.

This accounting policy choice does not apply to other instruments that meet the definition of noncontrolling interests (such as options for ordinary shares). These instruments will be measured at fair value or in accordance with other relevant IFRS.

Allocation of comprehensive income to the shareholders

Profit or loss and any part of other comprehensive income are allocated to the owners of the Company and the non-controlling interests. The loss is allocated to the owners of the Company and the non-controlling interests even if the result is a negative balance of non-controlling interests.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

G. Investment in associates

Associates are entities in which the Group has significant influence, but not control, over the financial and operating policies.

In assessing significant influence, potential voting rights that are currently exercisable or convertible into shares of the investee are taken into account.

The investment in associates is accounted for using the equity method and is first recognized at cost, including transactions costs. The investment includes original differences calculated at the acquisition date. Goodwill is calculated at the acquisition date, is not systematically amortized, and is tested for impairment as part of the investment in an associate. The investment is presented net of aggregate impairment losses. The consolidated financial statements include the Group’s share in net assets, income and expenses, profit or loss, and other comprehensive income of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases.

When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to zero and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. If the associate subsequently reports profits, the Group begins to recognize its share in these profits again, only after its share of the profits equals the share of the unrecognized losses.

The financial statements of the Company and its associates are prepared as of the same dates and periods.

Discontinuation of significant influence

The Group discontinues applying the equity method from the date it loses significant influence or achieves control and it accounts for the retained investment as a financial asset or subsidiary, as relevant.

On that date, the Group measures at fair value any retained interest it has in the former associate and recognizes in profit or loss the difference between the sum of the fair value of the retained interest and the proceeds received from the partial disposal of the investment in the associate, and the carrying amount of the investment at that date. The amounts recognized in capital reserves through other comprehensive income with respect to the same associate are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the associate had itself realized the same assets or liabilities.

Change in interest held in associates while retaining significant influence

When the Group increases its interest in an associate while retaining significant influence, it implements the acquisition method with respect to the additional interest obtained whereas the previous interest remains the same.

When there is a decrease in the interest in an associate accounted for by the equity method while retaining significant influence, the Group derecognizes a proportionate part of its investment and recognizes in profit or loss a gain or loss from the sale under other income or other expenses.

Furthermore, on the same date, a proportionate part of the amounts recognized in capital reserves through other comprehensive income with respect to the same associate are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the associate had itself realized the same assets or liabilities.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

H. Insurance contracts and asset management contracts

IFRS 4, Insurance Contracts allows the insurer to continue with the same accounting policy that was in effect prior to the transition date to IFRS for insurance contracts that it issues (including related acquisition costs and related intangible assets) and the reinsurance contracts that it acquires

Summary of the accounting policies for insurance contracts:

1. Life insurance and long-term saving

A) Recognition of revenue (see section V below).

B) Liabilities for life insurance contracts

Liabilities for life insurance contracts in Israel are calculated according to the Commissioner's directives (regulations and circulars), generally accepted accounting principles and standard actuarial methods. The liabilities are calculated according to the relevant coverage data, such as the age of the policyholder, number of years of coverage, type of insurance and sum of insurance.

Liabilities for life insurance contracts are determined on the basis of an actuarial assessment performed by the chief actuary at The Phoenix Insurance Ltd. ("The Phoenix Insurance"), Daniel Sharon. The share of reinsurers in liabilities for life insurance contracts is based on the terms of the relevant contracts.

Liabilities for CPI-linked life insurance contracts and CPI-linked investments used to cover these liabilities were included in the financial statements according to the most recently published CPI prior to the balance sheet date, including liabilities for life insurance contracts in respect of policies with semi-annual linkage.

C) The Commissioner's directives for liabilities for annuities

Circulars issued by the Commissioner, regarding the calculation of the liabilities for annuities in life insurance policies provide directives on how to calculate the provisions as a result of the improvement in life expectancy that requires monitoring the adequacy of the liabilities for life insurance contracts that permit the receipt of an annuity, and their appropriate supplementation.

Accordingly, The Phoenix Insurance immediately supplemented the liability, to the extent necessary, for policies in which annuities are paid when the policyholder reached retirement age or for a group of unprofitable policies. For other policies, where profits are expected, the liability is supplemented alongside the receipt of the expected income, over the policy period.

For further information see Note 40, section 5.1.2

D) Deferred acquisition costs:

1) Deferred acquisition costs ("the DAC") for life insurance policies sold as from January 1, 1999 include commissions for agents and acquisition supervisors and general and administrative expenses related to the acquisition of new policies. The DAC is amortized at equal annual rates over the policy period but not over more than 15 years. The DAC for cancelled or settled policies are written off at the cancellation or settlement date.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

H. Insurance contracts and asset management contracts (Continued)

Life insurance and long-term saving (Continued)
D) Deferred acquisition costs (Continued):
- 2) The actuary of The Phoenix Insurance assesses the recoverability of the DAC every year. This assessment verifies that the liabilities for insurance policies, net of the DAC, is sufficient, and that the policies are expected to generate future income to cover the DAC deduction and the insurance liabilities, operating expenses and commissions for those policies .
  - The assumptions used in this assessment, including assumptions regarding cancellations, operating expenses, yield on assets, mortality and morbidity rates, are determined by the Company's actuaries every year on the basis of past experience and relevant current surveys.
- 3) Commissions to agents and acquisition supervisors that are paid for acquisition of asset management contracts (pension and provident funds) are recognized as deferred acquisition costs (DAC) if they are separately identifiable and reliably measured and if their refund is expected through expected management fees. The DAC is amortized at equal annual rates over 10 years.

E) Liability adequacy testing for life insurance contracts

The Group tests for reserve adequacy. If the test indicates that the premiums received are insufficient to cover the expected claims, less insurance reserves at the calculation date, a special provision is recorded for the deficiency. Individual policies and collective policies are tested separately. Collective policies are tested on the single collective level.

The assumptions used in these tests include assumptions regarding cancellations, operating expenses, yield from assets, mortality and illness rates, and are determined by the actuary every year on the basis of past experience and other relevant surveys.

Following the test performed by The Phoenix Insurance on December 31, 2014, The Phoenix Insurance included an increase of the insurance liabilities for reserves for individual policies in health insurance. For further information see Note 40, section 5.1.8.

F) Outstanding claims

Outstanding claims, net of the reinsurers’ share therein, are computed on an individual case basis, according to the valuation of The Phoenix Insurance experts, based on the notifications regarding the insurance events and the sums insured.

The provisions for pension payments, annuities, long lasting payment claims for disability insurance, the direct and indirect expenses deriving from them, as well as the provisions for incurred but not yet reported claims (IBNR) are included under the liabilities for insurance contracts and investment contracts.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

H. Insurance contracts and asset management contracts (Continued)

Life insurance and long-term saving (Continued)

G) Investment contracts

Intakes for investment contracts are not included in the item of earned premiums but are directly recorded under liabilities for insurance and investment contracts. Surrenders and maturities of these contracts are not included in the statement of income but are deducted directly from liabilities for insurance contracts and investment contracts.

For these contracts, investment revenue, management fees collected from the policyholders, change in liabilities and payments for insurance contracts in respect of the share of the policyholders in investment revenue, commissions to agents, and general and administrative expenses are recognized in the statement of income.

H) Provision for participation in earnings of policyholders in group insurance

The provision is included under creditors and payables. In addition, the change in the provision is offset by income from the premium.

2. General insurance

A) Recognition of revenue – see section V above.
B) Payments and changes in liabilities for insurance contracts, gross and on retention, include settlement and direct handling costs of claims paid and indirect expenses to settle outstanding claims that occurred during the reporting period, as well as an adjustment of the provision for outstanding claims (including a provision for direct and indirect costs for handling claims) recorded in previous years.
C) Liabilities for insurance contracts and deferred acquisition costs

The insurance reserves and outstanding claims included in liabilities for insurance contracts, and the reinsurers’ share in the reserve and in the outstanding claims under reinsurance assets, are computed in accordance with the Control of Financial Services Regulations (Insurance) (Calculation of General Insurance Reserves), 2013 ("the Calculation of Reserves Regulations), the Commissioner's directives, and standard actuarial methods for computing outstanding claims, which are applied according to the chief actuaries’ discretion.

D) Liabilities for insurance contracts are composed of insurance reserves and outstanding claims, as follows:
1) The unearned premium reserve reflects the insurance premium for the insurance period subsequent to the balance sheet date and is calculated on a daily basis.
2) Provision for premium deficiency. The provision is recognized if the unearned premium (less deferred acquisition costs) does not cover the expected cost for insurance contracts. In the motor property, comprehensive housing, and business branches, the provision is based on a model in the Calculation of Reserves Regulations.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

H. Insurance contracts and asset management contracts (Continued)

2. General insurance(Continued)

D) Liabilities for insurance contracts are composed of insurance reserves and outstanding claims, as follows(Continued):
3) Insurance reserves and outstanding claims are computed according to the methods set out below:
- 3.1 Outstanding claims and the reinsurers’ share therein are included on the basis of an actuarial valuation, except for the branches detailed in section 3.2 below. Indirect expenses to settle claims are included on the basis of an actuarial valuation. The actuarial calculation for The Phoenix Insurance, for general insurance, was prepared by the appointed actuary at the Phoenix Insurance, Anna Nahum, who is employed by The Phoenix Insurance.
- 3.2 In insurance branches for marine hull, aircraft including third-party liability, incoming business and other risks, for which the actuary determines that an actuarial model cannot be applied, due to the absence of statistical significant, outstanding claims were included, based on an individual valuation for each claim according to an opinion received from attorneys and experts of The Phoenix Insurance who handle claims according to the reports of ceding companies for incoming business, with the addition of IBNR if necessary. The valuations include appropriate provision for unpaid settlement and handling expenses at the date of the financial statement.

3.3. Surplus of income over expenses

For businesses with long tail claims (branches in which it could be several years before the claim is settled), such as the liability and motor act branches, excess of income over expenses ("the Excess") is calculated on an aggregate tri-annual basis.

The excess is calculated in accordance with the Reserve Calculation Regulations and the Commissioner's directives, based on revenue from premiums less claims and acquisition costs (up to a limit determined by the Commissioner as a percentage of the premium), plus revenue from investments calculated at an annual rate of 3% (independent of actual return on the investments), less the share of reinsurers, according to insurance branch and underwriting year. The excess accumulated until its release, from the beginning of the insurance, net of the unearned premium reserve, net of deferred acquisition costs, and net of outstanding claims as described above aforesaid, is included in liabilities for the insurance contracts. If the actuary estimates that any underwriting year will end in a loss, that loss is charged to the statement of insurance business in that same year.

3.4 Claims recoveries and salvage are taken into consideration in the data-base by which the actuarial valuations of the outstanding claims are calculated.
3.5 The Phoenix Insurance believes that the outstanding claims are appropriate, sufficient, given that the outstanding claims are calculated mainly on an actuarial basis and their balance includes appropriate provisions required for IBNR.
3.6 For information about the expected changes in the calculation of insurance reserves in general insurance, including elimination of the Excess, see Note 40(5) (2).

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

H. Insurance contracts and asset management contracts (Continued)

General insurance (Continued)
D) Liabilities for insurance contracts are composed of insurance reserves and outstanding claims, as follows (Continued):
- 3) Insurance reserves and outstanding claims are computed according to the methods set out below (Continued):
  - 3.7 For information about the profitability in the liability branch in 2013, see the disclosure provided at the request of the Capital Market division and the Israel Securities Authority in Note 18E(2).
E) Deferred acquisition costs in general insurance include fees for agents and general and administrative expenses for acquisition of polices, referring to unearned insurance premiums. The acquisition costs are calculated for each branch separately, on the basis of the actual rates of expenses or according to standard rates, as a percentage of the unearned premium, at the lower of the two.
F) Business received from the Israeli pool for motor vehicle property insurance of the Association of Insurance Companies in Israel (“the Pool”), from other insurance companies (including coinsurance and incoming foreign business) and from underwriting agencies, is reported according to the reports received up to the balance sheet date with the addition of the relevant provisions, based on the insurance subsidiaries’ rate of participation in them.

3. Healthcare insurance

A) Recognition of revenue – see section V below.
B) Liabilities for healthcare insurance contracts

Liabilities for healthcare insurance contracts in Israel are computed according to the Commissioner's directives (regulations and circulars), generally accepted accounting principles and standard actuarial methods. The liabilities are calculated according to the relevant coverage data, such as the age of the policyholder, number of years of coverage, type of insurance and sum of insurance.

Healthcare insurance liabilities and the reinsurers' share therein are determined on the basis of an actuarial assessment performed by the supervising actuary in The Phoenix Insurance, Dafna Wairauch, who is an employee of The Phoenix Insurance.

C) Liability adequacy testing for health insurance contracts

The parameters and assumptions used in these tests include assumptions regarding cancellations, operating expenses, mortality and illness rates, which are determined by the actuary on the basis of past experience and other relevant surveys. For collective policies, tests are for reserve adequacy in accordance with experience of the collective claims.

Following the assessment performed by The Phoenix Insurance on December 31, 2014, The Phoenix Insurance recognized an increase of the insurance liabilities for long-term care. For further information, see Note 40, section 5.1.8.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

H. Insurance contracts and asset management contracts (Continued)

3. Healthcare insurance (Continued)

D) Outstanding claims

The provisions for long lasting payment claims for long-term care insurance, the direct and indirect expenses deriving from them, as well as provisions for incurred but not yet reported claims (IBNR) are included under liabilities for insurance reserves.

E) Provision for profit sharing of policyholders in collective insurance

The provision for profit sharing of policyholders in collective insurance is included under creditors and payables. In addition, the change in the provision is offset by income from the premium.

F) Deferred acquisition costs

1) Deferred acquisition costs ("DAC") include commissions for agents and acquisition supervisors and general and administrative expenses related to acquisition of new policies. In healthcare and hospitalization branches, policies are amortized at equal rates over the period of the policy, but no longer than six years, and in long-term health insurance branches (such as long-term care and dread diseases) the policies are amortized over no more than 15 years. Deferred acquisition costs relating to canceled policies are written off on the cancellation date.
2) The Company's actuary assesses the recoverability of the DAC every year. The assessment verifies that the liabilities for insurance policies (policies sold in 2005 and for which the DAC is calculated), net of the DAC is adequate and that the policies are expected to generate future income to cover the DAC deduction, insurance liabilities, operating expenses and commissions for those policies.

The assumptions used in this assessment, which include assumptions regarding cancellations, operating expenses, yield on assets, mortality and illness rates, are determined by the actuaries every year on the basis of past experience and relevant current surveys.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

I. Financial instruments

1. Non-derivative financial instruments

Non-derivative financial instruments include both financial assets and financial liabilities. Financial assets include financial investments (marketable debt assets, non-marketable debt assets, shares and others) and other financial assets such as premiums receivable, other receivables, cash and cash equivalents. In addition, financial instruments include financial liabilities, such as loans and borrowings received, and trade and other payables.

Initial recognition of financial assets

Non-derivative financial instruments are recognized initially at fair value, and for instruments not presented at fair value through profit or loss plus any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured as described below.

A financial instrument is recognized as an asset or liability when the Company accepts the contractual terms (the transaction date).

Financial assets are classified into the following groups:

Cash and cash equivalents

Cash comprises cash balances available for immediate use and call deposits. Cash equivalents include highly liquid investments, including short-term investments that can be easily converted into known amounts of cash and that are exposed to an insignificant risk of changes in value and are unpledged.

Held-to-maturity investments

If the Company has the positive intent and ability to hold debt securities to maturity, then such debt securities are classified as held-to-maturity. Held-to-maturity investments are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, held-tomaturity investments are measured at amortized cost using the effective interest method (taking into consideration transaction costs), less any impairment losses.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets designated as available for sale or are not classified into one of the following categories: financial assets are measured at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Gains or losses from fair value adjustments, except for interest, exchange differences, and a dividend from a capital instrument, are recognized in other comprehensive income. When the investment is disposed of or in case of impairment, other comprehensive income (loss) is reclassified to the statement of income.

Financial assets at fair value through profit or loss

A financial instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition.

Loans and receivables

Loans and receivables are investments repaid in fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans are recognized at cost, plus direct transaction costs, using the effective interest rate, and less provision for impairment. Shortterm receivables are recognized according to their terms, usually at their nominal value.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

I. Financial instruments (continued)

2. Offset of financial instruments

Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when the Group currently has a legally enforceable right to offset the amounts recognized and intends either to settle the asset or liability on a net basis or to dispose of the asset and settle the liability simultaneously.

The right to offset must not only be legally enforceable in the normal course of business, but must also be enforceable in the event of bankruptcy or insolvency of one of the counterparties. Offset must not be contingent on a future event or periods of time in which they will not apply, or may be removed by a future event.

3. Derivative financial instruments

Financial derivatives are recognized initially at fair value; attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes in fair value are recognized in the statement of income under income from investments, net and finance revenue.

4. CPI-linked assets and liabilities that are not measured at fair value

The value of CPI-linked financial assets and liabilities, which are not measured at fair value, is remeasured every period in accordance with the actual increase in the CPI.

5. Designation of assets

A) Financial assets in investment portfolios of policies participating in investment profits

These assets, which include marketable and non-marketable financial instruments are recognized at fair value through profit or loss, for the following reasons: these are portfolios under management, separate and identified, whose statement at fair value significantly reduces an accounting mismatch of reporting financial assets and financial liabilities at different bases of measurement. Furthermore, the management is based on fair value and the portfolio's performance is measured at fair value, in accordance with a documented risk management strategy. The information about the financial instruments is reported to the management (the relevant investments committee) internally at fair value.

B) Non-marketable financial assets that are not included in investment portfolios against profitparticipating policies (nostro)

Assets that meet the criteria of the group of loans and receivables, including Hetz debentures, were classified in this group and measured at amortized cost, using the effective interest method.

Non-marketable capital instruments are classified as available-for-sale financial assets.

C) Marketable financial assets which are not included in investment portfolios against profit participating policies (nostro), which do not include embedded derivatives or do not constitute derivatives (including investment funds)

These assets are classified as financial instruments available for sale.

D) Financial instruments that include embedded derivatives requiring separation

These assets are designated in groups of fair value through profit or loss.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

I. Financial instruments (continued)

5. Designation of assets (continued)

E) Marketable financial assets in an investment management subsidiary

These assets were classified in groups of fair value through profit or loss, and include financial assets held for trading and financial assets designated at fair value through profit or loss.

6. Financial liabilities

The liabilities are recognized initially at fair value. Other loans and liabilities measured at amortized cost are presented net of direct transaction costs.

Subsequent to initial recognition, the accounting treatment of financial liabilities is based on their classification as described below:

A) Financial liabilities at amortized cost

Subsequent to initial recognition, loans and other liabilities are recognized at cost, less direct transaction costs, using the effective interest rate.

B) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities classified as held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss.

Financial liabilities are classified as held for trading if they were acquired principally for the purpose of selling in the short term. Profit or loss for liabilities held for trading is recognized in profit or loss.

Derivatives, including separated embedded derivatives, are classified as held for trading unless they are designated as effective hedging instruments.

The Group assesses whether embedded derivatives are required to be separated from host contracts when the Group first becomes party to the contract. The need for separation is only reassessed if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

A liability may be designated at initial recognition to fair value through profit or loss, subject to the conditions set out in IAS 39.

C) Liabilities for financial guarantees

Liabilities for financial guarantees are initially recognized at fair value, taking into account direct transaction costs attributed the guarantees provided. Subsequent to initial recognition, the liability is measured at the higher of the amount initially recognized (net of appropriate amortization over the guarantee period), and the estimated amount required (if required) to recognize it at the reporting date in accordance with IAS 37 for the guarantee amount.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

I. Financial instruments (continued)

7. Put option granted to non-controlling shareholders

Up to December 31, 2009, the Group granted non-controlling shareholders ("the Minority") a put option to sell part or all of their interests in a subsidiary during a certain period. Non-controlling interests are classified as financial liabilities on the day of allotment. At each reporting date, the Group recognizes financial liabilities at the present value of the estimated expected payment to the non-controlling interests. At the same time, the non-controlling interests are accounted for as if they are held by the Group. For business combinations that occurred up to December 31, 2009, changes in the liability in subsequent periods, other than the time value recognized in profit or loss, caused by a change in the estimate expected payments, are recognized in goodwill up to exercise of the option.

For business combinations that occurred after January 1, 2010, any changes in the liability are recognized in profit or loss. If the options are exercised in subsequent periods, the transactions are accounted for as the sale of the liabilities. If the option expires, the expiry is accounted for as sale of an investment in the subsidiary while maintaining control.

8. Derecognition of financial instruments

A) Financial assets

A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Group transfers the rights to receive the contractual cash flows on the financial asset or assumes an obligation to pay the cash flows in full to a third party, without material delay, or transfers substantially all the risks and rewards of the asset, or neither transfers nor retains substantially all the risks and rewards of the asset, but transfers control of the asset.

If the Company transfers its rights to receive cash flows from an asset and neither transfers nor retains substantially all the risks and rewards of the asset nor transfers control of the asset, a new asset is recognized to the extent of the Company's continuing involvement in the asset. When continuing involvement takes the form of guaranteeing the transferred asset, the extent of the continuing involvement is the lower of the original carrying amount of the asset and the maximum amount of consideration received that the Company could be required to repay.

B) Financial liabilities

A financial liability is derecognized when it is extinguished, that is, when the liability is discharged, canceled or expires. A financial liability is extinguished when the debtor (the Group) repays the liability by a cash payment, other financial assets, goods or services, or is legally discharged of the liability.

Where an existing financial liability is exchanged with another financial liability from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is accounted for as an extinguishment of the original liability and the recognition of a new liability at fair value as of this date. The difference between the carrying amount of the above liabilities in the financial statements is recognized in the statement of income. If the exchange or modification is immaterial, it is accounted for as a change in the terms of the original liability and no gain or loss is recognized from the exchange. When determining whether a change in substantive terms of an existing liability, the Company takes into consideration quantitative and qualitative considerations.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

J. Property, plant and equipment

Items of property, plant and equipment are measured at cost with the addition of direct acquisition costs, less aggregate depreciation and impairment losses, net investments grants and excluding day-to-day servicing expenses. The cost includes spare parts and servicing equipment used in the property, plant and equipment.

The components of an item of property, plant and equipment with a significant cost in relation to the total cost of the item, are depreciated separately, according to the components method. Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:

Buildings Computers Motor vehicles Equipment and furniture Leasehold improvements Works of art	2012-2014
	Years
	20-80 4-7 7 7-17 See below Without depreciation

Leasehold improvements are depreciated on a straight line basis over the rental period (including the option period for extension that the Group intends to exercise) or according to the estimated useful life of the improvement, whichever is shorter.
The useful life, depreciation method and value in retention are reviewed at least at each year-end and changes are accounted for prospectively as a change in an accounting estimate. Depreciation of assets ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized. See section N below for further information about impairment of property, plant and equipment.

K. Investment property

Investment property is measured initially at cost, including direct acquisition costs. After initial recognition, investment property is measured at fair value which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment property are recognized in profit or loss as incurred. Investment property is not systematically depreciated.

Investment property under development for future use as investment property is also measured at fair value as set out above, when fair value can be reliably measured. The cost basis of property under development includes the cost of land plus the costs of credit used to finance the construction, direct incremental planning and development costs and brokerage fees for rental agreements.

The Group determines the fair value of investment property on the basis of a valuation by outside independent assessors who are experts in the valuation of property and have the appropriate expertise experience, and on the basis of the extensive professional expertise of the Group's management, as well on the valuation of internal expert assessors.

Assisted living units, other than nursing departments and supporting units, are recognized as investment property.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

L. Leases

The tests for classifying leases as finance or operating leases depend on the substance of the agreements and are made at the inception of the lease in accordance with the principles below as set out in IAS 17.

1. Finance lease

Finance leases transfer to the lessor all the risks and benefits incidental to ownership of the leased asset. At the commencement of the lease term, the leased asset is measured at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. The leased asset is amortized over its useful life, or the lease term, whichever is lower.

2. Operating lease

Assets are classified as an operating lease if they do not transfer substantially all the risks and benefits incidental to ownership of the leased asset. The lease payments are recognized as an expense in the statement of income, on a straight-line basis over the lease term.

M. Intangible assets

Separately acquired intangible assets are measured on initial recognition at cost with the addition of costs directly attributable to the acquisition. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding capitalized development costs, are recognized in the statement of income when incurred.

Intangible assets with indefinite useful lives are not systematically amortized and are tested for impairment annually or whenever there is an indication that the intangible asset may be impaired. The useful life of these assets is reviewed annually to determine whether their indefinite life assessment continues to be supportable. If the events and circumstances do not continue to support the assessment, the change in the useful life assessment from indefinite to finite is accounted for as a change in accounting estimate and on that date the impairment of the asset is tested and it is amortized systematically over its useful economic life.

Intangible assets with a finite useful life are amortized over their useful life and reviewed for impairment when there are indications of impairment. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at each year end.

1. Software development costs

Software development costs are only capitalized if the development costs can be measured reliably; the software is technically and commercially applicable; and the Group has sufficient resources to complete the development and intends to use the software. A capitalized expense includes the cost of the materials, direct labor and overhead expenses directly attributable to preparation of the asset for its intended use. Other development expenses are recognized in profit or loss as incurred.

Capitalized development costs are measured at cost less aggregate amortization and impairment losses.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

M. Intangible assets (continued)

2. Software

The Company’s assets include computer systems consisting of hardware and software. Software that is an integral part of the hardware, which cannot function without the programs installed on it, is classified as property, plant and equipment. However, licenses for stand-alone software which adds functionality to the hardware is classified as intangible assets.

3. Subsequent expenditure

Subsequent expenditure is recognized as an intangible asset only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

Amortization, except for goodwill, is recognized in the statement of income over the estimated useful life of the intangible assets, from the date on which the assets are available for use.

4. Amortization

The estimated useful lives for the current and comparative periods are as follows:

Computer software Brand Non-competition agreements Provident fund management fees Commission portfolios	Years Amortization method
	3-10 Straight line 5-8 Straight line 5-13 Straight line 9 Expected benefit 2-10 Straight line

The estimates underlying the depreciation method and useful life are reviewed at least at the end of each reporting date.

N. Impairment

The Group assesses whether there is impairment of financial assets or a group of financial assets at each reporting date.

1. Financial investments

A) Financial assets measured at amortized cost

There is objective evidence of impairment when one or more events had a negative effect on the estimated future cash flows after initial recognition. The amount of the loss recorded in the statement of income is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the original effective interest rate of the financial asset. If the financial asset has a variable interest rate, the discount rate is the current effective interest rate.

In subsequent periods, the amount of the impairment loss is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was recognized. The amount of the reversal, up to the amount of any previous impairment, is recorded in profit or loss.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

N. Impairment (continued)

1. Financial investments(continued)

A) Financial assets measured at amortized cost(continued)

The Group considers evidence of impairment for debt assets classified as loans and receivables at both a specific asset level and collective level (collective review). All individually significant loans and receivables are assessed for specific impairment. Loans and receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified.

In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

B) Available-for-sale financial assets

The evidence for equity instruments classified as available-for-sale financial assets includes a significant or prolonged decline in the fair value of the asset below its cost and calculation of changes in the technological, market, economic or legal environment in which the issuer of the instrument operates. The calculation of a significant or prolonged impairment depends on the circumstances at the end of each reporting period. The calculation considers historical volatility in fair value and the existence of an ongoing decrease in fair value. Where there is evidence of impairment, the aggregate loss, which is recognized in other comprehensive income, is reclassified in profit or loss. In subsequent periods, reversal of impairment loss is not recognized in profit or loss but recognized as other comprehensive income (loss).

Evidence of impairment for debt instruments classified as available-for-sale financial assets includes one or more events that have a negative impact on the estimated future cash flows of the asset.

Subsequent to the investment date, where there is evidence of impairment, the aggregate loss, which is recognized in other comprehensive income is recognized as an impairment loss in profit or loss. In subsequent periods, the amount of the impairment loss is reversed if the increase in fair value can be related objectively to an event occurring after the impairment was recognized. The amount of the reversal, up to the amount of any previous impairment, is recorded in profit or loss.

2. Reinsurance

Reinsurance liabilities to The Phoenix Insurance do not exempt it from its liabilities to policyholders according to the insurance policies. If a reinsurer fails to fulfill its liabilities under the reinsurance contracts, The Phoenix Insurance may incur losses.

The Phoenix Insurance includes a provision for doubtful accounts in respect of reinsurers’ debts whose collection is doubtful on the basis of individual risk estimates and on the basis of the scope of the debt.

In addition, when determining the reinsurers' share in insurance reserves liabilities, The Phoenix Insurance also considers the likelihood of collection from the reinsurers. When the reinsurers' share is calculated on an actuarial basis, the share of those reinsurers who are in financial difficulties is calculated in accordance with the actuary’s recommendation, which takes all the risk factors into account.

In addition, when preparing the provisions, The Phoenix Insurance takes into account, among other things, the willingness of the parties to reach cut off agreements (termination of agreements by final repayment of debts) to reduce exposure.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

N. Impairment (continued)

3. Premium to collect

The provision for premiums receivable in general insurance business is partially based on the extent of amounts due and on existing collateral.

4. Customer credit for acquisition of securities

Customer credit is recognized for the first time at fair value, and subsequently measured at amortized cost based on the effective interest method, less a provision for doubtful debts.

The provision for doubtful debts is determined specifically for debts which the Company's management believes are unlikely to be collected. Impaired trade receivables are derecognized when they are assessed as uncollectible.

5. Non-financial assets

The Group assesses impairment of non-financial assets, which are not deferred acquisition costs, investment property, assets arising from employee benefits, and deferred tax assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. When the carrying amount of the non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable value. The recoverable value is the higher of the fair value less selling costs and its value in use.

When measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate Independent cash flows is determined for the cash-generating unit to which the asset belongs. All impairment losses are recognized in the statement of income under other expenses.

An impairment loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. Reversal of the loss is limited to the lower of the amount of previously recognized impairment of the asset (net of depreciation or amortization) or the recoverable amount of the asset. For an asset measured at cost, reversal of the loss is recognized in profit or loss.

The following criteria are applied in assessing impairment of these specific assets:

A) Goodwill for subsidiaries

The Company assesses goodwill impairment annually, for December 31, or more frequently if events or changes in circumstances indicate impairment.

Impairment of goodwill is determined by assessing the recoverable amount of a cash generating unit (or group of cash generating units) to which the goodwill belongs. An impairment loss is recognized if the recoverable amount of the cash generating unit (or group of cash generating units) to which goodwill has been allocated is less than the carrying amount of the cash generating unit (or group of cash generating units). Impairment losses recognized for goodwill cannot be reversed in subsequent periods.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

N. Impairment (continued)

5. Non-financial assets(continued)

B) Associates

After implementing the equity accounting method, the Company assesses whether it is necessary to recognize further loss for impairment of the investment in associates. At each balance sheet date, it is assessed whether there is objective evidence of impairment of an investment in an associate. Impairment is assessed for the entire investment, including goodwill attributable to the associate.

C) Intangible assets with indefinite useful life

The Group assesses goodwill for impairment annually, on December 31, or more frequently if events or changes in circumstances indicate impairment.

O. Fair value measurement

Fair value is the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value measurement assumes a transaction taking place in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market.

The fair value of the asset or liability is based on assumptions that would have been used by market participants to price the asset or liability, assuming that market participants act in their economic interests.

Fair value measurement of a non-financial asset takes into account the ability of a market participant to generate economic benefits through the optimal use of the asset, or by selling it to another market participant that will make optimal use of the asset.

The Group uses valuation techniques that are appropriate to the circumstances and for which sufficient information is available to measure fair value, while maximizing the use of relevant observable data and minimizing the use of unobservable data.

The fair value of traded financial instruments is determined by market prices on the reporting date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm's length market transactions; reference to the current market value of another instrument which is substantially the same; discounted cash flows or other valuation models. The fair value of non-marketable debentures, loans and deposits is based on the discounted cash flow model. See Note 13G.

All assets and liabilities measured at fair value, or for which there was fair value disclosure, are categorized within the fair value hierarchy, based on the lowest level of the data, which is significant to fair value measurement of a whole:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly

Level 3: Inputs that are not based on observable market data (unobservable inputs) (assessment without using observable market inputs).

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

P. Share capital and treasury shares

Costs directly attributable to the issue of shares and share options are recognized as a deduction from equity.

The Company’s shares held by the Company and/or subsidiaries are measured at their acquisition cost and are offset from the Company’s equity. Any profit or loss from the purchase, sale, issue or cancellation of treasury shares is recognized directly in equity.

Q. Employee benefits

The Group has several employee benefit plans:

1. Short-term employee benefits

Short-term employee benefits are benefits which are expected to be fully paid up to 12 months after the end of the annual reporting period in which employees provide the services. These benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized as expenses as the services are rendered. A liability for a cash bonus or a profit-sharing plan is recognized when the Group has a legal or constructive obligation to make such payment as a result of service rendered by an employee and a reliable estimate of the amount can be made.

2. Post-employment benefits

Defined contribution plans

The Group has defined contribution plans in accordance with Section 14 of the Severance Pay Law in Israel. According to these plans, the Group pays fixed contributions without having a legal or constructive obligation to pay further contributions if the fund does not hold sufficient amounts to pay all employee benefits related to the employee's service in the current and prior periods.

Contributions to the defined contribution plan for severance pay or compensation are recognized as an expense when contributed simultaneously with receiving the employee's services. In addition, the Group has a defined benefit plan for severance pay under the Severance Pay Law. According to the Law, employees are entitled to severance pay upon dismissal or retirement.

The liability for severance pay is measured on the basis of the actuarial value of the projected credit unit. The actuarial assumptions include future salary increases and rates of employee turnover based on the estimated timing of payment. The amounts are presented on the basis of discounting the expected future cash flows using the interest rate based on the yield at the reporting date on CPI-linked high quality corporate debentures with maturity dates approximating the period for the Group's obligation for severance compensation. For information about the effect of the change arising from the use of the interest rate on CPI-linked high quality corporate debentures, see section AA below.

The Company makes current deposits for its liability to pay compensation to some of its employees in pension funds and insurance companies ("the Plan Assets"). The Plan Assets are assets held by the employee benefit fund in the long term or relevant insurance policies The Plan Assets are not available for the use of the Group’s creditors, and cannot be paid directly to the Group.

The compensation component in policies issued by the Company does not constitute plan assets and is offset from liabilities for insurance contracts.

The liability for employee benefits in the statement of financial position presents the present value of the defined benefit liability less the fair value of the Plan Assets.

Remeasurements of the net liability are recognized in other comprehensive income.

— 52 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Q. Employee benefits (continued)

3. Other employee benefits

Group employees are entitled to benefits for adaptation grants. The Group’s net obligation for other employee benefits, other than post-employment benefit plans, is for the amount of future benefit that employees have earned in return for their service in current and prior periods.

4. Termination benefits and voluntary retirement benefits

Termination benefits are recognized as an expense when the Group has committed to terminate employment before the retirement age and it is unable to cancel the offer, or when the Group recognizes restructuring costs that include payment of termination benefits, whichever is earlier.

5. Share-based payments

The fair value on the grant date of the equity instruments granted to employees is recognized as a salary expense with a corresponding increase in capital reserve over the period in which the employees become entitled to the equity instruments ("the Vesting Period"). The amount recognized as an expense is adjusted to reflect the number of equity instruments that are expected to vest.

Fair value estimates do not take into account vesting conditions (including service and performance conditions that are not market conditions). The only conditions taken into account when estimating fair value are market conditions and non-vesting conditions.

No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether the market condition is satisfied, provided that all the other vesting conditions (service and/or performance) are satisfied.

If the Company modifies the conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee at the modification date.

If a grant of an equity instrument is cancelled, it is accounted for as if it had vested on the cancellation date, and any expense not yet recognized for the grant is recognized immediately. However, if a new grant replaces the cancelled grant and is identified as a replacement grant on the grant date, the cancelled and new grants are accounted for as a modification of the original grant, as described in the previous paragraph.

When the Company grants employees of the Group rights in its equity instruments, the grant is accounted for as an equity-settled share-based payment. In other words, the fair value of the grant is recognized directly in equity, as set out above.

Cash-settled transactions

The cost of cash-settled transactions is measured at fair value on the grant date using a standard pricing model for options. For further information see Note 36. The fair value is recognized as an expense over the vesting period and a corresponding liability is recognized. The liability is remeasured at each reporting date until settled at fair value, with any changes in fair value recognized in the statement of income, taking into account the scope of services provided until that date.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

R. Liability for exchange-traded funds and deposit certificates

Exchange-traded funds

Liabilities for exchange-traded funds {“ETFs”) issued by Excellence are measured initially at the value of their liability and recognized in the balance sheet plus dividends accrued as of the date of the financial statements, less accrued management fees and costs of issuance not yet amortized. This recognition it is not materially different from the amortized cost in the effective interest method since the liability period for the ETF holders is short-term and immediately repayable. Gains and losses are measured through the statement of income. Liabilities for ETFs are a compound financial instrument that includes a host contract and an embedded derivative. IAS 39 requires separation of the host contract (which in the case of ETFs is a zero-coupon loan) and the embedded derivative (which is a forward contract on the index to which the ETF is linked) and separate measurement. In accordance with IAS 39, the host contract in the ETF does not require separate presentation of each component of the compound instrument.

Excellence believes that presentation of the components of the ETF together most adequately reflects the economic nature of the liabilities for the ETFs.

In accordance with IAS 39, when a compound financial instrument includes an embedded derivative, the embedded derivative is stated at fair value. Since the ETF is a puttable instrument that can be resold at any given moment, the effect of separating an embedded derivative and the accounting treatment for each component is to measure the combined instrument at the redemption amount payable as of the reporting date, less issuance expenses. The fair value of the embedded derivative at the issuance date of the ETF is close to zero. Accordingly, the issuance costs of the ETFs are attributed proportionately between the embedded derivative and the host contract. Since the value of the embedded derivative is negligible, most of the issuance expenses are attributed to the host contract (zero coupon loan). The Group recognizes the discounts at the date of initial issue of the ETF to the statement of income.

Certificates of deposit

Liabilities for certificated of deposit issued by Excellence are measured initially at their liability value and recognized in the balance sheet plus interest accrued as of the date of the financial statements. This recognition it is not materially different from the amortized cost in the effective interest method since the liability period for the certificates of deposit holders is short-term and immediately repayable. Gains and losses are measured through the statement of income. Excellence recognizes the discounts at the date of initial issue of the certificates of deposit to the statement of income.

S. Liability for structure debentures, debentures and long-term loans

Debentures issued and loans received are initially recognized at fair value, less transaction costs. In subsequent periods, the debentures and loans are presented at amortized cost. Any difference between the consideration (less transactions costs) and the redemption value is recognized in profit or loss over the debenture or loan period, as relevant, using the effective interest method.

T. Liability for short sale of securities

Liabilities for short sale of securities are classified as liabilities for debentures, ETFs, reverse certificates, complex certificates, certificates of deposit and structured bonds at fair value through profit or loss. Therefore, these liabilities are initially recognized at fair value when the attributable transaction expenses are recognized in profit or loss. These liabilities are measured subsequent to initial recognition at fair value in profit or loss.

— 54 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)

U. Provisions

A provision is recognized when the Group has a present legal or constructive obligation as a result of a past event, it is likely that financial resources will be required to settle the obligation and it can be estimated reliably. When the Group expects that some or all of the expense will return to the Company, such as in an insurance contract, the repayment will be recognized as a separate asset, only when it is highly likely that the asset will be received. The expense is recognized in the statement of income less the return of the expense.

Types of provision included in the financial statements:

1. Legal claims

A provision for claims is recognized if, as a result of a past event, the Group has a present legal or constructive obligation and it is more likely than not that an outflow of economic benefits will be required to settle the obligation and the amount of obligation can be estimated reliably.

2. Onerous contracts

A provision for onerous contracts is recognized when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received by the Group under it. The provision is measured at the lower of the present value of the anticipated cost of terminating the contract and the present value of the anticipated net cost of fulfilling the contract.

3. Levies

Levies imposed on the Company by government institutions through legislation, are accounted for in accordance with IFRIC 21, the obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy.

V. Recognition of revenue

Premiums
A) Premiums in life insurance and health insurance, including savings premiums and with the exception of intakes for investment contracts, are recognized as revenues when the Group is entitled to receive such premiums.

Cancellations are recorded when the notification is received from the policyholder or when initiated by the Group due to arrears in payments, subject to legal provisions. Participation in profits for policyholders is deducted from the premiums.

B) General insurance premiums are accounted for as income based on monthly reports. The premiums usually refer to an insurance period of one year. Gross income from premiums and changes in unearned premium are accounted for under earned premiums, gross.

Premiums in compulsory motor insurance are recognized when the premium is paid, since insurance cover is subject to payment of the premium.

Premiums for policies that come into effect after the balance sheet date or premiums for policies for a period exceeding one year are recorded as a prepaid income under other payables.

The monthly output, primarily in the motor casco and housing branches, include automatic renewals of policies due for renewal.

The income included in the financial statements is after cancellations requested by policyholders and net of cancellations and provisions due to non-payment of the premiums, subject to the law, and net of the policyholder's participation in profits, based on valid agreements.

— 55 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)

V. Recognition of revenue (continued)

2. Management fees

1. Management fees for unit linked insurance contracts

The management fees are computed in accordance with the Commissioner's directives on the basis of the yield and the aggregate saving of the policyholders in the profit-participating portfolio.

Management fees include the following components:

For policies sold as from January 1, 2004 – fixed management fees only

For policies sold until December 31, 2003 – fixed and variable management fees

The fixed management fees are computed at fixed percentages of the aggregate saving and are recorded on an accrual basis.

The variable management fees are computed as a percentage of the annual real profit (from January 1 to December 31) attributed to the policy, less the fixed management fees collected from that policy. Only positive variable management fees can be collected, net of negative amounts accumulated in the preceding years.

During each period, the variable management fees are recorded on an accrual basis in accordance with the real monthly yield if it is positive. In months when the real yield is negative, the variable management fees are reduced to the amount of the aggregate variable management fees collected since the beginning of the year. Negative yield for which a reduction of the management fees was not made during a current year, will be deducted for the purpose of computing the management fees from the positive yield in subsequent periods.

2. Management fees from pension funds and provident funds:

Income from the management of pension funds and provident funds is recognized on the basis of the balances of the managed assets and on the basis of the receipts from the members, in accordance with the Commissioner's directives.

3. Management fees of mutual funds and customer portfolio management:

Income from the management of mutual funds and income from the management of customer portfolios are recognized on the basis of the managed asset balance.

3. Commissions

Insurance agencies

Income from general insurance commission recognized as it is incurred.

Income from life insurance commissions is recognized on the basis of the date of entitlement for payment of the commissions according to agreements with the insurance companies, net of provisions for refunds of commissions due to expected cancellations of insurance policies.

Insurance companies

Income from reinsurance commissions in general, life and healthcare insurance is recognized as incurred.

4. Rental income

Rental income is recognized on a straight-line basis over the lease term. A fixed increase in rent over the term of the contract is recognized as income on a straight-line basis over the lease term.

— 56 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

V. Recognition of revenue (continued)

Recognition of income from the sale of works of art

Income from sale of works of art is included at the date of transfer when the income can be estimated reliably, there is a binding contractual agreement with the buyer and it is highly likely that the consideration will be received.

Income from financial services

Income from underwriting and distribution

Income from underwriting and distribution commission is recognized when the issuance and distribution is carried out, after fulfillment of the terms in the agreement with the company and/or issuer.

Income from brokerage fees

Income from trading fees is recognized on completion of the transactions.

W. Net gains (losses) from investments, finance income and expenses

Gains (losses) from net investments and finance investment include interest income and linkage differences for debt assets, dividend income, gains (losses) from the sale of financial assets available for sale, changes in the fair value of financial assets measured at fair value through profit or loss, foreign currency gains (losses) for debt assets, changes in the fair value of investment property and rental income of investment property. Gains (losses) from the disposal of investments are calculated as the difference between the proceeds from the sale, net, and the original or amortized cost and are recognized at the time of the sale. Interest income is recognized as it accrues using the effective interest method. Dividend income is recognized on the date that the Company’s right to receive payment is established which in the case of quoted securities is the ex-dividend date.

Finance expenses comprise interest expense on borrowings, interest and exchange rate differences on reinsurer deposits and balances, and changes in the time value of provisions. All borrowing costs, which are undiscounted, are recognized in profit or loss using the effective interest method.

X. General and administrative expenses

General and administrative expenses are classified as indirect costs to settle claims (included under payments and changes in liabilities for insurance and investment contracts), acquisition-related costs (included under fees, marketing costs and other acquisition costs) and the balance of general and administrative expenses included under this section. Classification is in accordance with the Group's internal models based on direct and indirect expenses.

Y. Taxes on income

The tax results for current or deferred taxes are recognized in profit or loss, except if they refer to items recognized in other comprehensive income or in equity.

Current taxes

The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted before the reporting date as well as adjustments for the tax liability for previous years.

— 57 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Y. Taxes on income (continued)

Deferred taxes

Deferred taxes are calculated for temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax purposes.

Deferred taxes are calculated at the tax rate that is expected to apply when the asset is disposed of or the liability is settled, based on tax laws that have been enacted or substantively enacted before the reporting date.

Deferred tax assets are reviewed at each reporting date and are reduced if it is not probable that they will be utilized. Temporary differences for which no deferred tax assets were recognized are reviewed at each reporting date and if it is probable that they will be utilized, an appropriate deferred tax asset is recognized.

Deferred taxes for investment property held to recover substantially all the economic benefits therein by disposal and not by use, are measured according to the expected settlement method of the underlying asset, based on disposal and not on use.

If the Company owns an asset entity, and the Company expects to dispose of the investment by selling the shares of the asset entity and not by disposing of the asset itself, the Company is required to recognize deferred taxes for the inside differences arising from the difference between the tax basis of the asset and its carrying amount, and for the outside differences arising from the difference between the tax basis of the shares and the share of the company holding the net assets of the subsidiary in the consolidated statements.

The calculation of deferred taxes does not take into account the taxes that would be applicable in the case of disposal of investments in investees, provided that the sale of these investments is not likely in the foreseeable future. Also, deferred taxes that would apply in the event of distribution of earnings by investees as dividends have not been taken into account in computing deferred taxes, since the distribution of dividends does not involve an additional tax liability or since it is the subsidiary's policy not to initiate distribution of dividends that triggers an additional tax liability.

Income tax relating to shareholder distributions of an equity instrument and transaction costs of an equity transaction are accounted for according to IAS 12.

Deferred taxes are offset if there is a legal right to offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation authority.

Z. Earnings per share

Earnings per share are calculated by dividing the net income attributable to equity holders of the Company by the weighted number of ordinary shares outstanding in the period.

Potential ordinary shares are included in the computation of diluted earnings per share when their conversion dilutes earnings per share from continuing operations. Potential ordinary shares that are converted during the period are included in diluted earnings per share only until the conversion date and from that date in basic earnings per share. The Company's share of earnings of investees is based on the earnings per share of the investees multiplied by the number of shares held by the Company.

— 58 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

AA. Reclassification

1. The balance sheet as of December 31, 2013 and 2012 included the following reclassifications:

Excellence Nessuah Provident Ltd.(a subsidiary) reclassified its statements of financial position as of December 31, 2013 and 2012 to retroactively reflect the presentation of investments of guaranteed-return provident fund members and the obligations to guaranteed-return provident fund members in its financial statements.

Pledged cash and cash equivalents and other receivables were reclassified to "financial assets for holders of bonds, exchange-traded funds, reverse certificates, complex certificates, certificates of deposit, and structured debentures". Other payables and bank credit were reclassified to "liabilities for holders of debentures, exchange-traded funds, reverse certificates, complex certificates, certificates of deposit, and structured debentures".

The reclassifications had no effect on total capital, statement of income, and comprehensive income.

2. Restatement - investment property

The Group's financial statements as of December 31, 2012 and December 31, 2011, and for each of the two years ended December 31, 2012 and December 31, 2011, respectively, were restated by way of reconciliation to retrospectively reflect the amendment to the accounting treatment of Ad 120 Residence Centers for Senior Citizens Ltd. ("Ad 120"), for the assisted living units owned by the Group, as investment property.

The Company believes that the nature and extent of the services provided by the Company to the tenants are not significant compared to the overall arrangement with the tenants. Accordingly, the Company believes that based on the business model, the assisted living units should be considered as investment property accounted for in accordance with the Company's accounting policy as set out in section K above.

3. Application of IAS 19

As from January 1, 2013, the Company changed its accounting policy and applied the amended IAS 19 for the first time. The changes were implemented by retrospective application in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, and accordingly, financial information of prior periods was restated.

— 59 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

AA. Reclassification (continued)

Effects of the change in accounting policy following initial application/restatement for investment property:

Consolidated Statements of Financial Position

As previously reported	Change (1) NIS thousands	As reported in these financial statements

1,176,537 749,023 (325,648) (1,782,439) (74,647) 1,190,665 507,469 (247,677) (1,564,528) (73,769)	(748,004) 1,022,039 (50,512) (160,764) (62,759) (748,212) 964,708 (39,574) (127,948) (48,975)	428,533
		1,771,062
		(376,160)
		(1,943,203)
		(137,406)
		442,453
		1,472,177
		(287,251)
		(1,692,476)
		(122,744)

— 60 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

AA. Reclassification (continued)

Consolidated statements of income

As previously reported	Change (1) Change (2) NIS thousands	Change (1) Change (2) NIS thousands	As presented in these financial statements

3,240,518 103,650 987,871 128,166 217,911 16,161 402,840 16,161 0.89 4.45 0.89 4.45 (487,126) 93,730 929,512 148,444 53,519 15,711 (29,993) 15,711 0.22 1.10 0.22 1.10	75,423 (65,531) (47,647) 10,938 32,812 13,789 32,812 13,789 0.13 0.65 0.13 0.65 83,442 (56,685) (45,404) 14,416 43,249 14,496 43,249 14,496 0.17 0.85 0.17 0.85	- - 1,762 (593) (1,169) - - - - - - - - - 3,014 (1,034) (1,980) - - - - - - -	3,316,941
			38,119
			941,986
			138,511
			249,554
			29,950
			435,652
			29,950
			1.02
			5.1
			1.02
			5.1
			(403,684)
			37,045
			887,122
			161,826
			94,788
			30,207
			13,256
			30,207
			0.39
			1.95
			0.39
			1.95

(1) Effects of the change in accounting policy regarding restatement of assisted living units as investment property.

(2) Effects of the change for initial application of IAS 19.

— 61 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

BB. Change in estimates

In November 2014, the Securities Authority published Accounting Staff Position Paper 21-1, according to which a deep market for high quality corporate debentures exists in Israel ("the Position Paper"), for the purpose of determining the discount rate of a shekel-denominated or shekel-linked defined benefit obligation and other long-term benefits, in accordance with IAS 19, Employee Benefits. According to the position paper, the transition from using the yield rate of government bonds (0.45%) to using the yield rate of high quality corporate debentures 1.38%) should be applied prospectively as a change in the accounting estimate.

Effects of the change in the discount rate:

The decrease in the obligation for a defined benefit plan and the increase in deferred taxes as of December 31, 2014 amounted to NIS 3,125 thousand and NIS 1,030 thousand, respectively, which were recognized against other comprehensive income. The change in estimate of the net interest expenses in 2015 is not expected to have a material effect on the Company's financial statements.

CC. Disclosure of new IFRSs in the period prior to their adoption

Amendments to IAS 16 and IAS 38 regarding generally accepted depreciation and amortization methods

In May 2014, the IASB published amendments to IAS 16 and IAS 38 ("the Amendments") regarding the use of revenue-based depreciation and amortization methods.

In accordance with the Amendments, revenue-based amortization arising from the use of an asset is inadequate, since these revenues generally also reflect other factors beyond consumption of the economic benefits from the asset.

For intangible assets, the revenue-based amortization method can only be applied in certain circumstances, for example when it can be demonstrated that the revenue and consumption of the economic benefits from the intangible asset are highly correlated.

The Amendments will be applied prospectively in financial statements for annual periods beginning on or after January 1, 2016. Earlier application is permitted.

The Company believes that application of the amendments is not expected to have a material effect on the financial statements.

— 62 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CC. Disclosure of new IFRSs in the period prior to their adoption (continued)

IFRS 9, Financial Instruments:

In July 2014, the IASB published the full and final version of IFRS 9, Financial Instruments, which replaces IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 focuses mainly on the classification and measurement of financial assets and it applies to all financial assets within the scope of IAS 39.

According to IFRS 9, upon initial recognition, all the financial assets will be measured at fair value. In subsequent periods, debt instruments should be measured at amortized cost if both of the following conditions are met:

The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.

� The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 provides a distinction between debt instruments measured at fair value through profit or loss and debt instruments measured at fair value through other comprehensive income.

Financial assets that are equity instruments will be measured in subsequent periods at fair value and the changes will be recognized in the statement of income or in other comprehensive income (loss), as elected by the Company on an instrument-by-instrument basis. Nevertheless, if equity instruments are held for trading, they should be measured at fair value through profit or loss.

For disposals and financial liabilities, IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value option has not been elected.

Pursuant to the amendment, the amount of the adjustment to the liability's fair value that is attributable to changes in credit risk should be presented in other comprehensive income. All other fair value adjustments should be presented in profit or loss.

IFRS 9 includes new requirements for hedge accounting.

IFRS 9 is applicable for annual periods beginning on or after January 1, 2018 Earlier application is permitted.

The Company is assessing the possible effect of the standard, however at this stage, it is unable to estimate any effect it may have on the financial statements.

3. IFRS 15, Revenues from Contracts with Customers

IFRS 15 replaces current guidelines for revenue recognition and presents a new model for recognition of revenues from contracts with customers. IFRS 15 establishes two approaches to revenue recognition: over time or at a point in time. The model includes five steps for analyzing transactions so as to determine when to recognize revenue and at what amount. IFRS 15 also establishes new and more extensive disclosure requirements.

The standard will be effective for annual periods starting from January 1, 2017. Early application is permitted. IFRS 15 includes various alternatives for application of the transition guidelines, so that companies may choose one of the following alternatives upon initial application: full retrospective application, including practical expedients; or application of IFRS 15 as from the initial application date, with adjustment of retained earnings at this date for open transactions.

The Group has not yet started to examine the effects of IFRS 9 (2013) on the financial statements.

— 63 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CC. Disclosure of new IFRSs in the period prior to their adoption (continued)

Improvements to IFRSs for 2010-2012 and 2011-2013

As part of Improvements to IFRS 2009-2011, the IASB published amendments to eight IFRSs. The amendments that may be relevant to the Group and have an effect on the financial statements are:

A. Amendment to IFRS 8, Operating Segments, regarding an entity’s aggregation of operating segments and its assets

The amendment adds requirements regarding disclosure of management’s judgments in applying the aggregation criteria to operating segments. The amendment also clarifies that an entity shall only provide reconciliations of the total of the reportable segments' assets to the entity's assets if this information is reported regularly to the chief operating decision maker.

B. Amendment to IAS 24, Related Party Disclosures regarding a related party, in respect of the definition of a "related party"

The definition of the term was expanded so at to include entities that provide key management personnel (KMP) services to the reporting entity, directly or through another entity of the Group. Separate disclosure is to be provided of the amounts recognized as an expense in respect of the management services provided by the management entity. Nevertheless, there is no requirement to disclose the amounts paid to specific people in the management entity who provide such services.

The amendments are applicable for annual periods beginning on or after July 1, 2014 with earlier application being permitted.

The Group has not yet started to examine the effects of amendments on the financial statements.

DD. The following table presents information of the change in the dollar exchange rate and the CPI:

Year ended December 31, 2014 Year ended December 31, 2013 Year ended December 31, 2012	Exchange rates CPI representative of
	for Known index US dollar
	% % % (0.2) (0.1) 12.0 1.8 1.9 (7.0) 1.6 1.4 (2.3)

— 64 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 3 – OPERATING SEGMENTS

The Company operates in the following operating segments:

1. Life insurance and long-term savings

The life insurance and long-term savings segment includes life insurance, related coverage and pension and provident funds management. The segment includes long-term savings (through various types of insurance policies, pension funds, and provident funds) and insurance coverage for various risks such as death, disability and work disability. According to the Commissioner’s directives, the long-term savings segment is divided into life insurance, pension funds, and provident funds.

2. Healthcare insurance

The healthcare insurance segment concentrates all of the Group’s healthcare insurance business. The segment includes LTC (long-term care) insurance, medical expense insurance, operations and transplants, dental insurance, overseas travel and foreign workers.

3. General insurance

The general insurance segment includes the liability and property insurance businesses.

Compulsory motor insurance

The compulsory motor insurance branch focuses on coverage, the acquisition of which by the owner of the vehicle or the driver is compulsory by law, and which provides coverage for bodily injuries (to the driver of the vehicle, the passengers in the vehicle or to pedestrians) as a result of the use of the motor vehicle.

Motor property insurance

The motor property insurance segment focuses on property damage coverage for the insured vehicle and property damages caused by the insured vehicle to third parties.

Other liability insurance

Liability insurance is designed to cover the policyholder's liabilities for damage caused to any third party. These segments include third party liability, employers' liability, professional liability, and product warranties.

Property and other branches

These are the remaining property sectors, other than motor property insurance and liabilities, and include other insurance sectors.

4. Financial services

The financial services branch includes the results of the subsidiary Excellence Investments Ltd. ("Excellence"), except for provident funds and pension funds, which are part of the life insurance and long-term savings sector. The sector includes operations financial asset management services, brokerage services, underwriting services, market-making in various securities, and other services.

5. Others

This sector includes operating segments, the scope of which do not meet the quantitative criterion for reporting (mainly operations of the arrangement agencies, other consolidated insurance agencies and the operations of other consolidated companies engaging in various matters).

— 65 —

				Total		7,698,273	644,363		7,053,910	2,774,430	857,811	259,231	202,822	41,949	11,190,153		8,397,290	450,734	7,946,556	1,313,780	1,030,271	36,056	126,560		10,453,223	45,933		782,863		(99,289)		683,574
Year ended December 31, 2014	Life Not	insurance attributed to	and long- General Finance operating Adjustments and	term savings Healthcare insurance services Other segments offsets	NIS thousands	Premiums earned, gross 3,867,151 1,554,729 2,276,393 - - - -	Premiums earned by reinsurers 62,620 131,412 450,331 - - - -		Premiums earned in retention 3,804,531 1,423,317 1,826,062 - - - -	Investment gains (losses), net, and financing income 2,294,145 74,565 195,470 4,000 120,478 88,413 (2,641)	Management fees 701,711 - - 154,000 52,447 3,003 (53,350)	Revenue from commissions 18,821 22,642 64,507 - 234,743 - (81,482)(1)	Revenue from financial services - - - 202,822 - - -	Other revenue - - - - 43,010 - (1,061)	Total revenue 6,819,208 1,520,524 2,086,039 360,822 450,678 91,416 (138,534)	Increase in insurance liabilities and payments for	insurance contracts 5,761,088 1,205,497 1,430,705 - - - -	Less - reinsurance 32,293 137,517 280,924 - - - -	5,728,795 1,067,980 1,149,781 - - - -	Commissions and other acquisition costs 545,936 313,182 465,655 63,000 3,728 - (77,721)	General and administrative expenses 439,399 89,054 122,964 177,000 219,729 40,418 (58,293)	Other expenses 22,069 - - 1,886 11,787 314 -	Financing expenses (income) 1,272 - 15,379 3,000 5,378 101,989 (458)		Total expenses 6,737,471 1,470,216 1,753,779 244,886 240,622 142,721 (136,472)	Company’s share of the results, net, of investees 22,170 - 7,819 3,000 12,944 - -		Income (loss) before taxes on income 103,907 50,308 340,079 118,936 223,000 (51,305) (2,062)		Other comprehensive income (loss) before taxes on income (5,351) (8,936) (54,066) - (1,107) (29,829) -	Comprehensive income (loss) before taxes on	income 98,556 41,372 286,013 118,936 221,893 (81,134) (2,062)	(1) Arising from revenues from commissions received by agencies owned by the Group, primarily from operations in life insurance and long-term savings

Year ended December 31, 2013	Life Not	insurance attributed to	and long- General Finance operating Adjustments and	term savings Healthcare insurance services Other segments offsets Total	NIS thousands	Premiums earned, gross 3,860,745 1,409,664 2,203,648 - - - - 7,474,057	Premiums earned by reinsurers 62,170 125,468 460,316 - - - - 647,954	Premiums earned in retention 3,798,575 1,284,196 1,743,332 - - - - 6,826,103	Investment gains, net, and financing income 3,843,869 112,747 274,800 (3,000) 115,220 207,278 (3,430) 4,547,484	Management fees 725,301 - - 148,000 46,356 2,998 (47,165) 875,490	Revenue from commissions 23,033 25,171 68,673 - 231,901 - (84,855)(1) 263,923	Revenue from financial and other services - - - 178,525 - - - 178,525	Other revenue - - - - 34,448 1,339 (1,071) 34,716	Total revenue 8,390,778 1,422,114 2,086,805 323,525 427,925 211,615 (136,521) 12,726,241	Increase in insurance liabilities and payments for	insurance contracts 7,112,807 1,032,577 1,408,131 - - - - 9,553,515	Less - reinsurance 28,670 176,696 243,575 - - - - 448,941	7,084,137 855,881 1,164,556 - - - - 9,104,574	Commissions and other acquisition costs 495,230 261,498 453,621 54,000 3,111 - (80,164) 1,187,296	General and administrative expenses 388,606 85,831 125,092 185,000 214,944 79,837 (51,868) 1,027,442	Other expenses 60,218 - - 3,762 35,270 49 - 99,299	Financing expenses (income) 7,869 - (5,609) 11,056 22,876 146,309 (1,298) 181,203	Total expenses 8,036,060 1,203,210 1,737,660 253,818 276,201 226,195 (133,330) 11,599,814	Company’s share of the results, net, of investees 17,414 - 4,178 2,000 28,074 - - 51,666	Income (loss) before taxes on income 372,132 218,904 353,323 71,707 179,798 (14,580) (3,191) 1,178,093	Other comprehensive income (loss) before taxes on income (5,229) (140) 12,457 1,000 746 10,198 - 19,032	Comprehensive income (loss) before taxes on	income 366,903 218,764 365,780 72,707 180,544 (4,382) (3,191) 1,197,125	(2) Arising from revenue from commissions received by agencies owned by the Group, primarily from operations in life insurance and long-term savings	— 67 —

Year ended December 31, 2012	Life Not	insurance attributed to	and long- General Finance operating Adjustments and	term savings Healthcare insurance services Other segments offsets Total	NIS thousands	Premiums earned, gross 3,752,958 1,288,114 2,112,888 - - - - 7,153,960	Premiums earned by reinsurers 62,609 159,095 448,618 - - - - 670,322	Premiums earned in retention 3,690,349 1,129,019 1,664,270 - - - - 6,483,638	Investment gains (losses), net, and financing income 2,914,082 61,084 134,716 10,000 74,580 126,041 (3,562) 3,316,941	Management fees 483,738 - - 152,000 41,020 3,108 (42,108) 637,758	Revenue from commissions 13,123 25,704 64,093 - 226,491 - (81,849)(1) 247,562	Revenue from financial and other services - - - 177,987 - - - 177,987	Other revenue - - - - 39,071 - (952) 38,119	Total revenue 7,101,292 1,215,807 1,863,079 339,987 381,162 129,149 (128,471) 10,902,005	Increase in insurance liabilities and payments for	insurance contracts 6,235,465 986,559 1,357,181 - - - - 8,579,205	Less - reinsurance 38,488 171,957 175,772 - - - - 386,217	6,196,977 814,602 1,181,409 - - - - 8,192,988	Commissions and other acquisition costs 458,472 233,662 439,381 60,000 3,362 - (73,815) 1,121,062	General and administrative expenses 360,128 75,821 111,273 170,000 214,661 56,836 (46,733) 941,986	Other expenses 18,937 - - 3,573 11,237 33,670 - 67,417	Finance expenses 12,690 - (284) 27,469 21,519 141,679 (1,457) 201,616	Total expenses 7,047,204 1,124,085 1,731,779 261,042 250,779 232,185 (122,005) 10,525,069	Company’s share of the results, net, of investees 11,032 - 306 (1,000) 30,741 - - 41,079	Income (loss) before taxes on income 65,120 91,722 131,606 77,945 161,124 (103,036) (6,466) 418,015	Other comprehensive income (loss) before taxes on income 75,720 23,780 102,269 - (4,345) 82,588 - 280,012	Comprehensive income (loss) before taxes on income 140,840 115,502 233,875 77,945 156,779 (20,448) (6,466) 698,027	(1) Arising from revenue from commissions received by agencies owned by the Group, primarily from operations in life insurance and long-term savings

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 3 – OPERATING SEGMENTS (CONTINUED)

B. Additional information on the life insurance and long-term savings segment

Year ended December 31, 2014	Year ended December 31, 2014	Year ended December 31, 2014	Year ended December 31, 2014
Life insurance	Provident	Pension	Total

3,867,151 62,620	- -	- -	3,867,151 62,620
3,804,531 2,292,106 389,297 18,821	- 146 189,688 -	- 1,893 122,726 -	3,804,531 2,294,145 701,711 18,821
6,504,755	189,834	124,619	6,819,208
5,761,088 32,293	- -	- -	5,761,088 32,293
5,728,795 431,596 286,489 2,291 1,272	- 38,676 113,806 19,402 (*) -	- 75,664 39,104 376 -	5,728,795 545,936 439,399 22,069 1,272
6,450,443	171,884	115,144	6,737,471
22,170	-	-	22,170
76,482 (5,351)	17,950 -	9,475 -	103,907 (5,351)
71,131	17,950	9,475	98,556

(*) See Note 4 - Intangible Assets

— 69 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 3 – OPERATING SEGMENTS (CONTINUED)

B. Additional information on the life insurance and long-term savings segment (continued)

Year ended December 31, 2013	Year ended December 31, 2013	Year ended December 31, 2013	Year ended December 31, 2013
Life insurance	Provident	Pension	Total

3,860,745 62,170	- -	- -	3,860,745 62,170
3,798,575 3,841,398 432,404 23,033	- 284 196,277 -	- 2,187 96,620 -	3,798,575 3,843,869 725,301 23,033
8,095,410	196,561	98,807	8,390,778
7,112,807 28,670	- -	- -	7,112,807 28,670
7,084,137 399,414 238,736 9,283 6,869	- 35,875 117,094 50,935 (*) 1,000	- 59,941 32,776 - -	7,084,137 495,230 388,606 60,218 7,869
7,738,439	204,904	92,717	8,036,060
17,414	-	-	17,414
374,385	(8,343)	6,090	372,132
(5,229)	-	-	(5,229)
369,156	(8,343)	6,090	366,903

(*) See Note 4 - Intangible Assets

— 70 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 3 – OPERATING SEGMENTS (CONTINUED)

B. Additional information on the life insurance and long-term savings segment (continued)

Year ended December 31, 2012	Year ended December 31, 2012	Year ended December 31, 2012	Year ended December 31, 2012
Life insurance	Provident	Pension	Total

3,752,958 62,609	- -	- -	3,752,958 62,609
3,690,349 2,911,470 178,260 13,123	- 325 219,949 -	- 2,287 85,529 -	3,690,349 2,914,082 483,738 13,123
6,793,202	220,274	87,816	7,101,292
6,235,465 38,488	- -	- -	6,235,465 38,488
6,196,977 374,046 216,375 2,458 5,690	- 32,640 115,088 16,479 7,000	- 51,786 28,665 - -	6,196,977 458,472 360,128 18,937 12,690
6,795,546	171,207	80,451	7,047,204
11,032	-	-	11,032
8,688	49,067	7,365	65,120
75,720	-	-	75,720
84,408	49,067	7,365	140,840

— 71 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 3 – OPERATING SEGMENTS (CONTINUED)

C. Additional information about the general insurance segment

	Year ended December 31, 2014	Year ended December 31, 2014	Year ended December 31, 2014
Compulsory motor	Motor property	Property and *others()**	Other liabilities()**	Total
		NIS thousands
448,256 8,916	832,154 -	669,296 371,367	380,512 91,409	2,330,218 471,692
439,340 14,283	832,154 9,170	297,929 1,282	289,103 7,729	1,858,526 32,464
425,057 99,898 -	822,984 21,061 -	296,647 11,062 61,852	281,374 63,449 2,655	1,826,062 195,470 64,507
524,955	844,045	369,561	347,478	2,086,039
318,885 (5,409)	563,481 233	365,516 269,357	182,823 16,743	1,430,705 280,924
324,294 44,722 24,182 8,809	563,248 194,181 45,202 -	96,159 152,523 33,314 975	166,080 74,229 20,266 5,595	1,149,781 465,655 122,964 15,379
402,007	802,631	282,971	266,170	1,753,779
3,955	914	438	2,512	7,819
126,903 (27,348)	42,328 (6,323)	87,028 (3,027)	83,820 (17,368)	340,079 (54,066)
99,555	36,005	84,001	66,452	286,013
2,214,280	566,117	744,374	1,747,639	5,272,410
2,171,019	566,143	216,717	1,363,677	4,317,556

(*) Property insurance and others include primarily data from comprehensive homeowners’ insurance, comprehensive business insurance, and property loss, the operations of which account for 75% of the premiums in these branches.

(**) Other liability branches include mainly information from third-party insurance branches, employers and professional liability, operations of which account for 88% of total premiums in these branches.

— 72 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 3 – OPERATING SEGMENTS (CONTINUED)

C. Additional information on the general insurance segment (continued)

	Year ended December	Year ended December	31, 2013
Compulsory motor	Motor property	Property and *others()**	Other liabilities()**	Total

424,703 8,569	821,330 -	662,925 366,143	360,055 86,984	2,269,013 461,696
416,134 23,564	821,330 29,174	296,782 9,035	273,071 2,212	1,807,317 63,985
392,570 141,041 -	792,156 33,332 -	287,747 3,381 64,162	270,859 97,046 4,511	1,743,332 274,800 68,673
533,611	825,488	355,290	372,416	2,086,805
326,930 (11,462)	561,118 (17)	396,811 252,777	123,272 2,277	1,408,131 243,575
338,392 41,826 23,630 (3,135)	561,135 186,833 45,239 -	144,034 151,570 36,262 (317)	120,995 73,392 19,961 (2,157)	1,164,556 453,621 125,092 (5,609)
400,713	793,207	331,549	212,191	1,737,660
2,068	478	209	1,423	4,178
134,966 6,153	32,759 1,423	23,950 647	161,648 4,234	353,323 12,457
141,119	34,182	24,597	165,882	365,780
2,129,472	565,770	720,823	1,728,298	5,144,363
2,076,227	565,852	235,675	1,348,917	4,226,671

(**) Other liability branches include mainly information from third-party branches, employers and professional insurance, the operations of which account for 88% of the premiums in these branches.

— 73 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 3 – OPERATING SEGMENTS (CONTINUED)

C. Additional information about the general insurance segment (continued)

Gross premiums Premiums, reinsurance Premiums, retention Change in unearned premium balance, in retention Premiums earned in retention Investment gains, net, and financing income Revenue from commissions Total revenue Payments and change in liabilities for insurance contracts, gross Share of reinsurers in payments and changes in liabilities for insurance contracts Payments and change in liabilities for insurance contracts in retention Commissions, marketing expenses, and other acquisition costs General and administrative expenses Finance income Total expenses Company’s share of the results, net, of investees Income (loss) before taxes on income Other comprehensive income before taxes on income Comprehensive income (loss) for the year before taxes on income Liabilities for insurance contracts, gross, as of December 31,2012		Year ended December 31, 2012	Year ended December 31, 2012	Year ended December 31, 2012
	Compulsory motor	Motor property	Property and *others()**	Other liabilities()**	Total
			NIS thousands
	384,484 14,222	763,426 -	623,257 338,231	353,744 88,584	2,124,911 441,037
	370,262 9,755	763,426 3,433	285,026 7,708	265,160 1,683,874 (1,292) 19,604
	360,507 67,557 -	759,993 14,521 -	277,318 6,526 57,909	266,452 46,112 6,184	1,664,270 134,716 64,093
	428,064	774,514	341,753	318,748	1,863,079
	271,693 3,516	570,415 284,340 (33) 161,716		230,733 10,573	1,357,181 175,772
	268,177 570,448 40,355 181,114 20,853 41,056 (160) -		122,624 220,160 1,181,409 145,534 72,378 439,381 30,657 18,707 111,273 (15) (109) (284)
	329,225	792,618	298,800	311,136	1,731,779
	153	33	14	106	306
	98,992 51,298	(18,071) 42,967 11,001 4,954		7,718 35,016	131,606 102,269
	150,290	(7,070) 47,921		42,734	233,875
	2,038,138	520,228	589,182	1,784,669	4,932,217
Liabilities for insurance contracts in retention as of December 31,2012	1,957,930	520,246	202,988	1,378,204	4,059,368

(**) Other liability branches include mainly information from third-party branches, employers and professional insurance, the operations of which account for 87% of the premiums in these branches.

— 74 —

			Total			1,754,454	1,358,127	582,819	1,094,954	1,857,433	31,438,806			39,026,300		5,503,979	10,570,471	745,245	1,236,905	18,056,600	2,651,399	677,461	1,398,926	596,844	842,526	101,336,649	35,339,231			18,381,210		35,149,671		38,404,175	3,595,110	1,877,341	97,407,507
		Adjustments	and offsets			-	(25,651)	-	-	-	(498,391)			(67,700)		-	-	(15,920)	(18,940)	(34,860)	-	-	-	-	(810,065)	(1,436,667)	(498,391)			-		-		(520,825)	(31,811)	(805,478)	(1,358,114)
Not	attributed to	operating	segments			748,901	-	-	-	-	-			-		1,173,748	153,575	297,798	300,148	1,925,269	-	120,979	-	-	871,472	3,666,621	-			-		-		-	2,600,628	551,371	3,151,999
		Finance	services Other	NIS thousands		347,692 282,676	- -	3,000 350,968	- -	- 1,229,478	- -			39,094,000 -		22,000 114,766	909,000 4,648	29,000 10,966	31,000 146,004	991,000 276,384	- -	43,617 101,307	- -	- -	215,014 180,282	40,694,323 2,421,095	- -			- -		- -		38,925,000 -	132,000 803,841	67,333 187,357	39,124,333 991,198
		General	insurance			-	196,628	38,074	-	181,603	-			-		2,838,054	1,011,688	173,659	168,490	4,191,891	-	71,398	954,854	483,650	82,944	6,201,042	-			5,272,410		-		-	1,946	843,356	6,117,712
			Healthcare			-	274,059	22,698	11,718	53,106	359,714			-		175,554	1,122,103	33,002	79,761	1,410,420	28,374	39,550	284,293	71,830	33,608	2,589,370	376,158			1,620,428		376,158		-	-	69,842	2,066,428
	Life insurance	and long-term	savings			375,185	913,091	168,079	1,083,236	393,246	31,577,483			-		1,179,857	7,369,457	216,740	530,442	9,296,496	2,623,025	300,610	159,779	41,364	269,271	47,200,865	35,461,464			11,488,372		34,773,513		-	88,506	963,560	47,313,951
					Assets:	Intangible assets	Deferred acquisition costs	Investments in associates	Investment property for unit linked contracts	Other investment property	Financial investments for unit linked contracts	Financial investments for holders of debentures, exchange-	traded funds , reverse certificates, complex certificates and	certificates of deposit	Other financial investments	Marketable debt assets	Non-marketable debt assets	Shares	Others	Total other financial investments	Cash and cash equivalents for unit linked contracts	Other cash and cash equivalents	Reinsurance assets	Premiums receivable	Other assets	Total assets	Total assets for unit linked contracts	Liabilities:	Liabilities for non-unit linked insurance contracts and	investment contracts	Liabilities for unit linked insurance contracts and investment	contracts	Liabilities for debentures, ETFs, reverse certificates and	complex certificates	Financial liabilities	Other liabilities	Total liabilities

			Total			1,702,838	1,216,702	488,913	1,005,774	1,725,908	27,634,603			35,478,244		5,424,370	10,085,236	646,193	1,023,270	17,179,069	2,240,940	585,981	1,364,409	556,774	896,274	92,076,429	31,043,062			17,545,565	30,892,508	34,911,165	3,312,116	1,760,730	88,422,084
		Adjustments	and offsets			-	(23,592)	-	-	-	(351,627)			(59,756)		-	-	(19,846)	(21,856)	(41,702)	-	-	-	-	(289,041)	(765,718)	(351,627)			-	-	(372,835)	(7,265)	(267,205)	(647,305)
	Not attributed	to operating	segments			688,742	-	-	-	-	-			-		1,390,387	142,397	261,030	267,350	2,061,164	-	143,166	-	-	540,279	3,433,351	-			-	-	-	2,291,094	583,389	2,874,483
*December 31, 2013 ()**		Finance	services Other	NIS thousands		349,579 270,241	- -	- 346,117	- -	- 1,147,104	- -			35,538,000 -		3,000 63,756	7,000 17,924	15,000 11,438	11,000 110,274	36,000 203,392	- -	49,638 93,586	- -	- -	274,884 124,689	36,248,101 2,185,129	- -			- -	- -	35,284,000 -	206,000 777,096	57,129 166,467	35,547,129 943,563
		General	insurance			-	186,001	14,155	-	174,582	-			-		2,234,134	1,011,252	147,674	237,504	3,630,564	-	69,474	917,692	451,644	95,334	5,539,446	-			5,144,363	-	-	-	318,507	5,462,870
			Healthcare			-	232,943	15,504	10,967	48,718	322,976			-		202,078	968,922	27,577	49,140	1,247,717	24,434	19,045	285,381	66,019	11,670	2,285,374	336,839			1,380,531	336,839	-	-	54,848	1,772,218
	Life insurance	and long-term	savings			394,276	821,350	113,137	994,807	355,504	27,663,254			-		1,531,015	7,937,741	203,320	369,858	10,041,934	2,216,506	211,072	161,336	39,111	138,459	43,150,746	31,057,850			11,020,671	30,555,669	-	45,191	847,595	42,469,126
					Assets:	Intangible assets	Deferred acquisition costs	Investments in associates	Investment property for unit linked contracts	Other investment property	Financial investments for unit linked contracts	Financial investments for holders of debentures, exchange-traded	funds , reverse certificates, complex certificates and certificates of deposit		Other financial investments	Marketable debt assets	Non-marketable debt assets	Shares	Others	Total other financial investments	Cash and cash equivalents for unit linked contracts	Other cash and cash equivalents	Reinsurance assets	Premiums receivable	Other assets	Total assets	Total assets for unit linked contracts	Liabilities:	Liabilities for non-unit linked insurance contracts and investment	contracts	Liabilities for unit linked insurance contracts and investment contracts	Liabilities for debentures, ETFs, reverse certificates and complex certificates	Financial liabilities	Other liabilities	Total liabilities	(*) Restated, see Note 2(AA).

		Adjustments	and offsets Total			- 1,714,984	(20,400) 1,101,493	- 465,054	- 444,906	- 1,326,156	(339,708) 23,231,004		(40,021) 11,455,979		- 5,277,927	(25,888) 8,784,551	(15,766) 585,409	(19,559) 850,571	(61,213) 15,498,458	- 1,700,297	- 965,632	- 14,367,000			- 1,352,112	- 571,841	(348,157) 1,183,198	(809,499) 75,378,114	(339,708) 25,586,781			- 15,918,319	- 25,521,266		(354,006) 25,148,994	(9,499) 3,552,587	(327,430) 1,987,539	(690,935) 72,128,705
	Not attributed	to operating	segments			624,036	-	-	-	-	-		-		987,001	220,845	179,252	236,153	1,623,251	-	180,794	-			-	-	650,550	3,078,631	-			-	-		-	2,255,779	523,404	2,779,183
*December 31, 2012 ()**		Finance	services *Other ()**	NIS thousands		377,341 268,426	- -	- 339,829	- -	- 1,051,039	- -		11,496,000 -		49,000 73,125	6,000 39,774	12,000 17,212	47,000 52,714	114,000 182,825	- -	67,133 68,348	14,367,000 -			- -	- -	395,895 237,368	26,817,369 2,147,835	- -			- -	- -		25,503,000 -	578,007 650,242	181,597 268,928	26,262,604 919,170
		General	insurance			-	172,606	6,515	-	22,242	-		-		2,318,699	945,148	192,080	171,831	3,627,758	-	144,066	-			872,849	447,248	91,483	5,384,767	-			4,932,217	-		-	-	369,053	5,301,270
			Healthcare			-	174,307	14,124	3,756	30,087	203,453		-		219,771	919,413	24,276	42,551	1,206,011	14,355	50,096	-			317,858	64,700	15,700	2,094,447	215,461			1,324,080	215,461		-	-	62,614	1,602,155
	Life insurance	and long-term	savings			445,181	774,980	104,586	441,150	222,788	23,367,259		-		1,630,331	6,679,259	176,355	319,881	8,805,826	1,685,942	455,195	-			161,405	59,893	140,359	36,664,564	25,711,028			9,662,022	25,305,805		-	78,058	909,373	35,955,258
					Assets:	Intangible assets	Deferred acquisition costs	Investments in associates	Investment property for unit linked contracts	Other investment property	Financial investments for unit linked contracts	Financial investments for holders of debentures, exchange-traded funds	, reverse certificates, complex certificates and certificates of deposit	Other financial investments	Marketable debt assets	Non-marketable debt assets	Shares	Others	Total other financial investments	Cash and cash equivalents for unit linked contracts	Other cash and cash equivalents	Cash and cash equivalents pledged for holders of debentures,	exchange-traded funds , reverse certificates, complex certificates and	certificates of deposit	Reinsurance assets	Premiums receivable	Other assets	Total assets	Total assets for unit linked contracts	Liabilities:	Liabilities for non-unit linked insurance contracts and investment	contracts	Liabilities for unit linked insurance contracts and investment contracts	Liabilities for debentures, ETFs, reverse certificates and complex	certificates	Financial liabilities	Other liabilities	Total liabilities	(*) Restated, see Note 2(AA).

Goodwill Original differences attributable to the value of insurance portfolios Original differences attributable to commission portfolios and future management fees Non- competition Brand Software Other Total NIS thousands Cost Balance as of January 1, 2012 1,187,045 116,932 249,587 46,483 45,915 1,014,414 572 2,660,948 Additions 11,857 - 10,773 238 - 160,527 (*) - 183,395 Adjustment of contingent consideration (see C and D below) (55,811) - - - - - - (55,811) Disposals (1,576) - (1,016) - - - - (2,592) Balance as of December 31, 2012 1,141,515 116,932 259,344 46,721 45,915 1,174,941 572 2,785,940 Accumulated amortization and impairment losses Balance as of January 1, 2012 194,202 106,405 147,200 16,604 16,938 443,623 505 925,477 Amortization recognized during the year - 10,527 20,172 5,197 5,698 103,867 17 145,478 Balance as of December 31, 2012 194,202 116,932 167,372 21,801 22,636 547,490 522 1,070,955 Carrying amount, net December 31, 2012 947,313 - 91,972 24,920 23,279 627,451 50 1,714,985	Goodwill Original differences attributable to the value of insurance portfolios Original differences attributable to commission portfolios and future management fees Non- competition Brand Software Other Total NIS thousands Cost Balance as of January 1, 2012 1,187,045 116,932 249,587 46,483 45,915 1,014,414 572 2,660,948 Additions 11,857 - 10,773 238 - 160,527 (*) - 183,395 Adjustment of contingent consideration (see C and D below) (55,811) - - - - - - (55,811) Disposals (1,576) - (1,016) - - - - (2,592) Balance as of December 31, 2012 1,141,515 116,932 259,344 46,721 45,915 1,174,941 572 2,785,940 Accumulated amortization and impairment losses Balance as of January 1, 2012 194,202 106,405 147,200 16,604 16,938 443,623 505 925,477 Amortization recognized during the year - 10,527 20,172 5,197 5,698 103,867 17 145,478 Balance as of December 31, 2012 194,202 116,932 167,372 21,801 22,636 547,490 522 1,070,955 Carrying amount, net December 31, 2012 947,313 - 91,972 24,920 23,279 627,451 50 1,714,985	Goodwill Original differences attributable to the value of insurance portfolios Original differences attributable to commission portfolios and future management fees Non- competition Brand Software Other Total NIS thousands Cost Balance as of January 1, 2012 1,187,045 116,932 249,587 46,483 45,915 1,014,414 572 2,660,948 Additions 11,857 - 10,773 238 - 160,527 (*) - 183,395 Adjustment of contingent consideration (see C and D below) (55,811) - - - - - - (55,811) Disposals (1,576) - (1,016) - - - - (2,592) Balance as of December 31, 2012 1,141,515 116,932 259,344 46,721 45,915 1,174,941 572 2,785,940 Accumulated amortization and impairment losses Balance as of January 1, 2012 194,202 106,405 147,200 16,604 16,938 443,623 505 925,477 Amortization recognized during the year - 10,527 20,172 5,197 5,698 103,867 17 145,478 Balance as of December 31, 2012 194,202 116,932 167,372 21,801 22,636 547,490 522 1,070,955 Carrying amount, net December 31, 2012 947,313 - 91,972 24,920 23,279 627,451 50 1,714,985
		2,660,948 183,395 (55,811) (2,592)	2,785,940	925,477 145,478	1,070,955 1,714,985

Original differences	attributable to	commission portfolios	and future	Goodwill management fees Non-competition Brand Software Total	NIS thousands	Cost	Balance as of January 1, 2013 1,141,515 259,916 46,721 45,915 1,174,941 2,669,008	Additions - 3,555 1,051 - 194,880 (*) 199,485	Adjustment of contingent consideration	(see C and D below) (14,766) - - - - (14,766)	Deconsolidation (908) - - - (364) (1,272)	Balance as of December 31, 2013 1,125,841 263,471 47,772 45,915 1,369,456 2,852,455	Additions - - - - 208,312 (*) 208,312	Adjustment of contingent consideration (see C and D below) 24,880 - - - - 24,880	Balance as of December 31, 2014 1,150,721 263,471 47,772 45,915 1,577,768 3,085,647	Accumulated amortization and	impairment losses	Balance as of January 1, 2013 194,202 167,894 21,801 22,636 547,490 954,023	Deconsolidation - - - - (238) (238)	Amortization recognized during the year - 20,116 5,142 5,983 128,591 159,832	Impairment (see B below) 36,000 - - - - 36,000	Balance as of December 31, 2013 230,202 188,010 26,943 28,619 675,843 1,149,617	Amortization recognized during the year - 17,064 3,967 5,644 147,901 174,576	Impairment (see B below) 7,000 - - - - 7,000	Balance as of December 31, 2014 237,202 205,074 30,910 34,263 823,744 1,331,193	Carrying amount, net	December 31, 2014 913,519 58,397 16,862 11,652 754,024 1,754,454	December 31, 2013 895,639 75,461 20,829 17,296 693,613 1,702,838	(*) Additions for software include additions for self-development amounting to NIS 155 million and NIS 136 million, in 2014 and 2013, respectively.	— 79 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 4 - INTANGIBLE ASSETS (CONTINUED)

B. Assessment of the recoverability of intangible assets with an indefinite useful life

To assess the recoverability of goodwill, the goodwill was assigned to the following cash-generating units:

Provident: includes management of pension provident, study funds, and central provident funds for compensation.
Financial services: management of mutual funds, ETFs, brokerage services, portfolio management, and underwriting.
Insurance agencies and pension advice
Assisted living

Carrying amount of goodwill allocated to each of the following cash-generating units:

	December 31
2014	2013	2012
NIS thousands
345,871 352,871 344,130 344,130 199,670 174,790 23,848 23,848 913,519 895,639		388,871 368,130 166,464 23,848 947,313

To assess the recoverability of goodwill, the recoverable amount of the cash-generating unit to which the goodwill was assigned was assessed for its carrying amount. If the recoverable amount of the cashgenerating unit exceeds its carrying amount, the units and allocated assets will be considered to be unimpaired.

The recoverable amount of the provident fund and financial services units is calculated on the basis of a valuation prepared by Uri Cohen of Cognum Financial Consulting Ltd. The valuation is based on the projected representative operating cash flow multiple, which is similar to the discounted cash flow method. The value of each of the units is assessed separately.

The valuation for provident activity assumed an operating multiple net of tax of 10.5-11.5, reflecting discount rates of 10.5%-11.5% net of tax and a growth rate of 1.5%-2.5%. The rate of management fees is based on an assumed rate of 0.805%-0.855%.

The valuation for financial services estimated each financial service separately, based mainly on the valuation multiple. The operating multiple is between 7.5 and 11.5, based on the type of activity.

Goodwill in the provident unit was amortized in 2014 and 2013 by NIS 7 million and NIS 36 million, respectively, mainly due to the erosion of management fees. These amortizations were included under other expenses in the statement of income. For financial services, the recoverable amount exceeds its carrying amount by NIS 200 million.

The recoverable amount of goodwill for insurance agencies and pension advice was based on individual valuations for agencies and according to the expected cash flow method. It was found that the recoverable amount of the goodwill of each of the agencies exceeds its carrying amount.

Discount rates of between 14% and 18% and growth rates of 1.5% were assumed for the valuation of goodwill for insurance agencies and pension advice.

— 80 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 4 - INTANGIBLE ASSETS (CONTINUED)

C. Acquisition of Prisma operations

On February 25, 2009 Excellence and companies under its control ("Excellence" or "Excellence Fund Management") signed an agreement with Prisma Investment House Ltd. ("Prisma" or "Ampik") to acquire Prisma’s mutual funds, ETFs, and portfolio management operations (“the Agreement”).

Under the agreement, Excellence Fund Management allocated to Prisma shares representing 45% of the issued and paid-up shares in Excellence Fund Management ("the Allocated Shares"). During 20142017, Prisma is required to sell to Excellence, and Excellence is required to acquire from Prisma, all of the allocated shares, at the rates stipulated in the agreement and for a consideration that will be based on the formula in the agreement, which is based, inter alia, on the future profits of Excellence Fund Management (“the Consideration for the Shares”).

On June 9, 2009, the parties completed the transaction. The consideration was estimated at NIS 185 million on the closing date of the transaction.

On September 16, 2013, Excellence signed an agreement with Ampik to bring forward the sale of shares allotted to Excellence, so that at the completion date of the transaction as described below, Excellence will hold 100% of the issued and paid up share capital of Excellence Fund Management. In consideration for these shares, Excellence will pay NIS 64.2 million (of which, NIS 4.2 million is for the creditor balance). It was further agreed that there will be an additional consideration of NIS 8.3 million, contingent on the operating results of Excellence Fund Management in 2014.

On September 29, 2013, the transaction was completed and Excellence paid the consideration of NIS 64.2 million. In accordance with the Agreement, these two amounts replaced the contingent consideration set out in the original transaction.

As of December 31, 2014 and 2013, a liability for the contingent consideration was not included, since Excellence Fund Management failed to meet the conditions for the operating results as agreed on by the parties (as of December 31, 2012, NIS 80 million).

D. Holders of non-controlling interests in a subsidiary ("Holders of Interests") have a put option of 40%, exercisable for five years, from the beginning of 2010. For further information, see Note 7(4)(C).

NOTE 5 – DEFERRED ACQUISITION COSTS

A. Composition:

	December 31
2014	2013	2012
	NIS thousands
708,082 179,358 274,059 196,628	676,964 120,794 232,943 186,001	656,709 97,871 174,307 172,606
1,358,127	1,216,702	1,101,493

— 81 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 5 – DEFERRED ACQUISITION COSTS (CONTINUED)

B. Change in deferred acquisition costs in life insurance, pension funds and healthcare insurance:

Life	Pension funds	Healthcare insurance	Total

639,364 103,701 80,258	80,711 26,660 1,932	139,530 58,531 29,591	859,605 188,892 111,781
183,959 (79,402) (87,212)	28,592 (11,432) -	88,122 (41,590) (11,755)	300,673 (132,424) (98,967)
656,709 97,077 90,692	97,871 34,707 2,719	174,307 89,731 41,039	928,887 221,515 134,450
187,769 (85,394) (82,120)	37,426 (14,503) -	130,770 (54,577) (17,557)	355,965 (154,474) (99,677)
676,964 104,781 100,923	120,794 74,749 4,114	232,943 96,052 40,310	1,030,701 275,582 145,347
205,704 (87,388) (87,198)	78,863 (20,299) -	136,362 (70,458) (24,788)	420,929 (178,145) (111,986)
708,082	179,358	274,059	1,161,499

(*) The amortization for cancellations refers to deferred acquisition costs for life insurance policies issued as from the 1999 underwriting year only and healthcare insurance (not short term).

— 82 —

			Total			847,741	32,306	(27,067)	852,980		445,975	37,955	(26,472)	457,458	395,522	(24,918)	370,604
			Works of art			74,379	-	-	74,379		-	-	-	-	74,379	(2,126)	72,253
		Leasehold	improvements			25,291	4,041	-	29,332		14,755	3,120	-	17,875	11,457	-	11,457
		Office furniture	and equipment	NIS thousands		198,190	14,811	(21,141)	191,860		137,952	10,809	(21,117)	127,644	64,216	-	64,216
			Vehicles			2,891	26	(637)	2,280		1,058	363	(465)	956	1,324	-	1,324
A. Composition and change	2014	Land and	*buildings() Computers**		Cost	Balance as of January 1, 2014 321,257 225,733	Additions during the year 800 12,628	Disposals during the year - (5,289)	Balance as of December 31, 2014 322,057 233,072	Accumulated depreciation	Balance as of January 1, 2014 93,524 198,686	Additions during the year 8,635 15,028	Disposals during the year - (4,890)	Balance as of December 31, 2014 102,159 208,824	Balance of depreciated cost 219,898 24,248	Provision for impairment (22,792) * -	Depreciated cost as of December 31, 2014 197,106 24,248	(*) For the nursing departments and support units in the assisted living units

			Total			845,641	26,900	(6,838)	(188)	(17,774)	847,741		414,982	42,793	(625)	(148)	(11,027)	445,975	401,766	(24,812)	376,954
			Works of art			74,379	-	-	-	-	74,379		-	-	-	-	-	-	74,379	(2,126)	72,253
		Leasehold	improvements			21,367	3,924	-	-	-	25,291		12,293	2,462	-	-	-	14,755	10,536	-	10,536
		Office furniture	and equipment	NIS thousands		185,766	12,803	-	(24)	(355)	198,190		123,028	15,135	-	(9)	(202)	137,952	60,238	-	60,238
			Vehicles			3,202	1,341	-	-	(1,652)	2,891		1,687	374	-	-	(1,003)	1,058	1,833	-	1,833
A. Composition and change (continued)	2013	Land and	*buildings () Computers**		Cost	Balance as of January 1, 2013 342,806 218,121	Additions during the year 1,056 7,776	Reclassification of investment property (6,838) -	Company consolidated for the first time - (164)	Disposals during the year (15,767) -	Balance as of December 31, 2013 321,257 225,733	Accumulated depreciation	Balance as of January 1, 2013 94,833 183,141	Additions during the year 9,138 15,684	Reclassification of investment property (625) -	Additions for a company consolidated for the first time - (139)	Disposals during the year (9,822) -	Balance as of December 31, 2013 93,524 198,686	Balance of depreciated cost 227,733 27,047	Provision for impairment (22,686) * -	Depreciated cost as of December 31, 2013 205,047 27,047

	Total			820,193	26,108	(660)	845,641		375,498	39,956	(472)	414,982	430,659	(2,126)	428,533
	Works of art			74,379	-	-	74,379		-	-	-	-	74,379	(2,126)	72,253
Leasehold	improvements			18,196	3,171	-	21,367		10,519	1,774	-	12,293	9,074	-	9,074
Office furniture	and equipment	NIS thousands		179,099	6,848	(181)	185,766		109,499	13,633	(104)	123,028	62,738	-	62,738
	Vehicles			3,533	148	(479)	3,202		1,632	423	(368)	1,687	1,515	-	1,515
Land and	*buildings () Computers**		Cost	Balance as of January 1, 2012 341,807 203,179	Additions during the year 999 14,942	Disposals during the year - -	Balance as of December 31, 2012 342,806 218,121	Accumulated depreciation	Balance as of January 1, 2012 85,573 168,275	Additions during the year 9,260 14,866	Disposals during the year - -	Balance as of December 31, 2012 94,833 183,141	Balance of depreciated cost 247,973 34,980	Provision for impairment - -	Depreciated cost as of December 31, 2012 247,973 34,980

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

B. Phoenix Insurance and Hadar Green Properties and Investments Ltd., a wholly-owned subsidiary of The Phoenix Insurance Company ("Hadar Green") hold the right to register as the owners of 15 floors of offices, warehouses, parking lots and related areas in a high-rise office and commercial building on Plot 923, Block 6154 in Givatayim ("the Building"). The sellers, in whose name the plot is registered in the Tel Aviv-Jaffa Land Registry, undertook to register the title in the Company's name within 36 months after of transfer of the title to the Company. The procedure for registering the building as a condominium is underway and the drafts have been transferred to the Condominium Registration Supervisor. The Supervisor required approval of the full blueprints by the regional planning and construction committee. Completion of registration was delayed for reasons related to the sellers.

In accordance with the agreement of September 27, 2011, the sellers undertook to complete registration of the building as a condominium, including registration of The Phoenix's rights (together with the rights of The Phoenix Insurance in accordance with a sale agreement in 2001 and its appendixes and the rights of Hadar Green in accordance with a sale agreement in 1999 and its appendixes), within five years from the date the agreement was signed, and deposited funds to secure its compliance with the registration in accordance with these dates.

C. The Company owns all the rights to the land and buildings, other than an asset at depreciated cost of NIS 6 million as of the reporting date, which is for a 37-year capitalized lease from the Israel Land Administration.
D. Liens - see Note 42(E).

— 86 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 7 – INVESTMENTS IN INVESTEES

1. Investees accounted for using the equity method

A. Investees treated under the equity method

See section 4 below	Country of incorporation	Company’s interest in voting rights	Loans and capital notes	Volume of *investment()**	Total
E F D I E F D I E F D I	Israel Israel Israel Israel Israel Israel Israel Israel Israel	%		NIS thousand
		41.42 49 30 41.42 49 30 41.42 49 30	- 50,000 - 28,692	186,127 57,977 86,142 173,881	186,127 107,977 86,142 202,573
			78,692	504,127	582,819
			- 50,000 - 13,764	188,041 53,532 76,429 107,147	188,041 103,532 76,429 120,911
			63,764	425,149	488,913
			- 50,000 - 12,498	188,279 51,630 78,097 84,550	188,279 101,630 78,097 97,048
			62,498	402,556	465,054

(*) Less provision for impairment

B. Composition of investments:

	December 31
2014	2013	2012
	NIS thousands
513,989 78,692	435,011 63,764	412,418 62,498
592,681 (9,862)	498,775 (9,862)	474,916 (9,862
582,819	488,913	465,054
54,192	56,277	52,942

— 87 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 7 – INVESTMENTS IN INVESTEES (CONTINUED)

1. Investees accounted for using the equity method (continued)

C. Summary of financial information for investees accounted for using the equity method, in accordance with the ownership percentage held by the Company:

The Group's share in the balance sheet of investees accounted for using the equity method, in accordance with the ownership percentage held by them at the reporting date:

December 31	December 31
2014	2013	2012

3,099,753 (2,585,764)	2,882,351 (2,447,340)	2,814,595 (2,402,177)
513,989	435,011	412,418

(*) Including original differences and goodwill

The Group's share in the operating results of investees accounted for using the equity method, in accordance with the ownership percentage held by them in the period:

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012

730,932	772,222	818,832
45,933	51,666	41,079
6,402	) 3,529 (	22,255

D. Market value of investments in associates for which there is a market price on the TASE

		December 31	December 31
2014		2013		2012
Carrying amount	Market value	Carrying amount	Market value	Carrying amount	Market value

186,127	181,369	188,041 179,993		188,279	177,238

E. Dividends received from associates in the reporting period (*)

Year ended December	Year ended December	31
2014	2013	2012
NIS	thousands
18,317	39,306	14,760

(*) The amounts do not include a dividend declared and not yet received.

— 88 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 7 – INVESTMENTS IN INVESTEES (CONTINUED)

2. Subsidiaries held directly by the Company

A. Composition of the investment:

2014 The Phoenix Insurance Company Ltd. The Phoenix Investments and Finance Ltd. Ad 120 Residence Centers for Senior Citizens Ltd. ) Others 2013 The Phoenix Insurance Company Ltd. The Phoenix Investments and Finance Ltd. Ad 120 Residence Centers for Senior Citizens Ltd. ) Others 2012 The Phoenix Insurance Company Ltd. The Phoenix Investments and Finance Ltd. Ad 120 Residence Centers for Senior Citizens Ltd. *) Others	Loans and capital notes provided by the Company to subsidiaries Investment in subsidiaries NIS thousands	Investment in subsidiaries
	- 777,038 - 8,648 785,686 - 777,233 - 9,164 786,397 - 722,134 15,005 9,848 746,987	2,714,954 669,192 405,790 (5,867)
		3,784,069
		2,650,912 602,490 332,352 (5,984)
		3,579,770
		2,178,961 645,927 269,514 (5,124)
		3,089,278

For information about the ownership percentage, see section 3 below.

(*) Through companies: Ampal Protected Housing (1994) Ltd., Ampal Protected Housing (1998) Ltd., Ampal Protected Housing (1996) Ltd., whose sole operation is the holding in Ad 120 Residence Centers for Senior Citizens Ltd.

B. Market value of investments in subsidiaries for which there is a market price on the TASE

		December 31	December 31
Carrying amount Market value 2014		Carrying amount Market value 2013 NIS thousands		Carrying amount Market value 2012	Market value

1,067,140	728,239	993,531	729,768	1,063,408 662,953

— 89 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 7 – INVESTMENTS IN INVESTEES (CONTINUED)

2. Subsidiaries held directly by the Company (continued)

C. Dividends that the Company received or is entitled to receive from subsidiaries in the reporting year:

Year	ended December 31	ended December 31
2014	2013	2012

260,138	315,000 -

(*) In February 2015, the Company received a dividend of NIS 200 million from the Phoenix Insurance Ltd.

3. Holdings in the major investees

See Section 4 below	Country of incorpor ation		December 31
		2014	2013	2012
		Shares conferring voting rights and rights to profits	Shares conferring voting rights and rights to profits	Shares conferring voting rights and rights to profits
A b. D. E. F. G. C.	Israel Israel Israel Israel Israel Israel Israel Israel Israel Israel Israel Israel Israel Israel Israel Israel		Holding (%)
		100 100 100 100 100 100 100 29 41.42 89.81 49 67 100 60 25 -	100 100 100 100 100 100 100 29 41.42 89.81 49 67 100 60 25 100	100 100 100 100 100 100 100 29 41.42 84.70 49 67 100 60 25 85

(*) There is another holding of 20%, accounted for as a financial investment for unit linked contracts.

(**) In February 2014, The Phoenix Insurance Agencies sold Kela Insurance Agency (1987) Ltd. to Shekel Insurance Agencies (2008) Ltd

— 90 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 7 – INVESTMENTS IN INVESTEES (CONTINUED)

4. Additional information about investees

A. Ad 120 Residence Center for Senior Citizens Ltd.

Ad 120 Residence Centers for Senior Citizens Ltd. ("Ad 120") operates independently and through limited partnerships in which it is the main partner in the development, establishment and operation of assisted living centers for the elderly. Ad 120 has three assisted living centers: in Rishon Lezion, Hod Hasharon and Tel Aviv.

In February 2013, Ad 120 exercised its right to acquire 25% of Ad 120 Ramat Hahayal Limited Partnership ("the Partnership"). Subsequent to the acquisition, Ad 120 holds the full partnership rights.

B. The Phoenix Capital Raising (2009) Ltd.

In 2009, The Phoenix Insurance established The Phoenix Capital Raising (2009) Ltd. ("The Phoenix Capital Raising"). The sole operation of The Phoenix Capital Raising is the raising of funds in Israel for The Phoenix Insurance, through the issue (public and private) of debt certificates and/or debentures, and/or capital notes, the proceeds of which are deposited in The Phoenix Insurance for its use at its discretion and responsibility.

Raising of capital is affected by the capital requirements of The Phoenix Insurance. The terms of the issued debentures are affected by the capital market and level of supply and demand of marketable debentures in Israel.

The Phoenix Capital Raising deposits the proceeds of the issue in deferred deposits at The Phoenix Insurance under the same terms as the debentures issued to the public.

C. Put option for non-controlling interests in The Phoenix Agencies

The Phoenix Agencies Ltd. ("the Phoenix Agencies"), a subsidiary, holds 60% of the capital and voting rights in Agam Leaders Holdings (2001) Ltd. ("Agam Holdings"), which holds 75% of the capital and voting rights in Agam Leaders (Israel) Insurance Agency (2003) Ltd. ("Agam Israel"). The Phoenix Agencies also holds 25% of the capital and voting rights in Agam Israel. In accordance with the shareholders agreement of September 2005, between The Phoenix Agencies and the other shareholders (in this section: "the Founders"), each of the Founders was granted a put option exercisable up to November 8, 2014, and The Phoenix Agencies was granted a call option to acquire the shares of Agam Holdings from the Founders up to November 8, 2014, at a value set out in the shareholders agreement.

In April 2012, the minority shareholders in Agam Holdings (40%) sought to exercise their put option, and it was agreed that the exercise price will be set in accordance with an agreement between two assessors. as of the reporting date, the value has not yet been set.

D. HFN-Tao

The Company, through The Phoenix Insurance and The Phoenix Investments holds 50% of the rights in HFN-Tao Holdings Limited Partnership ("the Partnership"). The Partnership owns 50% of the rights and liabilities in the Mall HaYam shopping center in Eilat, so that in the final tier the Company holds 25% of the shopping center. The Partnership is entitled to its proportionate share of the income from the shopping center, following repayment of the debentures in favor of which the shopping center is encumbered.

— 91 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 7 – INVESTMENTS IN INVESTEES (CONTINUED)

4. Additional information about investees(continued)

E. Mehadrin Ltd.

The Phoenix Investment holds 41.42% of the issued share capital of Mehadrin, a public company whose shares are listed for trading on the TASE.

The Phoenix Investments has joint control in Mehadrin in accordance with a shareholders agreement signed in September 2006 with Hadarim Properties Ltd.

F. Gama Management and Clearing Ltd.

Gama's operations include financing, factoring, clearing and management of credit card vouchers, the provision of various types of credit, check discounting and factoring. Gama's main operation is credit card factoring services. The factoring service provides advance payment to businesses against the assignment of vouchers from credit card companies by the businesses to the factoring company. The service allows businesses, including Gama's customers, to perform sales transactions in installments with their customers through vouchers of credit card companies and to provide advance payments of the amounts of the transactions. The Company is assessing the expansion of its activities to related fields.

The Phoenix Investments holds 49% of the share capital of Gama. The purchase agreement grants The Phoenix Investment an option to acquire an additional 2% of Gama at the same value. The exercise period for the option was three years from the completion date of the acquisition up to April 2011 ("The Phoenix Option").

Under the purchase agreement, The Phoenix Investment provided a shareholder loan of NIS 50 million to Gama, which is subordinated to the bank loan. In addition, in 2010, the shareholders and The Phoenix Investment reached an agreement whereby The Phoenix Investment waived The Phoenix Option and in return for the waiver, it was agreed that any party that wishes to sell its entire holdings in Gama shares will have the right to obligate the other party to sell it its shares.

G. Phoeniclass Ltd.

The Phoenix Investments holds 67% of the share capital of Phoeniclass

Phoeniclass entered into an agreement with Seminar Hakibbutzim Teachers College, for a combination transaction between Phoeniclass and Seminar Hakibbutzim Teachers College for land belonging to the college in north Tel Aviv, including the land on which the college's buildings are built. As part of the transaction, and in return for the rights to the land for construction of a residential project that includes 450 apartments, Phoeniclass will implement the project, which, in addition to this residential project, includes the demolition of the college's buildings, financing of a new complex for the college, and the transfer of public areas to the Tel Aviv Municipality for commercial and public use ("the Project”).

Phoeniclass is taking steps to advance the licensing procedures and the detailed project plan, alongside negotiations with Seminar Hakibbutzim Teachers College (and on its behalf) to finalize the principles of the transaction and its implementation.

H. Linchfield Limited ("Linchfield")

The Company holds 5% in Linchfield, whose main operation is holding of building portfolios in the UK. Until September 30, 2012, the investment was accounted for using the equity method, due to the additional holdings of the controlling shareholder in Linchfield. In the fourth quarter of 2012, the controlling shareholder lost effective control in Linchfield. On December 31, 2011, in view of the negative adjustment of the fair value of investment property, the value of the investment was fully amortized.

— 92 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 7 – INVESTMENTS IN INVESTEES (CONTINUED)

4. Additional information about investees(continued)

I. Investments in foreign real estate

The Company's investments in foreign real estate are generally carried out through investees that invest directly in real estate. The Company owns several investees that invest in real estate with leverage in the United States and Europe. The real estate assets are diverse and include office buildings, shopping centers and housing complexes.

5. Capital requirements in Group institutions

A. Management’s policy is to maintain a strong capital base in order to preserve the ability of the Company to continue operating in variable market conditions and to generate profits for its shareholders while maintaining financial stability.

The Phoenix Insurance, Excellence Group and other institutional entities consolidated in these financial statements are subject to the capital requirements determined by the Commissioner of Insurance.

B. Required and existing capital of the Company

The required and existing capital of The Phoenix Insurance is determined in accordance with Control of Financial Services Regulations (Insurance) (Minimum Equity Required of an Insurer) 1998 and its amendments (“the Capital Regulations”) and the Commissioner's directives.

— 93 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 7 – INVESTMENTS IN INVESTEES (CONTINUED)

5. Capital requirements in Group institutions (continued)

B. Required and existing capital of the Company (continued)

Information about the required and existing capital of The Phoenix Insurance in accordance with the capital directives of the Commissioner:

	December 31
2014	2013	2012
3,017,615 2,714,947 777,324 362,136	2,796,157 2,650,906 776,249 543,020	2,563,056 2,178,958 766,700 535,580
1,139,460 394,787	1,319,269 -	1,302,280 -
1,534,247	1,319,269	1,302,280
4,249,194	3,970,175	3,481,238
1,231,579	1,174,018	918,182
200,000	-	-
1,031,579	1,174,018	918,182
542,633	454,261	379,486
484,337 64,907 316,952 989,174 54 26,159 49,265 720,821 131,473 234,473	474,813 58,092 280,083 909,429 172 74,116 40,061 630,500 115,087 213,804	459,279 49,737 248,911 821,064 196 47,989 33,661 578,999 123,448 199,772
3,017,615	2,796,157	2,563,056

(B) For information about issue of debentures the proceeds of which are used as the Company's complex equity, see Note 26.

— 94 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 7 – INVESTMENTS IN INVESTEES (CONTINUED)

5. Capital requirements in Group institutions (continued)

3. Implementation of Solvency II

In November 2014, the Commissioner published a letter to managers of insurance companies ("the Letter") regarding an outline for implementation of a solvency regime based on Solvency II. In the Letter, the Commissioner states that the European parliament voted to adopt the directive in Europe at the beginning of 2016 and timetables for implementation of the final directives were established. In view of the intention to issue final guidelines in Europe by June 2015, in 2016, the Commissioner intends to publish guidelines for the adjustment of the first pillar of the directive in the domestic market, which will replace the current guidelines, and insurance companies will be required to comply with these guidelines as from the annual statements for 2016. In the planned preparation process towards final implementation, there are two more phases for IQIS exercises for 2014 and 2015, followed by a quarterly report based on the new outline, parallel to reporting of capital requirements and based on the current guidelines. In addition, the Commissioner intends to publish guidelines for capital management and establishment of an internal capital target for the gap analysis that the companies will be required to perform for the risk management system, controls and corporate governance, and the consultation paper to advance Own Risk and Solvency Assessment (ORSA).

Implementation of Solvency II guidelines, according to the current IQIS model, may result in a significant increase in capital requirements alongside an increase in existing capital. At the current stage, the model is sensitive to changes in market and other factors and therefore the capital requirements reflected by these changes might be volatile. In addition, application of the final guideline may affect business operations, including the assessment to expanding hedges for the Company's investment assets and insurance liabilities, change in fees and discounts, effect on the Company's capital management and a more significant effect when integrating capital costs in decision making processes.

The model has not yet been approved, and there are fundamental issues which are being discussed. It is further noted that regulations for the capital adjustment, if required, have not yet been formulated. In any event, the Company is monitoring developments to prepare for the new framework if determined.

At this stage, the Company is unable to assess the results of these discussions, and the regulatory decisions arising from future capital requirements and their future business effect on the Company.

The Phoenix Insurance undertook to complement the shareholders’ equity of The Phoenix Pension and Provident Ltd. ("The Phoenix Pension") to the amount determined in the Income Tax Regulations (Regulations for Approval and Management of Provident Funds), 1964. The undertaking will be valid as long as The Phoenix Insurance controls The Phoenix Pension, directly or indirectly.
Other subsidiaries in the Group require minimum equity in accordance with the Control of Financial Services Regulations (Provident Funds) (Minimum Equity Required of a Management Company of a Provident Fund or Pension Fund), 2012, and the guidelines of the Commissioner of Capital Markets and the Israel Securities Authority, and the bylaws of the TASE.

As at December 31, 2014, all the subsidiaries are in compliance with these requirements.

For information about the exchange tender offer being assessed by The Phoenix Capital Raising, a subsidiary of The Phoenix Insurance, see Note 43(3) and Note 43(4).

— 95 —

Investment property for unit linked contracts	Leased for commerce Leased for offices and other Total	2014 2013 2012 2014 2013 2012 2014 2013 2012	NIS thousands	689,203 444,906 317,458 316,571 - - 1,005,774 444,906 317,458		9,128 259,495 122,605 65,566 293,327 - 74,694 552,822 122,605	(306) (15,198) 4,843 14,792 23,244 - 14,486 8,046 4,843		698,025 689,203 444,906 396,929 316,571 - 1,094,954 1,005,774 444,906	6.75%-8.8% 6.75%-8.75% 7%-9% 7.25%-8.0% 7.5%-8.25% - 6.75%-8.8% 6.75%-8.75% 7%-9%	Other investment property	Leased for commerce Leased for offices and other Assisted living Total	2014 2013 2012 2014 2013 2012 2014 2013 2012 2014 2013 2012	NIS thousands	352,502 218,238 162,502 256,830 85,879 27,600 1,116,576 1,022,039 964,708 1,725,908 1,326,156 1,154,810		4,874 141,930 53,912 35,531 156,674 47,913 9,531 11,557 10,181 49,936 310,161 112,006	(566) (7,666) 1,824 10,262 14,277 10,366 71,893 76,767 47,150 81,589 83,378 59,340		- - - - - - - 6,213 - - 6,213 -	356,810 352,502 218,238 302,623 256,830 85,879 1,198,000 1,116,576 1,022,039 1,857,433 1,725,908 1,326,156	6.75%- 6.75%- 7.25%- 7.5%- 7.9%- 8.0%- 8.0%- 8.5%- 6.75%- 6.75%-	8.8% 8.75% 7%-9% 8.00% 8.6% 8.7% 10.0% 10.0% 10% 10.0% 10.0% 7%-10%
				Balance as of January 1	Acquisitions of and additions to	existing assets	Fair value adjustment		Balance as of December 31	Range of capitalization rates					Balance as of January 1	Acquisitions of and additions	to existing assets	Fair value adjustment	Reclassified from property,	plant and equipment	Balance as of December 31		Range of capitalization rates

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 8 - INVESTMENT PROPERTY (CONTINUED)

B. Fair value measurement of investment property

Investment property is measured at fair value on the basis of valuations of an external, independent assessor having the requisite qualifications and experience in the location and type of property being assessed. The fair value is based on recent market transactions in properties and locations similar to those of the properties owned by the Group, and based on estimated future cash flows from the property. The cash flow takes into account the embedded risk. A decrease in the discount rate or an increase in rent has a positive effect on the fair value of investment property.

When assessing the fair value of investment property under construction, the discounted cash flow method is used, at the assessor's discretion. The fair value is based on estimated future revenues expected from the finished project, using returns adjusted to the material risks relevant to the establishment process, including building and leasing risks, which are higher than the current returns for similar investment property when completed. The expected costs remaining for completion, plus development gains, are deducted from the estimated future revenues as set out above.

Investment property is measured at fair value and classified as level 3 of the fair value hierarchy.

C. Sensitivity analysis

The discount rate is a significant estimate in determining fair value, since a change in the discount rate will have a significant effect on the fair value of investment property. A change in fair value of investment property for unit linked contracts does not fully affect the Company's profit or loss.

An increase of half a percent in the discount rate will result in a decrease of NIS 150 million in the value of investment property and a decrease of NIS 110 million in pre-tax profit or loss as at December 31, 2014.

A decrease of half a percent in the discount rate will result in an increase of NIS 156 million in the value of investment property and a decrease of NIS 113 million in pre-tax profit or loss as at December 31, 2014.

D. Land rights used by the Group as investment property, unit linked investment and other:

	December 31
2014	2013	2012
	NIS thousands
1,206,578 1,745,809	1,087,173 1,644,509	622,018 1,149,044
2,952,387	2,731,682	1,771,062

Capitalized leased assets of NIS 1,648,415 thousand (in 2013, NIS 1,547,513 thousand, in 2012, NIS 1,046,059 thousand) are leased for 28-42 years.

Capitalized leased assets of NIS 25,494 thousand (in 2013, NIS 24,596 thousand, in 2012, NIS 27,885 thousand) are leased for 78 years.

Capitalized leased assets of NIS 71,900 thousand (in 2013, NIS 72,400 thousand, in 2012, NIS 75,100 thousand) are leased for 982 years.

E. For information about the agreements to acquire investment property, see Note 42F.

— 97 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 9 – CREDIT FOR ACQUISITION OF SECURITIES

Open accounts Less provision for doubtful accounts Trade payables, net	2014 168,000 (8,000) 160,000	December 31
		2013	2012
		NIS thousands
		172,000 (7,000)	244,000 (7,000)
		165,000	237,000

Credit was provided to customers in a subsidiary to acquire securities. The credit is unlinked and bears interest at the prime interest rate plus a margin. The credit is mainly secured by a lien on the securities portfolios of customers. A significant decrease in the market value of the securities could expose the Company to difficulties in collection. Impairment of trade receivables is accounted for by recording a provision for doubtful debts.

NOTE 10 – DEBTORS AND RECEIVABLES

A. Composition:

December 31	December 31
2014	2013	2012

12,264 19,034 34,218 706 14,983 28,043 45,353 - - 2,555 34,870 70,602	14,496 22,467 32,306 852 33,512 26,158 55,191 - - 1,967 41,865 84,476	29,729 73,324 30,623 1,527 6,884 25,593 41,883 81,367 33,000 1,368 46,052 69,359
262,628 (695)	313,290 (1,128)	440,709 (559)
261,933	312,162	440,150

B. Movement in the provision for doubtful debts relating mainly to agent debts

December 31	December 31
2014	2013	2012

1,128 (433)	1,031 97	1,653 (1,094)
695	1,128	559

C. For information about other receivables that are related parties, see Note 40 .

— 98 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 11 – PREMIUMS RECEIVABLE

A. Composition:

	December 31
2014	2013	2012

600,774 3,930	560,929 4,155	576,221 4,380
596,844	556,774	571,841
267,497	316,126	311,076

(*) Including checks receivable and stop orders

(*) For information about premiums receivable from related parties and interested parties, see Note 41.

(**) The Group's exposure to currency risks referring to premiums receivable is described in Note 40 - Risk Management. For information about linkage terms of premium receivable, see Note 40.

B. Aging:

	December 31
2014	2013	2012

456,561	421,113	413,690
90,728 21,024 21,127	84,587 22,861 20,710	99,150 27,799 20,782
132,879	128,158	147,731
11,334 (3,930)	11,658 (4,155)	14,800 (4,380)
7,404	7,503	10,420
596,844	556,774	571,841

(*) Includes mainly debts past due in life insurance; these debts are mainly secured by the surrender value of the policy.

C. Changes in provision for doubtful debts for premiums due

	December 31
2014	2013	2012

4,155 (225)	4,380 (225)	4,380 -
3,930	4,155	4,380

— 99 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 12 - ASSETS FOR UNIT LINKED CONTRACTS

A. Assets at fair value through profit or loss:

	December 31
2014	2013	2012

1,094,954 1,005,774 15,209,782 12,383,638 4,387,012 4,160,617 6,664,480 5,798,576 5,177,532 5,291,772 31,438,806 27,634,603 2,651,399 2,240,940 154,072 161,745 35,339,231 31,043,062		444,906 9,591,028 3,861,171 4,633,885 5,144,920
		23,231,004
		1,700,297
		210,574
		25,586,781

For information about exposure for profit-sharing policy assets, see Note 40, Risk Management.

B. Fair value hierarchy of financial assets

The following table presents an analysis of assets held against insurance contracts and investment contracts at fair value through profit and loss. The hierarchy is as follows:

Level 1: quoted prices (unadjusted) in active markets for identical instruments
Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly
Level 3: inputs that are not based on observable market data (unobservable inputs)

	December 31, 2014	December 31, 2014
Level 1	Level 2	Level 3	Total

15,209,782 - 6,601,609 2,413,164	- 4,299,184 - 800,279	- 87,828 62,871 1,964,089	15,209,782 4,387,012 6,664,480 5,177,532
24,224,555	5,099,463	2,114,788	31,438,806

— 100 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 12 - ASSETS FOR UNIT LINKED CONTRACTS (CONTINUED)

B. Fair value hierarchy of financial assets (continued)

	December 31, 2013	December 31, 2013
Level 1	Level 2 Level 3 NIS thousands	Level 3	Total

12,383,638 - 5,715,109 3,134,446	- - 4,071,496 89,121 - 83,467 573,258 1,584,068 4,644,754 1,756,656 December 31, 2012	- 89,121 83,467 1,584,068	12,383,638 4,160,617 5,798,576 5,291,772
21,233,193		1,756,656	27,634,603

Level 1	Level 2		Total

9,591,028 - 4,542,201 3,188,998 17,322,227	- 3,731,349 - 251,054	- 129,822 91,684 1,704,868 1,926,374	9,591,028 3,861,171 4,633,885 5,144,920
	3,982,403		23,231,004

For information about interest rates used for determining fair value, see Note 13(G)

C. Changes in Level 3 financial assets measured at fair value

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss
Marketable debt assets	Non- marketable debt assets	Shares	Other financial investments	Total

- - - - - -	89,121 3,855 12,626 (4,614) (11,913) (1,247)	83,467 31,825 - (503) (51,918) -	1,584,068 387,917 307,756 (155,488) (160,164) -	1,756,656 423,597 320,382 (160,605) (223,995) (1,247)
-	87,828	62,871	1,964,089	2,114,788
-	3,840	24,598	385,784	414,222

In the year ended December 31, 2014, there were no material transfers between Level 1 and Level 2.

— 101 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 12 - ASSETS FOR UNIT LINKED CONTRACTS (CONTINUED)

C. Changes in Level 3 financial assets measured at fair value (continued)

Fair value at the reporting date Financial assets at fair value through profit or loss Marketable debt assets Non- marketable debt assets Shares Other financial investments Total NIS thousands - 129,822 91,684 1,704,868 1,926,374 - (28,430) (6,542) 164,082 129,110 - 6,548 - 228,799 235,347 - (6,562) (1,675) (205,499) (213,736) - (12,257) - (308,182) (320,439) - 89,121 83,467 1,584,068 1,756,656 - (28,787) (6,542) 153,568 118,239	Fair value at the reporting date Financial assets at fair value through profit or loss Marketable debt assets Non- marketable debt assets Shares Other financial investments Total NIS thousands - 129,822 91,684 1,704,868 1,926,374 - (28,430) (6,542) 164,082 129,110 - 6,548 - 228,799 235,347 - (6,562) (1,675) (205,499) (213,736) - (12,257) - (308,182) (320,439) - 89,121 83,467 1,584,068 1,756,656 - (28,787) (6,542) 153,568 118,239	Fair value at the reporting date Financial assets at fair value through profit or loss Marketable debt assets Non- marketable debt assets Shares Other financial investments Total NIS thousands - 129,822 91,684 1,704,868 1,926,374 - (28,430) (6,542) 164,082 129,110 - 6,548 - 228,799 235,347 - (6,562) (1,675) (205,499) (213,736) - (12,257) - (308,182) (320,439) - 89,121 83,467 1,584,068 1,756,656 - (28,787) (6,542) 153,568 118,239	Fair value at the reporting date Financial assets at fair value through profit or loss Marketable debt assets Non- marketable debt assets Shares Other financial investments Total NIS thousands - 129,822 91,684 1,704,868 1,926,374 - (28,430) (6,542) 164,082 129,110 - 6,548 - 228,799 235,347 - (6,562) (1,675) (205,499) (213,736) - (12,257) - (308,182) (320,439) - 89,121 83,467 1,584,068 1,756,656 - (28,787) (6,542) 153,568 118,239
Marketable debt assets	Non- marketable debt assets	Shares

- - - - -	129,822 (28,430) 6,548 (6,562) (12,257) 89,121 (28,787)	91,684 (6,542) - (1,675) -	1,704,868 164,082 228,799 (205,499) (308,182) 1,584,068 153,568
-		83,467
-		(6,542)

In the year ended December 31, 2013, there were no material transfers between Level 1 and Level 2.

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss
Marketable debt assets	Non- marketable debt assets	Shares Other financial investments NIS thousands	Other financial investments	Total

- - - - - - -	130,368 (2,583) 1,873 (18,194) 18,358	91,473 (64) - (170) 445 91,684 (101)	1,960,352 78,848 493,229 (827,561) -	2,182,193 76,201 495,102 (845,925) 18,803
	129,822		1,704,868	1,926,374
	(2,999)		39,821	36,721

— 102 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 12A - INVESTMENTS FOR HOLDERS OF DEBENTURES, EXCHANGE-TRADED FUNDS, REVERSE CERTIFICATES, COMPLEX CERTIFICATES, CERTIFICATES OF DEPOSIT, AND STRUCTURED BONDS

Securities held for trading in series-specific accounts: (1) Shares Corporate debentures Government bonds Foreign shares Foreign corporate debentures Non-marketable debentures Non-marketable debentures Future transactions Swap ETF Exchange-traded funds Maof options Gains for future contracts Amounts receivable for securities Designated cash and deposits in series-specific accounts (1)(2) Designated cash in NIS Designated cash in USD CPI-linked designated cash Other designated cash Offset of mutually-held ETFs Offset of treasury shares	December 31	December 31
	2014	2013
	7,627,000 3,465,000 3,163,000 146,000 500,000 432,000 - 70,000 60,000 331,000 6,000 36,000 191,000 60,000	8,180,000 3,199,000 1,401,000 218,000 85,000 411,000 172,000 2,000 123,000 172,000 9,000 76,000 159,000 57,000
	16,087,000 19,481,000 839,000 2,345,000 342,000	14,264,000 14,664,000 3,748,000 2,377,000 485,000
	23,007,000 39,094,000	21,274,000 35,538,000
	(28,162) (39,538)	(15,184) (44,572)
	39,026,300	35,478,244

In series-specific accounts, ETFs and deposit certificates issued by subsidiaries and deposited in commercial banks, foreign brokers and other TASE members, the withdrawal of which is subject to compliance with prospectus obligations and some of them are subject to approval of the trustee for ETFs and deposit certificates.
The fair value of the designated deposits is similar to their carrying amount.

— 103 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 13 – OTHER FINANCIAL INVESTMENTS

A. Composition:

Description		December 31, 2014	December 31, 2014
	Presented at fair value through profit or loss	Available for sale	Loans and receivables	Total
B. C. E. F. Description
	126,326 - 23,974 209,924	5,377,653 - - 10,570,471 721,271 - 1,026,981 - 7,125,905 10,570,471 December 31, 2013	- 10,570,471 - -	5,503,979 10,570,471 745,245 1,236,905
	360,224		10,570,471	18,056,600

	Presented at fair value through profit or loss	Available for sale Loans and receivables NIS thousands	Loans and receivables	Total
B. C. E. F. Description
	108,041 - 14,954 149,407	5,316,329 - - 10,085,236 631,239 - 873,863 - 6,821,431 10,085,236 December 31, 2012	- 10,085,236 - -	5,424,370 10,085,236 646,193 1,023,270
	272,402		10,085,236	17,179,069

	Presented at fair value through profit or loss	Available for sale Loans and payables NIS thousands	Loans and payables	Total
B. C. E. F.
	103,887 - 12,000 181,606	5,174,040 - 573,409 668,965 6,416,414	- 8,784,551 - -	5,277,927 8,784,551 585,409 850,571
	297,493		8,784,551	15,498,458

— 104 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 13 – OTHER FINANCIAL INVESTMENTS (CONTINUED)

B. Marketable debt assets

Composition:

	December 31
2014	2013	2012

100,604 3,028,460	86,804 3,309,871	51,912 3,390,955
3,129,064	3,396,675	3,442,867
25,722 2,349,193	21,237 2,006,458	51,947 1,783,113
2,374,915	2,027,695	1,835,060
5,503,979	5,424,370	5,277,927
98,172	52,700	81,057

— 105 —

				2012				7,222,241	483	7,222,724				3,327,095	10,549,819
			*Fair value ()**	2013				7,673,723	458	7,674,181		3,796,140	830,331	4,626,471	12,300,652
		December 31		2012 2014	NIS thousands			5,780,091 8,536,728	215 672	5,780,306 8,537,400		4,148,002	748,496	3,004,245 4,896,498	8,784,551 13,433,898	117,394					2012			2.09%	2.64%	4.90%
C. Non-marketable debt assets	Composition:		Carrying amount	2014 2013		Government bonds	Presented as loans and receivables:	Designated debentures 6,580,549 6,233,161	Other debentures 216 204	Total government bonds 6,580,765 6,233,365	Other non-convertible debt assets	Presented as loans and receivables, except for bank deposits 3,375,121 3,160,029	Bank deposits 614,585 691,842	Total other non-convertible debt assets 3,989,706 3,851,871	Total non-marketable debt assets 10,570,471 10,085,236	Permanent impairment recognized in profit or loss (aggregate) 88,126 116,604	(*) Calculated at the contractual repayment date	D. Interest and linkage for debt assets	Effective interest	December 31	2014 2013	Marketable debt assets	Linkage basis	CPI-linked 2.45% 1.63%	Shekel 2.39% 2.53%	Linked to foreign currency 4.33% 4.97%	— 106 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 13 – OTHER FINANCIAL INVESTMENTS (CONTINUED)

D. Interest and linkage for debt assets (continued)

	Effective interest	Effective interest
	December 31
2014	2013	2012

4.95% 4.00% 6.34%	5.05% 6.21% 6.14% December 31	5.71% 6.39% 6.25%
2014	2013	2012
	NIS thousands
23,975 681,810	14,952 601,396	11,999 537,831
705,785	616,348	549,830
39,460	29,845	35,579
745,245	646,193	585,409
69,452	38,299	62,118

E. Shares

— 107 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 13 – OTHER FINANCIAL INVESTMENTS (CONTINUED)

F. 1. Other financial investments

Other financial investments include mainly investments in exchange-traded funds, mutual funds, investment funds, financial derivatives, future contracts, options and structured products.

	December 31
2014	2013	2012
121,192 732,464 61,202	55,503 72,579 630,521 427,669 62,323 63,567 748,347 563,815 243,341 241,295 31,582 45,461 274,923 286,756 1,023,270 850,571 62,894 62,140
914,858
294,517 27,530
322,047
1,236,905
53,796

For information about the agreement for the liability for investment in funds, see Note 42(F).

F. 2. Derivative instruments

Summary of exposure, net of the base asset, stated in delta terms of financial transactions as of the date of the financial statements:

	December 31
2014	2013	2012
(873,059)	(678,321) (801,907) 87,597 16,463
336,916

The Company has other derivative instruments that are not included in the above table:

For information about the liability for short sale of securities, see Note 25.
Derivatives held against the liability for ETFs and structured bonds, see Note 25.

— 108 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 13 – OTHER FINANCIAL INVESTMENTS (CONTINUED)

G. Methods and assumptions used for determining fair value

The fair value of investments actively traded on institutional financial markets is determined by market prices on the reporting date. For investments where there is no active market, fair value is determined as follows:

1. Non-marketable debt assets

The fair value of non-marketable financial debt assets for which information is provided for disclosure purposes only, are determined by discounting estimated future cash flows. The discount rates are mainly based on the returns of government bonds and margins of corporate debentures as reported on the TASE. The price quotations and interest rates used for discounting are determined by the company that won the tender issued by the Ministry of Finance, for the installation and operation of a database that provides price quotations and interest rates for financial institutions. As from March 20, 2011, the Mirvach Hogen Group ("Mirvach Hogen") provides price quotations and discount interest rates to institutions for revaluation of unquoted debt assets. The Mirvach Hogen model is mainly based on the division of the market to deciles by yield to maturity of the debt assets and placing the unquoted asset in those deciles, in accordance with the risk premium derived from transaction/issue prices in the unquoted market ("the Mirvach Hogen Model").

Following the Supreme Court's ruling, which ordered cancellation of the tender that was won by Mirvach Hogen, a new tender was issued.

In accordance with a letter issued by the Ministry of Finance in September 2014, the tender committee announced that Mirvach Hogen had won the new tender. The letter further noted that a separate notice will be issued for the timetable for application of the updated model. At this stage, the Company is unable to assess the effect of the expected update in the methodology for the fair value of non-marketable debt assets, nor whether there will be any effect.

Weighted average interest rates for unquoted debt assets, included in other financial investments, divided into ratings:

December 31	December 31	December 31
2014	2013	2012
	%
0.50% 2.79% 5.22% 9.27%	0.46% 1.93% 2.65% 8.34%	0.72% 3.02% 6.09% 9.36%

(*) Sources for the rating in Israel are Maalot and Midroog rating companies and internal rating. The data of Midroog were transferred to rating symbols according to accepted conversion coefficients. Each rating includes all the ranges, for example: A includes A- to A+. For information about internal rating, see Note 40(6.3).

2. Non-marketable shares

The DCF model was used to measure the fair value of the investment in non-marketable shares. The estimate requires management to make certain assumptions about the model information, including projected cash flows, discount rates, credit risk, and volatility. The probabilities for the estimates can be reliably measured and management uses them to determine and assess the fair value of those investments in non-marketable shares.

— 109 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 13 – OTHER FINANCIAL INVESTMENTS (CONTINUED)

G. Methods and assumptions used for determining fair value (continued)

3. Derivatives

The Company has transactions in derivative financial instruments with several parties, mainly financial institutions. Derivatives evaluated using evaluation models with observable market data are mainly interest rate swap contracts and forward contracts on foreign exchange. The most frequent assessment techniques that are used include forward prices and swap models used to calculate present value. The models integrate several data, including the credit rating of the parties to the financial transaction, the spot exchange rate, rate of forward contracts, and interest rate curves. All derivative contracts are fully backed against cash, therefore there is no counterparty credit risk and non-performance risk of the Company itself.

H. Fair value hierarchy of financial assets

	December 31, 2014	December 31, 2014
Level 1	Level 2		Total

5,503,979 705,785 914,858 7,124,622 -	- - 20,343		5,503,979 745,245 1,236,905
	20,343		7,486,129
	13,148,473		13,433,898

Level 1	Level 2		Total

5,424,370 616,348 748,347 6,789,065 -	- - 31,155		5,424,370 646,193 1,023,270
	31,155		7,093,833
	11,961,506		12,300,652

Level 1	Level 2	Level 3	Total

5,277,927 549,830 562,193	- - 29,505	- 35,579 258,873	5,277,927 585,409 850,571
6,389,950	29,505	294,452	6,713,907

— 110 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 13 – OTHER FINANCIAL INVESTMENTS (CONTINUED)

I. Movement in assets measured at fair value at Level 3

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss and available-for-sale financial assets
Marketable debt assets	Non- marketable debt assets	Shares	Other financial investments	Total

- - - - - -	- - - - - -	29,845 3,607 6,155 - (147) -	243,768 38,717 20,588 28,256 (14,905) (14,720)	273,613 42,324 26,743 28,256 (15,052) (14,720)
-	-	39,460	301,704	341,164
-	-	3,607	30,483	34,090

In the year ended December 31, 2014, there were no material transfers between Level 1 and Level 2.

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss and available-for-sale financial assets
Marketable debt assets	Non- marketable debt assets	Shares	Other financial investments	Total

- - - - -	- - - - -	35,579 (8,640) 65 4,166 (138) (1,187)	258,873 15,749 5,541 50,979 (40,517) (46,857)	294,452 7,109 5,606 55,145 (40,655) (48,044)
-	-	29,845	243,768	273,613
-	-	(7,541)	20,054	12,513

In the year ended December 31, 2013, there were no material transfers between Level 1 and Level 2.

— 111 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 13 – OTHER FINANCIAL INVESTMENTS (CONTINUED)

I. Movement in assets measured at fair value at Level 3 (continued)

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profitor loss and available-for-sale financial assets
Marketable debt assets	non- marketable debt assets		Other financial investments	Total

- - - - - - -	- - - - -	26,140 198 1,167 8,127 (53) 35,579 1,220	224,964 4,818 4,560 67,088 (42,557)	251,104 5,016 5,727 75,215 (42,610)
	-		258,873	294,452
	-		13,733	14,953

J. Aging of investments in non-marketable financial debt assets:

	December 31
2014	2013	2012
	NIS thousands
10,531,101	10,050,127	8,635,974
323 635 21,617	208 156 17,238	523 11,559 44,019
10,553,676	10,067,729	8,692,075
104,920 (88,126)	134,111 (116,604)	209,873 (117,397)
16,795	17,507	92,476
10,570,471	10,085,236	8,784,551

It is noted that the above amounts do not constitute the actual amount in arrears, but rather the balance of the debt involved in the arrears.

(*) Mainly loans to agents secured by a mortgage on real estate.

— 112 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 14 – CASH AND CASH EQUIVALENTS

Note 14A – Cash and cash equivalents for unit linked contracts

	December 31
2014	2013	2012
	NIS thousands
355,459 2,295,940	292,282 1,948,658	360,038 1,340,259
2,651,399	2,240,940	1,700,297

As of the balance sheet date, cash deposits in banks bear current interest based on nominal interest rates for daily bank deposits at a rate of 0.11% (December 31, 2013, 0.93%),( December 31, 2012, 1.62%).

Short-term deposits in banks are for periods of between one week and three months. The deposits bear nominal interest at a rate of 0.22% (December 31, 2013, 0.95%),(December 31, 2012, 1.69%).

For linkage and interest terms of cash balances and short-term deposits, see Note 40.

Note 14B – Other Cash and Cash Equivalents

	December 31
2014	2013	2012
	NIS thousands
356,026 321,435	323,249 262,732	318,304 647,328
677,461	585,981	965,632

Short-term bank deposits in banks are for periods of between one week and three months. The deposits bear nominal interest at a rate of 0.22% (December 31, 2013, 0.95%),(December 31, 2012, 1.69%).

For linkage and interest terms of cash balances and short-term deposits, see Note 40.

— 113 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 15 – EQUITY AND CAPITAL RESERVES

A. Composition of the share capital

December 31, 2014	December 31, 2014	December 31, 2013	December 31, 2013	December 31, 2012	December 31, 2012
Authorized	Issued and paid up	Authorized	Issued and paid up	Authorized	Issued and paid up

300,000 -	250,462 -	300,000 -	250,420 -	300,000 24,656	223,151 24,656
300,000	250,462	300,000	250,420	324,656	247,807

(*) In accordance with the resolution of the TASE board of directors on January 21, 2010, the Company's shares of NIS 5 par value each were placed on the watch list on January 25, 2010, due to non-compliance with the requirement for the rate of public holding. On January 26, 2012, after 24 months had elapsed from the suspension date of the shares under the watch list, and the conditions for resumption of trading were not fulfilled, these shares were delisted from trading.

On May 28, 2012, the Company's board of directors resolved to approve consolidation of the Company's shares so that each of the Company's shares of NIS 5 par value each will be split into five Company shares of NIS 1 par value each ("the Consolidation of Capital"), and to amend the Company's memorandum and articles of association accordingly. The Consolidation of Capital will be implemented without any compensation to shareholders of the Company's shares of NIS 1 par value each, based on an economic opinion prepared for the Company.

As of April 24, 2014, a special general meeting of the Company's shareholders approved the resolution of the board of directors. For further information, see the Company's immediate report of April 4, 2014, ref. 2014-01-050115.

B. Changes in share capital

Balance as of January 1, 2012 Issue of shares () Balance as of December 31, 2012 Issue of shares () Balance as of December 31, 2013 Issue of shares () Consolidation of capital (*) Balance as of December 31, 2014	Number of shares	Total nominal value
	Thousands	NIS housands
	228,082 -	247,807 -
	228,082 2,613	247,807 2,613
	230,695 42 19,725	250,420 42 -
	250,462	250,462

(*) For information about the allocation of employee options, see Note 36(A) regarding share-based payment.

(**) See section A above.

C. Underlying rights for shares

Voting rights at the general meeting, dividend rights, rights on liquidation of the Company and the right to appoint directors in the Company.
The Company’s shares are traded on the TASE.

— 114 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 15 – EQUITY AND CAPITAL RESERVES (CONTINUED)

D. Treasury shares - Company shares held by the Company and subsidiaries

The Company and its subsidiaries hold the following shares:

	December 31
2014	2013	2012
2.14%	2.00%	2.01%
36,637	31,848	31,862

E. Dividend distributed

In March 2013, the Company's board of directors approved the distribution of a cash dividend of NIS 75 million. The dividend was paid in April 2013. The dividend per share of NIS 1 par value and per share of NIS 5 par value is NIS 0.3 and NIS 1.5, respectively.
In May 2013, the Company's board of directors approved the distribution of a cash dividend of NIS 150 million. The dividend was paid in June 2013. The dividend per share of NIS 1 par value and per share of NIS 5 par value is NIS 0.6 and NIS 3, respectively.
In November 2013, the Company's board of directors approved the distribution of a cash dividend of NIS 100 million. The dividend was paid in December 2013. The dividend per share of NIS 1 par value and per share of NIS 5 par value is NIS 0.4 and NIS 2, respectively.
On August 28, 2014, the Company's board of directors approved the distribution of a cash dividend of NIS 200 million. The dividend was paid in September 2014. The dividend per share of NIS 1 par value is NIS 0.8.

F. Exchange differences on translation of foreign operations

Capital reserve from translation differences due to changes in exchange rates arising from the translation of the financial statements of investees that are foreign operations and changes in exchange rates arising from the translation of financial statements from the functional currency to the presentation currency.

G . Capital management

Management’s policy is to maintain a strong capital base in order to preserve the ability of the Company to continue operating so that it may provide a return on capital to its shareholders and sustain future development of the business.

This capital is also intended to provide a solution to the various risks facing the Group, such as market and credit risk, operational risk, and catastrophe risk.

The Phoenix Insurance, Excellence and other institutions consolidated in its financial statements are subject to the external capital requirements determined by the Commissioner of Insurance. For further information see Note 7(5) to the financial statements.

— 115 —

	2012				9,570,264	7,002	9,577,266		19,692	9,557,574	-	9,557,574			1,018,230			4,059,368		14,635,172
	2013	On retention			10,131,883	6,884	10,138,767		18,876	10,119,891	798,000	10,917,891			1,117,448			4,226,671		16,262,010
	2014				10,587,207	952	10,588,159		18,888	10,569,271	819,000	11,388,271			1,356,853			4,317,556		17,062,680
	2012				104,448	-	104,448		-	104,448	-	104,448			305,850			872,849		1,283,147
December 31	2013	Reinsurance	NIS thousands		102,780	-	102,780		-	102,780	-	102,780			263,083			917,692		1,283,555
	2014				100,101	-	100,101		-	100,101	-	100,101			263,575			954,854		1,318,530
	2012				9,674,712	7,002	9,681,714		19,692	9,662,022	-	9,662,022			1,324,080			4,932,217		15,918,319
	2013	Gross			10,234,663	6,884	10,241,547		18,876	10,222,671	798,000	11,020,671			1,380,531			5,144,363		17,545,565
	2014				10,687,308	952	10,688,260		18,888	10,669,372	819,000	11,488,372			1,620,428			5,272,410		18,381,210
				Life insurance and long-term saving	Insurance contracts	Investment contracts		Less amounts deposited in the Company as	part of a defined benefit plan for Group employees	Total life insurance	Management companies of provident funds	Total life insurance and long-term savings	Insurance contracts included in the	healthcare insurance segment	(see Note 20)	Insurance contracts included in the general	insurance segment	(see Note 18)	Total liabilities for non-unit linked insurance	contracts and investment contracts

December 31	2014 2013 2012 2014 2013 2012 2014 2013 2012	Gross Reinsurance On retention	NIS thousands	Life insurance and long-term saving	Insurance contracts 32,547,025 29,472,397 24,907,656 59,678 58,556 56,957 32,487,347 29,413,841 24,850,699	Investment contracts 2,288,182 1,144,940 462,484 - - - 2,288,182 1,144,940 462,484	34,835,207 30,617,337 25,370,140 59,678 58,556 56,957 34,775,529 30,558,781 25,313,183	Less amounts deposited in the Company as part of a defined benefit plan for Group employees 61,694 61,668 64,335 - - - 61,694 61,668 64,335	Total life insurance and long-term savings 34,773,513 30,555,669 25,305,805 59,678 58,556 56,957 34,713,835 30,497,113 25,248,848	Insurance contracts included in the healthcare	insurance segment (see Note 20) 376,158 336,839 215,461 20,718 22,298 12,008 355,440 314,541 203,453		Total liabilities for unit linked insurance contracts	and investment contracts 35,149,671 30,892,508 25,521,266 80,396 80,854 68,965 35,069,275 30,811,654 25,452,301	In unit linked insurance contracts, insurance benefits that the beneficiary is entitled to receive are dependent on or linked to returns produced by certain	investments of the Company, less management fees. These contracts include insurance plans with a bonus-malus for the policyholder, according to the	investment results of profit-sharing policies in the Company's investment gains. In non-unit linked contracts, the insurance benefits to which a policyholder is	entitled are not dependent on the income or loss from the Company's investments.	The distinction between the unit linked contracts and the non-unit linked contracts is made on the level of the individual coverage, such that there are insurance	policies with several coverages, some of which are unit linked and some are non-unit linked.

Notes to the Consolidated Financial Statements

NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR
A
1. Liabilities for insurance contracts in the general insurance segment, by category:
December 31
2014
2013
2012
2014
2013
2012
2014
2013
2012
Gross
Reinsurance
On retention
NIS thousands
Compulsory motor and liabilities branches
Provision for unearned premium
342,442
312,442
288,364
42,282
34,295
35,993
300,160
278,147
252,371
Excess of income over expenses
(aggregate) ()
205,050
265,042
258,519
194,556
230,626
211,859
10,494
34,416
46,660
Outstanding claims
3,414,427
3,280,286
3,275,924
190,385
167,705
238,821
3,224,042
3,112,581
3,037,103
Total compulsory motor insurance and
liabilities branches
3,961,919
3,857,770
3,822,807
427,223
432,626
486,673
3,534,696
3,425,144
3,336,134
Of this, total liability for the compulsory
motor branch
2,214,280
2,129,472
2,038,138
43,261
53,245
80,208
2,171,019
2,076,227
1,957,930
Property and other branches
Provision for unearned premium
609,662
585,837
544,550
139,514
126,141
123,062
470,148
459,696
421,488
Outstanding claims
700,829
700,756
564,860
388,117
358,925
263,114
312,712
341,831
301,746
Total property and other branches (see B2
below)
1,310,491
1,286,593
1,109,410
527,631
485,066
386,176
782,860
801,527
723,234
Total liabilities for insurance contracts in
the general insurance sector
5,272,410
5,144,363
4,932,217
954,854
917,692
872,849
4,317,556
4,226,671
4,059,368
Deferred acquisition costs:
Compulsory motor and liabilities branches
51,251
45,586
42,113
7,468
6,310
6,313
43,783
39,276
35,800
Property and other branches
145,377
140,415
130,493
29,494
26,625
26,184
115,883
113,790
104,309
Total deferred acquisition costs
196,628
186,001
172,606
36,962
32,935
32,497
159,666
153,066
140,109
Liabilities for general insurance contracts
net of deferred acquisition costs:
Compulsory motor and liabilities branches
3,910,668
3,812,184
3,780,694
419,755
426,316
480,360
3,490,913
3,385,868
3,300,334
Property and other branches
1,165,114
1,146,178
978,917
498,137
458,441
359,992
666,977
687,737
618,925
Total liabilities for general insurance
contracts net of deferred acquisition
costs:
5,075,782
4,958,362
4,759,611
917,892
884,757
840,352
4,157,890
4,073,605
3,919,259
() For information about the cancellation of the surplus revenue reserve as from the financial statements as of December 31, 2015, see Note 40 to the financial statements.
— 118 —

Notes to the Consolidated Financial Statements

NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR(CONTINUED)
A.
2. Liabilities for insurance contracts in the general insurance segment, by calculation method:
December 31
2014
2013
2012
2014
2013
2012
2014
2013
2012
Gross
Reinsurance
On retention
NIS thousands
Actuarial estimates
Total actuarial estimates by Anna Nachum, general
insurance actuary
4,072,155
3,931,678
3,785,655
556,414
499,394
470,699
3,515,741
3,432,284
3,314,956
Total actuarial estimates by Dafna Weirauch
27,564
29,157
35,103
9,340
12,581
18,675
18,224
16,576
16,428
Total actuarial estimates
4,099,719
3,960,835
3,820,758
565,754
511,975
489,374
3,533,965
3,448,860
3,331,384
Provisions based on other valuations
Valuation of the claims department for known
outstanding claims
14,286
18,598
18,588
11,606
13,341
11,478
2,680
5,257
7,110
Addition to outstanding IBNR claims
1,251
1,609
1,438
1,142
1,314
1,083
109
295
355
Provision for unearned premium
952,104
898,279
832,914
181,796
160,436
159,055
770,308
737,843
673,859
Excess of income over expenses (aggregate)
205,050
265,042
258,519
194,556
230,626
211,859
10,494
34,416
46,660
Total liabilities for insurance contracts in the general
insurance sector
5,272,410
5,144,363
4,932,217
954,854
917,692
872,849
4,317,556
4,226,671
4,059,368

				2012			3,108,963			521,414						40,593	(26,865)		535,142			(7,389)	(297,354)			(304,743)				8,013		(53,361)	6,320		(39,028)		3,300,334
				2013	On retention		3,300,334			580,572						57,989	(144,629)		493,932			(7,817)	(388,337)			(396,154)				3,145		(22,777)	7,388		(12,244)		3,385,868
1. Compulsory motor and liabilities branches			Year ended December 31	2014 2013 2012 2014 2013 2012 2014	Gross Reinsurance	NIS thousands	Balance as of the beginning of the year 3,812,184 3,780,694 3,666,741 426,316 480,360 557,778 3,385,868		Aggregate cost of claims for the current	underwriting year 661,413 610,363 560,230 42,690 29,791 38,816 618,723	Change in balances at the beginning of	the year as a result of linkage to the CPI		and investment gains according to		discounting liability assumptions (3,208) 62,548 45,054 (164) 4,559 4,461 (3,044)	Change in aggregate cost of claims for prior underwriting years (5) (72,170) (208,627) (58,395) 11,707(6) (63,998) (31,530) (83,877)		Total change in aggregate cost of claims 586,035 464,284 546,889 54,233 (29,648) 11,747 531,802		Payments to settle claims during the year:	For the current underwriting year (7,245) (8,035) (8,620) (563) (218) (1,231) (6,682)	For prior underwriting years (420,314) (431,282) (382,983) (24,162) (42,945) (85,629) (396,152)			Total payments for the period (427,559) (439,317) (391,603) (24,725) (43,163) (86,860) (402,834)			Aggregate for the current underwriting	year 53,853 57,698 47,344 46,598 54,553 39,331 7,255	Aggregate carried to profit for the released	underwriting year (130,561) (113,472) (136,923) (102,744) (90,695) (83,562) (27,817)	Aggregate balance of change 16,716 62,297 48,246 20,077 54,909 41,926 (3,361)		Aggregate balance of change – total aggregate change in the period (59,992) 6,523 (41,333) (36,069) 18,767 (2,305) (23,923)		Balance as of the end of the year 3,910,668 3,812,184 3,780,694 419,755 426,316 480,360 3,490,913

Notes to the Consolidated Financial Statements

NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR (CONTINUED)
B. Change in liabilities for insurance contracts included in the general insurance branch net of deferred acquisition costs (continued):
2. Property and other branches
Year ended December 31
2014
2013
2012
2014
2013
2012
2014
2013
2012
Gross
Reinsurance
On retention
NIS thousands
Balance as of the beginning of the year
1,146,178
978,917
899,301
458,441
359,992
338,629
687,737
618,925
560,672
Aggregate cost of claims for events in the reporting year (5)
841,666
988,084
852,503
150,092
267,697
162,527
691,574
720,387
689,976
Change in the aggregate cost of claims for events prior to the reporting year (6)
87,330
(30,155)
2,249
119,498
(14,936)
(848)
(32,168)
(15,219)
3,097
Payments to settle claims during the year:
For events in the reporting year
(580,231)
(570,987)
(563,801)
(75,419)
(79,332)
(80,042)
(504,812)
(491,655)
(483,759)
For events prior to the reporting year
(348,689)
(251,046)
(218,047)
(164,978)
(77,617)
(58,573)
(183,711)
(173,429)
(159,474)
Total payments
(928,920)
(822,033)
(781,848)
(240,397)
(156,949)
(138,615)
(688,523)
(665,084)
(643,233)
Changes in provisions for net unearned premiums from deferred acquisition
costs
18,860
31,365
6,712
10,503
2,637
(1,701)
8,357
28,728
8,413
Balance as of the end of the year
1,165,114
1,146,178
978,917
498,137
458,441
359,992
666,977
687,737
618,925
1.Opening and closing balances include outstanding claims with the addition of provision for premium deficiency, unearned premium reserve and net of
deferred acquisition costs.
2.
The aggregate cost of claims for events in the reporting year includes the balance of outstanding claims at the end of the reporting year with the
addition of total claims payments in the reporting period, including direct and indirect expenses to settle claims.
3.
Payments to settle claims during the year include payments for events prior to the reporting year.
4.
The payments to settle claims include direct and indirect expenses to settle claims (general and administrative recorded in the claims) attributed to
the damage years.
5.
The aggregate cost of claims in 2013 for events in the reporting year was also affected by damages caused by the storm in 2013.
6.
The increase in the gross aggregate cost of claims for events prior to the reporting year is mainly due to several large claims in property loss and
engineering which are fully covered by reinsurance. The decrease in the cost of aggregate claims in retention for events prior to the reporting year is
mainly due to vehicle property and business branches in which most of the change in the estimates arises from the retention, and from a reinsurance
transaction following the damages caused by the storm in 2013.

NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR (CONTINUED)	C. 1. Examination of run-off of valuation of gross liabilities for insurance contracts net of deferred acquisition costs, gross, in compulsory motor and	liabilities branches (1):	*December 31, 2014 ()**	Underwriting year	2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total	NIS thousands adjusted to the CPI of November 2014 (2)	Claims paid (aggregate) at the end of the year	After the first year 10,393 11,036 15,051 13,425 12,710 8,995 7,682 8,793 8,119 7,252	After two years 76,817 78,658 61,868 71,375 62,009 43,857 39,406 47,092 39,081	After three years 155,137 143,353 120,232 134,586 112,989 98,147 86,183 95,417	After four years 219,204 204,846 177,685 186,189 164,780 154,304 151,505	After five years 284,336 259,466 252,120 243,059 208,485 211,711	After six years 349,497 304,610 287,130 298,827 252,557	After seven years 421,952 344,256 342,357 333,475	After eight years 463,343 385,662 381,051	After nine years 491,562 409,518	After ten years 516,729	Estimated aggregate claims (including payments) at end of year:	After the first year (3) 675,093 577,635 539,112 557,029 642,201 645,708 628,439 618,586 667,500 715,272	After two years 712,366 621,865 571,694 587,939 670,131 700,180 670,165 643,251 704,157	After three years 736,065 643,347 610,094 617,334 687,018 735,059 686,523 679,325	After four years 728,368 595,408 585,423 554,317 551,228 607,983 579,283	After five years 732,157 594,102 580,925 584,163 565,542 613,419	After six years 742,537 602,357 585,273 550,416 531,785	After seven years 706,231 591,262 543,180 529,326	After eight years 694,577 563,952 530,206	After nine years 678,378 551,296	After ten years 649,402	Excess (deficit) after release of the accrual (4) 78,966 44,112 55,217 24,991 19,443 (5,436) 217,293	Deviation rate after release of the accrual (%) (5) 10.8% 7.4% 9.4% 4.5% 3.5% (0.9%) 6.0%	Cost of aggregate claims as of December 31, 2014 649,402 551,296 530,206 529,326 531,785 613,419 579,283 679,325 704,157 715,272 6,083,471	Aggregate payments up to December 31, 2014 516,729 409,518 381,051 333,475 252,557 211,711 151,505 95,417 39,081 7,252 2,398,296	Outstanding claims at end of year 132,673 141,778 149,155 195,851 279,228 401,708 427,778 583,908 665,076 708,020 3,685,175	For years up to and including the 2004 underwriting year 225,493	Total liabilities for insurance contracts in compulsory motor insurance and liabilities branches net of deferred acquisition costs as of December 31, 2014 3,910,668	(1) The information below includes the amounts of the accrual (excess of revenues over expenses).	(2) The above amounts are presented in values adjusted to inflation to allow examination of the run-off based on real values.	(3) Estimated aggregate claims at the end of the first year including reserve for unearned premium less deferred acquisition costs	(4) Excess of the estimated aggregate claims in the fourth year (the first after release of the accrual) and the estimated aggregate claims as of the reporting date.	(5) The significance of the actuarial models is higher when assessing the development of the claims for all underwriting years. Accordingly, it is more appropriate to examine the run-	off of the valuations at the level of total underwriting years and not per underwriting year.	— 123 —

NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR (CONTINUED)	C. 2. Examination of run-off of valuation of gross liabilities for insurance contracts net of deferred acquisition costs, on retention, in compulsory	motor insurance and liabilities branches (1):	December 31, 2014	Underwriting year	2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total	NIS thousands adjusted to the CPI of November 2014 (2)	Claims paid (aggregate) at the end of the year	After the first year 10,393 10,898 14,468 12,892 12,242 8,729 6,801 7,537 7,902 6,690	After two years 76,016 76,869 60,601 69,446 56,588 42,468 35,114 38,578 35,783	After three years 153,881 140,931 118,642 132,541 106,204 95,785 79,460 85,011	After four years 216,230 201,815 176,016 183,994 154,726 147,673 140,625	After five years 277,430 256,099 231,091 236,283 198,160 204,035	After six years 334,255 301,082 265,607 281,049 241,194	After seven years 382,338 335,139 319,901 314,236	After eight years 393,127 376,522 356,558	After nine years 418,864 398,865	After ten years 441,805	Estimated aggregate claims (including payments) at end of year:	After the first year (3) 557,807 494,702 471,239 495,126 539,664 545,946 533,166 539,023 583,239 625,987	After two years 586,827 526,152 485,039 507,774 549,353 550,995 547,020 549,588 603,292	After three years 610,436 551,555 525,928 538,980 568,401 581,799 563,902 567,792	After four years 646,054 574,983 532,729 536,160 529,937 553,958 557,602	After five years 642,582 577,787 535,210 561,789 540,227 550,430	After six years 642,314 578,932 542,414 528,053 513,288	After seven years 608,033 568,414 515,158 506,284	After eight years 595,626 542,530 501,032	After nine years 583,136 534,015	After ten years 555,144	Excess (deficit) after release of the accrual (4) 90,910 40,968 31,697 29,876 16,648 3,528 213,628	Deviation rate after release of the accrual (5) 14.1% 7.1% 6.0% 5.6% 3.1% 0.6% 6.3%	Cost of aggregate claims as of December 31, 2014 555,144 534,015 501,032 506,284 513,288 550,430 557,602 567,792 603,292 625,987 5,514,866	Aggregate payments up to December 31, 2014 441,805 398,865 356,558 314,236 241,194 204,035 140,625 85,011 35,783 6,690 2,224,802	Outstanding claims at end of year 113,339 135,150 144,474 192,048 272,094 346,395 416,977 482,781 567,509 619,297 3,290,064	For years up to and including the 2004 underwriting year 200,849	Total liability for insurance contracts in compulsory motor insurance and liabilities branches net of deferred acquisition costs. 3,490,913	(1) The information below includes the amounts of the accrual (excess of revenues over expenses).	(2) The above amounts are presented in values adjusted to inflation to allow examination of the run-off based on real values.	(3) Estimated aggregate claims at the end of the first year including reserve for unearned premium less deferred acquisition costs	(4) Excess of the estimated aggregate claims in the fourth year (the first after release of the accrual) and the estimated aggregate claims a at the reporting date.	(5) The significance of the actuarial models is higher when assessing the development of the claims for all underwriting years. Accordingly, it is more appropriate to examine the run-	off of the valuations at the level of total underwriting years and not per underwriting year.	— 124 —

APPENDIX II FINANCIAL INFORMATION OF THE PH GROUP	Notes to the Consolidated Financial Statements	NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR (CONTINUED)	C. 3. Examination of run-off of valuation of gross liabilities for insurance contracts net of deferred acquisition costs, gross, in the compulsory motor	branch (1)	December 31, 2014	Underwriting year	2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total	NIS thousands adjusted to the CPI of November 2014 (2)	Claims paid (aggregate) at the end of the year	After the first year 8,466 8,580 9,443 7,969 8,349 5,959 3,899 4,284 4,831 4,248	After two years 60,799 60,674 44,412 51,422 36,962 28,368 21,024 21,029 21,224	After three years 122,867 106,970 85,068 91,572 70,439 63,875 49,322 50,754	After four years 170,575 150,881 121,479 124,892 99,737 97,683 83,884	After five years 220,387 185,988 155,436 153,005 120,337 131,196	After six years 265,613 208,380 171,731 193,759 145,012	After seven years 321,854 230,616 211,443 215,900	After eight years 351,221 256,791 233,463	After nine years 366,998 267,916	After ten years 382,581	Estimated aggregate claims (including payments) at end of year:	After the first year (3) 439,497 335,142 298,865 327,474 351,174 366,158 347,074 346,065 383,542 411,482	After two years 456,144 354,651 314,409 336,148 359,509 374,354 350,144 353,793 393,223	After three years 468,652 359,108 328,940 343,456 367,449 383,155 358,818 365,142	After four years 500,046 354,845 325,688 329,811 312,446 350,881 334,918	After five years 506,438 349,945 318,325 334,091 313,470 352,371	After six years 512,476 350,331 324,923 329,709 293,751	After seven years 496,768 347,864 318,421 318,734	After eight years 482,350 338,621 309,918	After nine years 479,886 335,877	After ten years 466,008	Excess (deficit) after release of the accrual (4) 34,038 18,968 15,770 11,077 18,695 (1,490) 97,058	Deviation rate after release of the accrual (%) (5) 6.8% 5.3% 4.8% 3.4% 6.0% (0.4%) 4.5%	Cost of aggregate claims as of December 31, 2014 466,008 335,877 309,918 318,734 293,751 352,371 334,918 365,142 393,223 411,482 3,581,424	Aggregate payments up to December 31, 2014 382,581 267,916 233,463 215,900 145,012 131,196 83,884 50,754 21,224 4,248 1,536,178	Outstanding claims at end of year 83,427 67,961 76,455 102,834 148,739 221,175 251,034 314,388 371,999 407,234 2,045,246	For years up to and including the 2004 underwriting year 148,124	Total liabilities for insurance contracts in compulsory motor insurance and liabilities branches less deferred acquisition costs as of December 31, 2014 2,193,370	(1) The information below includes the amounts of the accrual (excess of revenues over expenses).	(2) The above amounts are presented in values adjusted to inflation to allow the examination of the run-off based on real values.	(3) Estimated aggregate claims at the end of the first year including reserve for unearned premium less deferred acquisition costs	(4) Excess of the estimated aggregate claims in the fourth year (the first after release of the accrual) and the estimated aggregate claims as of the reporting date.	(5) The significance of the actuarial models is higher when assessing the development of the claims for all underwriting years. Accordingly, it is more appropriate to examine the run-	off of the valuations at the level of total underwriting years and not per underwriting year.	— 125 —

APPENDIX II FINANCIAL INFORMATION OF THE PH GROUP	Notes to the Consolidated Financial Statements	NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR (CONTINUED)	C. 4. Examination of run-off of valuation of liabilities for insurance contracts net of deferred acquisition costs, on retention, in the compulsory motor	branch (1)	December 31, 2014	Underwriting year	2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total	NIS thousands adjusted to the CPI of November 2014 (2)	Claims paid (aggregate) at the end of the year	After the first year 8,466 8,580 9,443 7,969 8,349 5,959 3,899 4,284 4,831 4,248	After two years 60,799 60,674 44,412 51,422 36,962 28,368 21,024 21,029 21,224	After three years 122,867 106,970 85,068 91,572 70,439 63,875 49,322 50,754	After four years 169,367 150,881 121,479 124,892 99,737 97,683 83,884	After five years 214,888 185,988 155,436 153,005 120,337 131,196	After six years 254,138 208,380 171,731 182,732 145,012	After seven years 287,414 229,377 211,443 203,410	After eight years 286,691 255,552 233,463	After nine years 300,071 266,678	After ten years 314,814	Estimated aggregate claims (including payments) at end of year:	After the first year (3) 376,647 320,567 290,313 319,321 340,965 355,499 338,320 336,704 377,030 404,897	After two years 391,388 335,928 302,162 322,921 344,416 358,786 336,385 342,553 384,371	After three years 402,138 341,204 317,152 330,637 352,740 367,818 345,324 353,893	After four years 433,147 348,943 323,724 317,635 312,446 350,881 334,918	After five years 427,830 346,386 316,546 320,732 313,470 352,371	After six years 430,071 347,078 324,492 316,348 293,751	After seven years 415,341 344,771 318,421 305,035	After eight years 401,617 336,328 309,918	After nine years 401,612 333,485	After ten years 388,973	Excess (deficit) after release of the accrual (4) 44,174 15,458 13,806 12,600 18,695 (1,490) 103,243	Deviation rate after release of the accrual (%) (5) 10.2% 4.4% 4.3% 4.0% 6.0% (0.4%) 4.9%	Cost of aggregate claims as of December 31, 2014 388,973 333,485 309,918 305,035 293,751 352,371 334,918 353,893 384,371 404,897 3,461,612	Aggregate payments up to December 31, 2014 314,814 266,678 233,463 203,410 145,012 131,196 83,884 50,754 21,224 4,248 1,454,683	Outstanding claims at end of year 74,159 66,807 76,455 101,625 148,739 221,175 251,034 303,139 363,147 400,649 2,006,929	For years up to and including the 2004 underwriting year 143,180	Total liabilities for insurance contracts in compulsory motor insurance and liabilities branches less deferred acquisition costs as of December 31, 2014 2,150,109	(1) The information below includes the amounts of the accrual (excess of revenues over expenses).	(2) The above amounts are presented in values adjusted to inflation to allow examination of the run-off based on real values.	(3) Estimated aggregate claims at the end of the first year including reserve for unearned premium less deferred acquisition costs	(4) Excess of the estimated aggregate claims in the fourth year (the first after release of the accrual) and the estimated aggregate claims as of the reporting date.	(5) The significance of the actuarial models is higher when assessing the development of the claims for all underwriting years. Accordingly, it is more appropriate to examine the run-	off of the valuations at the level of total underwriting years and not per underwriting year.	— 126 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR (CONTINUED)

D. 1. Cumulative information on underwriting years in compulsory motor insurance:

		Underwriting year	Underwriting year	Underwriting year
2014	2013	2012 2011 2010 (NIS thousands)			2009	2008

451,710	423,645	384,370 748 - 33,076	373,472 25,657 52,198	388,377 42,834 72,303	358,974	321,537
(23,071)	(15,115)				91,310	57,492
-	-				81,886	83,511
3,021	15,123

The increase in premiums over the period is mainly due to an increase in the Company's sales alongside a decrease in prices.
For the 2009 underwriting year, a one-time gain was recorded, due to the transfer of insurance liability for medical expenses to health funds.
The decrease in investment income over the underwriting years is mainly due to the fact that investment income has not yet accumulated in the reporting year and in the relevant underwriting years.
For information about the cancellation of the surplus revenue reserve as from the financial statements as of December 31, 2015, see Note 40 to the financial statements.

D 2. Cumulative information on underwriting years in the other insurance liability branch:

		Underwriting year	Underwriting year	Underwriting year
2014	2013	2012	2011		2009	2008

352,887	357,151 (24,516)	334,402	364,096	340,265	332,233	260,119 (2,567)
(15,299)		(17,194)	(14,457)	6,457	(4,903)
7,255	2,184 8,149	1,054	31,170	40,688	52,026	56,854
1,628		19,135

The aggregate comprehensive income (loss) in retention for the underwriting year, net of investment income on the same underwriting year, indicates an improvement in the Company's underwriting results in recent years, mainly due to the Company's steps to improve underwriting efficiency.
The decrease in investment income over the underwriting years is mainly due to the fact that investment income has not yet accumulated in the reporting year and in the relevant underwriting years.
For information about the cancellation of the surplus revenue reserve as from the financial statements as of December 31, 2015, see Note 40 to the financial statements.

— 127 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR (CONTINUED)
E. 1. Composition of comprehensive income (loss) in retention in compulsory motor insurance:

Year ended December 31, 2014 December 31, 2013 December 31, 2012	Comprehensive income (loss) for open years (1)	Comprehensive income for the underwriting year released in the reporting year(2)	Adjustments for underwriting years released in previous years(3)	Activity not included in calculation of reserves(4)	Total comprehensive income
	(31,009) 19,723 (9,815) 33,155 25,262 51,760		108,311 103,282 88,762	2,530 99,555 14,497 141,119 (15,494) 150,290

(1) The deterioration in results for the open years describe above is mainly due to a decrease in comprehensive income recognized for these years, and an increase in the losses of the Pool.
(2) The underwriting years that were released in the 2014, 2013, and 2012 reporting years are 2011, 2010, and 2009, respectively. The decrease in profits in 2014 compared to 2013 is mainly due to a decrease in investment income. In 2012, the profit was affected by one-time margin due to the transfer of insurance liability for medical expenses to health funds.
(3) Adjustments for underwriting years released in prior years in 2014 and 2013 differ from those of 2012, particularly since 2012 was significantly affected by a decrease in the rate of risk-free interest, which resulted in an increase in insurance liabilities. In 2014 and 2013, the change in insurance liabilities due to changes in the rate of risk free interest had a lower effect. The amount released in 2014 is not significantly different than the amount released in 2013, due to the decrease in investment income in 2014, and the improvement in actuarial forecasts.
(4) An activity not included in the calculation of reserves, is mainly the difference between the imputed real yield of investment income for the open years at a rate of 3% and the actual income from investments in those years. This section also includes expenses that cannot be attributed to the accrual.
E. 2. Composition of comprehensive income (loss) in retention in the other insurance liabilities branch

Year ended December 31, 2014 December 31, 2013 December 31, 2012	Comprehensive loss for open years(1)	Comprehensive income for the underwriting year released in the reporting year(2)	Adjustments for underwriting years released in previous years(3)	Activity not included in calculation of reserves(5)	Total comprehensive income
	(31,478) (18,870) (30,826)	1,875 21,240 6,066	93,574 152,585 (4) 69,768	2,481 10,927 (2,274)	66,452 165,882 42,734

(1) The losses recorded in the open years are mainly for employer liability and third party branches.
(2) The underwriting years that were released in the 2014, 2013, and 2012 reporting years are 2011, 2010, and 2009, respectively. Income in 2013 is mainly in the professional liability branch.
(3) The decrease in comprehensive income for the underwriting years released in previous years in 2014 compared to 2013 is mainly due to a decrease in investment income. In addition, in 2013, income was affected by adjusted estimates for insurance liabilities, mainly in employer, third party and professional liability branches (see section 4 below). 2012 was significantly affected by a decrease in the risk-free interest rates, resulting in an increase in insurance liabilities. In 2014 and 2013, the effect of the change in insurance liabilities due to changes in the rate of risk free interest is lower.

— 128 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR (CONTINUED)

E. 2. Composition of comprehensive income (loss) in retention in the other insurance liabilities branch(continued)
(4) In the context of reported income in 2013 (and the financial statements for 2013), it is noted that the profit in liability branches in 2013 for underwriting years released in previous years, is based on higher investment income in that year, and an adjustment of estimates in employer, third party and professional liability branches.

As a result of the improved future cash flow forecast in these branches, compared to expectations in the past, there was a decrease of NIS 12 million in insurance liabilities (net of tax). The improvement is partially due to underwriting decisions made by The Phoenix Insurance in previous years, including the elimination of non-profitable businesses, raising premiums, and increasing deductibles. There was also a business and managerial change in the claims system at The Phoenix as from 2012. These processes gradually led to an improvement in underwriting results, a decrease in expected future payments of claims, and as a result, a change in the claims array in liability branches.

A total of NIS 17 million (net of tax) is due to an adjustment in the actuarial valuation of large claims in the claims department.

It is further noted that in 2013, the provision for large claims in the third party branch was adjusted, due to the increase in the quantitative threshold for defining a claim as a large claim, and as a result, a decrease of NIS 10 million (net of tax) in actuarial liabilities was recorded. The change in the quantitative threshold is due to the fact that in prior years, statistics in this branch are not adequately significant, and there was concern that the actuarial valuation does not predict large claims with sufficient reliability. Moreover, this is a long-term branch, and the large claims in particular continue for many years. This concern grew following the Group's 2004 merger between The Phoenix Insurance and other insurance companies in the Group (Hadar, Dolev), which resulted in a significant change in the Company's portfolio in terms of size and business mix, since there were insufficient years of maturity on the Group level. Over the years, the claims matured and confidence in the model for the large claims increased. In addition, over the years, the number of large claims and their weight compared to the total portfolio increased, and it can be observed that the basic model has higher prediction reliability.

There was also a decrease of NIS12 million (net of tax) due to the decrease in the estimate of the claims department in those underwriting years, when the estimate of the claims department exceeded the actuarial valuation

As aforesaid, the difference between these amounts and the amount in the table is mainly due to investment income.

The above disclosure is provided at the request of the Capital Market Division and the Israel Securities Authority.

(5) An activity not included in the calculation of reserves, is mainly the difference between the imputed real yield of investment income for the open years at a rate of 3% and the actual income from investments in those years. This section also includes expenses that cannot be attributed to the accrual.

— 129 —

Notes to the Consolidated Financial Statements

NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR (CONTINUED)
F.
1. Assessment of the run-off of the valuation of outstanding claims in property and other branches, gross:
December 31, 2014
2007
2008
2009
2010
2011
2012
2013
2014
Total
NIS thousands adjusted to the CPI of November 2014 (*)
Claims paid (aggregate) at year ended:
After the first year
560,680
535,167
527,003
540,500
619,677
575,097
577,205
580,800
After two years
753,888
699,041
683,459
734,246
806,893
770,928
866,031
After three years
781,588
721,148
697,180
749,276
826,815
802,807
After four years
791,418
734,494
705,370
774,870
835,447
After five years
798,452
738,473
708,825
779,031
After six years
799,227
740,884
716,174
After seven years
802,173
742,189
After eight years
804,214
Aggregate claims (including payments)
After the first year
833,641
779,503
766,569
806,931
875,837
869,022
993,896
842,235
After two years
831,328
768,269
745,969
823,058
884,945
855,797
1,033,765
After three years
828,278
763,097
747,178
829,735
874,340
901,067
After four years
820,027
762,965
742,998
822,719
872,921
After five years
817,701
764,155
742,663
822,811
After six years
815,210
765,846
744,724
After seven years
814,193
764,671
After eight years
817,940
Estimated aggregate costs as of December 31, 2014
817,940
764,671
744,724
822,811
872,921
901,067
1,033,765
842,235
6,800,134
Aggregate payments up to December 31, 2014
804,214
742,189
716,174
779,031
835,447
802,807
866,031
580,800
6,126,693
Balance of outstanding claims
13,726
22,482
28,550
43,780
37,474
98,260
167,734
261,435
673,441
Outstanding claims for the years up to and including 2006
27,388
Total outstanding claims in the branch as of December 31,
2014
700,829
(*)
The above amounts are presented in values adjusted to inflation to allow assessment of the run-off based on real values.

Notes to the Consolidated Financial Statements

NOTE 18 – LIABILITIES FOR INSURANCE CONTRACTS IN THE GENERAL INSURANCE SECTOR (CONTINUED)
F.
2. Assessment of the run-off of the valuation of outstanding claims in property and other branches in retention:
December 31, 2014
2007
2008
2009
2010
2011
2012
2013
2014
Total
NIS thousands adjusted to the CPI of November 2014 (*)
Claims paid (aggregate) at year ended:
After the first year
472,054
434,290
423,247
445,424
465,919
493,447
497,008
505,308
After two years
596,975
546,268
531,910
573,042
611,535
645,631
649,854
After three years
612,107
558,653
541,089
582,082
623,885
663,563
After four years
617,323
564,273
546,146
585,824
631,012
After five years
619,505
566,672
547,320
588,896
After six years
619,694
567,763
548,728
After seven years
620,833
568,742
After eight years
621,672
Aggregate claims (including payments)
After the first year
635,132
588,662
566,880
589,504
644,716
703,398
725,517
692,070
After two years
639,571
583,134
562,267
601,229
650,595
688,629
705,912
After three years
636,610
577,495
562,756
611,008
646,856
678,402
After four years
627,366
573,590
554,039
609,237
645,531
After five years
625,021
575,510
553,355
609,754
After six years
623,669
574,904
553,298
After seven years
623,986
574,723
After eight years
624,711
Estimated aggregate costs as of December 31, 2014
624,711
574,723
553,298
609,754
645,531
678,402
705,912
692,070
5,084,401
Aggregate payments up to December 31, 2014
621,672
568,742
548,728
588,896
631,012
663,563
649,854
505,308
4,777,775
Balance of outstanding claims
3,039
5,981
4,570
20,858
14,519
14,839
56,058
186,762
306,626
Outstanding claims for the years up to and including 2006
6,086
Total outstanding claims in the branch as of December 31,
2014
312,712
(*)
The above amounts are presented in values adjusted to inflation to allow assessment of the run-off based on real values.

Policies that include a savings component (including riders) by Policy without a saving	policy issue date component	From 2004 Risk sold as a single policy	Non-unit	*Up to 1990() Up to 2003 linked Unit linked Individual Collective Total**	NIS thousands	1. According to insurance exposure	Liabilities for insurance contracts	Annuity without guaranteed coefficients 223,045 21,329 - 147,295 - - 391,669	Annuity with guaranteed coefficients	Up to May 2001 4,905,819 14,078,875 - - - - 18,984,694	As from June 2001 - 1,988,328 1,380 8,397,280 - - 10,386,988	Annuity in payment 882,600 526,488 - 79,923 17,074 - 1,506,085	Lump sum (without annuity option) 3,634,054 4,937,552 387 1,803,047 - - 10,375,040	Other risk components 123,390 580,745 - 218,449 585,541 81,731 1,589,856	Total for insurance contracts 9,768,908 22,133,317 1,767 10,645,994 602,615 81,731 43,234,332	Liabilities for investment contracts - - 952 2,288,182 - - 2,289,134	Total 9,768,908 22,133,317 2,719 12,934,176 602,615 81,731 45,523,466	Liabilities for consolidated management companies of provident	funds 819,000	Total 46,342,466	2. According to financial exposure	Unit linked 84,739 21,811,802 - 12,766,513 161,893 10,260 34,835,207	Non-unit linked 9,684,169 321,515 2,719 167,663 440,722 71,471 10,688,259	Total 9,768,908 22,133,317 2,719 12,934,176 602,615 81,731 45,523,466	Yield-guaranteed liabilities for consolidated provident fund	management companies 819,000	Total 46,342,466	(*) The products issued up to 1990 (including the growth in respect thereof) were designed mainly to guarantee yield, and they are backed mainly by	designated debentures.	— 132 —

A. Liabilities for insurance contracts and investment contracts by exposure (continued)	December 31, 2013	Policies that include a savings component (including riders) by policy Policy without a saving	issue date component	From 2004 Risk sold as a single policy	*Up to 1990() Up to 2003 Non-unit linked Unit linked Individual Collective Total**	NIS thousands	1. According to insurance exposure	Liabilities for insurance contracts	Annuity without guaranteed coefficients 237,227 19,763 - 34,762 - - 291,752	Annuity with guaranteed coefficients	Up to May 2001 4,624,548 13,116,996 - - - - 17,741,544	As from June 2001 - 1,766,012 1,348 6,728,455 - - 8,495,815	Annuity in payment 723,588 390,740 - 54,724 17,963 - 1,187,015	Lump sum (without annuity option) 3,655,694 4,914,027 376 1,868,761 - - 10,438,858	Other risk components 136,206 594,606 - 196,714 537,691 86,859 1,552,076	Total for insurance contracts 9,377,263 20,802,144 1,724 8,883,416 555,654 86,859 39,707,060	Liabilities for investment contracts - - 6,884 1,144,940 - - 1,151,824	Total 9,377,263 20,802,144 8,608 10,028,356 555,654 86,859 40,858,884	Liabilities for consolidated management companies of	provident funds 798,000	Total 41,656,884	2. According to financial exposure	Unit linked 79,070 20,496,896 - 9,876,957 150,956 13,458 30,617,337	Non-unit linked 9,298,193 305,248 8,608 151,399 404,698 73,401 10,241,547	Total 9,377,263 20,802,144 8,608 10,028,356 555,654 86,859 40,858,884	Yield-guaranteed liabilities for consolidated provident fund	management companies 798,000	Total 41,656,884	(*) The products issued up to 1990 (including the growth in respect thereof) were designed mainly to guarantee yield, and they are backed mainly by designated debentures.	— 133 —

A. Liabilities for insurance contracts and investment contracts by exposure (continued)	December 31, 2012	Policies that include a savings component (including riders) by policy Policy without a saving	issue date component	From 2004 Risk sold as a single policy	*Up to 1990() Up to 2003 Non-unit linked Unit linked Individual Collective Total**	NIS thousands	1. According to insurance exposure	Liabilities for insurance contracts	Annuity without guaranteed coefficients 202,851 17,050 - - - - 219,901	Annuity with guaranteed coefficients	Up to May 2001 4,521,202 11,341,648 - - - - 15,862,850	As from June 2001 - 1,442,459 2,142 4,883,936 - - 6,328,537	Annuity in payment 574,608 260,177 - 33,127 17,714 - 885,626	Lump sum (without annuity option) 3,438,142 4,586,028 664 1,816,273 - - 9,841,107	Other risk components 150,111 565,444 - 167,581 479,722 81,489 1,444,347	Total for insurance contracts 8,886,914 18,212,806 2,806 6,900,917 497,436 81,489 34,582,368	Liabilities for investment contracts - - 7,002 462,484 - - 469,486	Total 8,886,914 18,212,806 9,808 7,363,401 497,436 81,489 35,051,854	2. According to financial exposure	Unit linked 71,990 17,926,590 - 7,228,935 133,593 9,032 25,370,140	Non-unit linked 8,814,924 286,216 9,808 134,466 363,843 72,457 9,681,714	Total 8,886,914 18,212,806 9,808 7,363,401 497,436 81,489 35,051,854	(*) The products issued up to 1990 (including the growth in respect thereof) were designed mainly to guarantee yield, and they are backed mainly by	designated debentures.	— 134 —

NOTE 19 – ADDITIONAL INFORMATION ABOUT THE LIFE INSURANCE AND LONG-TERM SAVINGS SECTOR (CONTINUED)	B. Expenses by type of policy	Information for the year ended December 31, 2014:	Policies that include a savings component (including riders) by Policy without a saving	policy issue date component	Risk sold as a single	From 2004 policy	Non-unit	Up to 1990 (1) Up to 2003 linked Unit linked Individual Collective Total	NIS thousands	Gross premiums:	Traditional/endowment 65,193 34,359 - - - - 99,552	Saving factor 68,313 954,197 - 1,902,630 - - 2,925,140	Other 17,432 203,245 - 127,574 407,432 86,776 842,459	Total 150,938(2) 1,191,801 - 2,030,204 407,432 86,776 3,867,151	Premiums for investment contracts credited directly to insurance reserves - - - 1,174,978 - - 1,174,978	Financial margin including management fees 158,460(3) 267,527 47 119,742 1,467 - 547,243	Payments and change in liabilities for insurance contracts, gross 676,354 2,212,938 3 2,476,034 182,680 65,304 5,613,313	Payments and change in liabilities for investment contracts - - 235 147,540 - - 147,775	Profit (loss) from life insurance operations (32,614) 153,735 47 (126,320) 68,166 13,468 76,482	Other comprehensive loss from life insurance business (3,689) (570) - (286) (449) (357) (5,351)	Comprehensive income (loss) from life insurance operations (36,303) 153,165 47 (126,606) 67,717 13,111 71,131	Profit from pension and provident funds 27,425	Total profit from life insurance and long-term savings 98,556	Annualized premium for insurance contracts – new business 29 1,070 - 92,630 80,256 - 173,985	One-time premium for insurance contracts - 3,747 - 578,554 - - 582,301	Annualized premium for investment contracts – new business - - - 99,373 - - 99,373	One-time premium for investment contracts - - - 1,050,761 - - 1,050,761	Transfers to the Company for insurance contracts and investment contracts - - - 181,646 - - 181,646	Transfers from the Company for insurance contracts and investment contracts 4,319 43,972 - 122,655 - - 170,946	1. The products issued up to 1990 (including the growth in respect thereof) were designed mainly to guarantee yield, and they are backed mainly by designated debentures.	2. The increase in existing policies is not included in the annualized premium for new business, but in the operational expenses of the original policy.	3. The financial margin does not include the Company's further income collected as a percentage of the premium and it is calculated according to deduction of expenses for investment management. The	financial margin in policies with guaranteed yield is based on the actual investment income during the reporting period net of the product of the guaranteed yield rate during the year, multiplied by the average	reserve for the year in the various insurance funds. In this matter, investment income includes the change in fair value of available for sale financial assets recognized in the statement of comprehensive	income. In unit linked contracts, the financial margin is the total fixed and variable management fees calculated on the basis of the average yield and balance of the insurance reserves.

NOTE 19 – ADDITIONAL INFORMATION ABOUT THE LIFE INSURANCE AND LONG-TERM SAVINGS SECTOR (CONTINUED)	B. Expenses by type of policy (continued)	Information for the year ended December 31, 2013:	Policies that include a savings component (including riders) by Policy without a saving	policy issue date component	Risk sold as a single	From 2004 policy	Non-unit	Up to 1990 (1) Up to 2003 linked Unit linked Individual Collective Total	NIS thousands	Gross premiums:	Traditional/endowment 73,050 38,288 - - - - 111,338	Saving factor 65,130 941,664 - 1,938,244 - - 2,945,038	Other 19,060 212,087 - 122,504 359,677 91,041 804,369	Total 157,240(2) 1,192,039 - 2,060,748 359,677 91,041 3,860,745	Premiums for investment contracts credited directly to insurance reserves - - - 749,376 - - 749,376	Financial margin including management fees 124,165(3) 108,884 63 78,059 8,291 1,647 321,109	Payments and change in liabilities for insurance contracts, gross 748,675 3,488,797 190 2,581,923 171,488 82,629 7,073,702	Payments and change in liabilities for investment contracts - - 439 38,666 - - 39,105	Profit (loss) from life insurance operations 95,339 286,613 88 (89,501) 77,198 4,648 374,385	Other comprehensive loss from life insurance business (4,066) (559) - (126) (385) (93) (5,229)	Comprehensive income (loss) from life insurance operations 91,273 286,054 88 (89,627) 76,813 4,555 369,156	Loss from pension and provident funds (2,253)	Total profit from life insurance and long-term savings 366,903	Annualized premium for insurance contracts – new business 25 1,375 - 140,335 77,169 - 218,904	One-time premium for insurance contracts - 3,337 - 656,933 - - 660,270	Annualized premium for investment contracts – new business - - - 59,182 - - 59,182	One-time premium for investment contracts - - - 723,604 - - 723,604	Transfers to the Company for insurance contracts and investment contracts - - - 144,519 - - 144,519	Transfers from the Company for insurance contracts and investment contracts - 40,592 - 132,677 - - 173,269	1. The products issued up to 1990 (including the growth in respect thereof) were designed mainly to guarantee yield, and they are backed mainly by designated debentures.	2. The increase in existing policies is not included in the annualized premium for new business, but in the operational expenses of the original policy.	3. The financial margin does not include the Company's further income collected as a percentage of the premium and it is calculated according to deduction of expenses for investment management.	The financial margin in policies with guaranteed yield is based on the actual investment income during the reporting period net of the product of the guaranteed yield rate during the year, multiplied	by the average reserve for the year in the various insurance funds. In this regard, investment income includes the fair value change of available for sale financial assets recognized in the statement	of income. In unit linked contracts, the financial margin is the total fixed and variable management fees calculated on the basis of the average yield and balance of the insurance reserves.

NOTE 19 – ADDITIONAL INFORMATION ABOUT THE LIFE INSURANCE AND LONG-TERM SAVINGS SECTOR (CONTINUED)	B. Expenses by type of policy (continued)	Information for the year ended December 31, 2012:	Policies that include a savings component (including riders) by Policy without a saving	policy issue date component	Risk sold as a single	From 2004 policy	Non-unit	Up to 1990 (1) Up to 2003 linked Unit linked Individual Collective Total	NIS thousands	Gross premiums:	Traditional/endowment 82,919 43,724 - - - - 126,643	Saving factor 76,152 933,855 - 1,853,093 - - 2,863,100	Other 21,717 223,829 - 111,347 309,721 96,601 763,215	Total 180,788(2) 1,201,408 - 1,964,440 309,721 96,601 3,752,958	Premiums for investment contracts credited directly to insurance reserves - - - 116,199 - - 116,199	Financial margin including management fees 77,648(3) 99,478 146 59,197 566 (11) 237,024	Payments and change in liabilities for insurance contracts, gross 782,202 2,855,341 272 2,333,303 150,462 77,558 6,199,138	Payments and change in liabilities for investment contracts in retention - - 421 35,906 - - 36,327	Profit (loss) from life insurance operations (21,115) 29,378 63 (78,658) 68,761 10,259 8,688	Other comprehensive income from life insurance operations 56,693 6,658 - 3,044 7,678 1,647 75,720	Comprehensive income (loss) from life insurance operations 35,578 36,036 63 (75,614) 76,439 11,906 84,408	Profit from pension and annuity 56,432	Total profit (loss) from life insurance and long-term savings 140,840	Annualized premium for insurance contracts – new business 77 1,430 - 397,113 62,840 - 461,460	One-time premium for insurance contracts - 3,919 - 697,926 - - 701,845	Annualized premium for investment contracts – new business - - - 7,564 - - 7,564	One-time premium for investment contracts - - - 116,199 - - 116,199	Transfers to the Company for insurance contracts and investment contracts - - - 159,429 - - 159,429	Transfers from the Company for insurance contracts and investment contracts 3,231 59,163 - 121,483 - - 183,877	1. The products issued up to 1990 (including the growth in respect thereof) were designed mainly to guarantee yield, and they are backed mainly by designated debentures.	2. The increase in existing policies is not included in the annualized premium for new business, but in the operational expenses of the original policy.	3. The financial margin does not include the Company's further income collected as a percentage of the premium and it is calculated according to deduction of expenses for investment management.	The financial margin in policies with guaranteed yield is based on the actual investment income during the reporting period net of the product of the guaranteed yield rate during the year, multiplied	by the average reserve for the year in the various insurance funds. In this matter, investment income includes the change in fair value of available for sale financial assets recognized in the	statement of comprehensive income. In unit linked contracts, the financial margin is the total fixed and variable management fees calculated on the basis of the average yield and balance of the	insurance reserves.

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 19 – ADDITIONAL INFORMATION ABOUT THE LIFE INSURANCE AND LONG-TERM SAVINGS SECTOR (CONTINUED)

C. Information about yields and management fees for unit linked liabilities

	Gross nominal annualyield	Gross nominal annualyield	Gross nominal annualyield		Annual average nominal yields for 5years Before management fees After management fees 6.70 5.68 6.42 5.07	Management fees for the year ended December 31, 2014
2014	2013	2012	2011	2010	Before management fees
				%		NIS thousands
5.10 4.82	13.21 12.17	11.30 10.52	(6.95) (5.20)	12.23 10.81	6.70 6.42	272,873 58,236 58,188
						389,297

For information about management fees, see also Note 29.

D. Information about money transfers

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012

151,634 11,629 18,383	88,350 32,637 23,532	79,203 29,571 50,655
181,646	144,519	159,429
56,674 64,068 50,204	95,684 45,944 31,641	97,212 49,931 36,734
170,946	173,269	183,877
10,700	(28,750)	(24,448)

— 138 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 20 - INSURANCE LIABILITIES INCLUDED IN HEALTHCARE INSURANCE

A. 1. Insurance liabilities

December 31, 2014	December 31, 2014	December 31, 2014	December 31, 2014	December 31, 2014
Long-term care		Other(4)			Total
Individual	Collective			Short term

283,481 463,544	92,677 430,443			- 25,666	376,158 1,620,428
747,025	523,120			25,666	1,996,586

Long-term care		Other(4)			Total
Individual	Collective			Short term

257,084 380,778	79,755 423,443			- 17,161	336,839 1,380,531
637,862	503,198			17,161	1,717,370

Long-term care					Total
Individual	Collective		Long term

215,461 373,533 588,994	- 462,183		- 470,253	- 18,111 18,111	215,461 1,324,080
	462,183		470,253		1,539,541

— 139 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 20 - INSURANCE LIABILITIES INCLUDED IN HEALTHCARE INSURANCE(CONTINUED)

A. 2. Liabilities for insurance contracts by insurance exposure

December 31, 2014	December 31, 2014	December 31, 2014	December 31, 2014
Long-term care Other(4) Individual Collective Long term Short term NIS thousands		Other(4)		Total
Individual			Short term

159,965 587,060	368,553 154,567 523,120	- 700,775 700,775	- 25,666	528,518 1,468,068
747,025			25,666	1,996,586

	December 31, 2013	December 31, 2013	December 31, 2013
Long-term care		Other(4)
		Long	Short
Individual	Collective	term	term	Total
		NIS thousands
149,400	362,208	-	-	511,608
488,462	140,990	559,149	17,161	1,205,762
637,862	503,198	559,149	17,161	1,717,370

	December 31, 2013	December 31, 2013	December 31, 2013	December 31, 2013
	Long-term care Other(4) Individual Collective Long term Short term NIS thousands		Other(4)		Total
	Individual			Short term


Annuity in payment Other risk components Total insurance liabilities Annuity in payment Other risk components Total insurance liabilities	149,400 488,462	362,208 140,990 503,198	- 559,149 559,149	- 17,161	511,608 1,205,762
	637,862			17,161	1,717,370
		December 31, 2012			Total 485,395 1,054,146 1,539,541
	Long-term care		Other (4)
	Individual	Collective

	141,518 447,476	343,877 118,306	- 470,253	- 18,111
	588,994	462,183	470,253	18,111

— 140 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 20 - INSURANCE LIABILITIES INCLUDED IN HEALTHCARE INSURANCE (CONTINUED)

B. Expenses by type of policy

Information for theyear ended December 31, 2014	Information for theyear ended December 31, 2014	Information for theyear ended December 31, 2014	Information for theyear ended December 31, 2014	Information for theyear ended December 31, 2014
Long-term care		Other	(4)	Total
Individual	Collective	Long term	Short term
		NIS thousands
139,358	235,820	1,095,889(1)	88,345(1)	1,559,412
(35,953) (2,028)	12,577 (1,926)	65,885 (4,806)	7,799 (176)	50,308 (8,936)
(37,981) (2)	10,651	61,079	7,623	41,372
17,011	-	99,471	-	116,482

(1) Of this amount, private premiums of NIS 699,343 thousand and collective premiums of NIS 484,891 thousand.

Information for theyear ended December 31, 2013	Information for theyear ended December 31, 2013	Information for theyear ended December 31, 2013	Information for theyear ended December 31, 2013	Information for theyear ended December 31, 2013
Long-term care		Other	(4)	Total
Individual	Collective	Long term	Short term
		NIS thousands
126,574	222,233	988,056(1)	70,109(1)	1,406,972
23,973 (607)	5,950 (661)	183,851 1,066	5,130 62	218,904 (140)
23,366	5,289	184,917(3)	5,192	218,764
14,675	-	106,351	-	121,026

(1) Of this amount, private premiums of NIS 608,755 thousand and collective premiums of NIS 449,410 thousand.

Information for theyear ended December 31, 2012	Information for theyear ended December 31, 2012	Information for theyear ended December 31, 2012	Information for theyear ended December 31, 2012	Information for theyear ended December 31, 2012
Long-term care		Other	(4)	Total
Individual	Collective	Long term	Short term
		NIS thousands
116,074	210,002	878,810(1)	68,611(1)	1,273,497
(12,908) 6,711	(23,221) 7,783	121,937 8,825	5,914 461	91,722 23,780
(6,197)	(15,438)	130,762	6,375	115,502
14,070	-	76,922	-	90,992

(1) Of this amount, private premiums of NIS 553,762 thousand and collective premiums of NIS 393,659 thousand.

(2) The results include a provision of NIS 25 million for LAT, mainly due to recognition of the low interest rate.

— 141 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 20 - INSURANCE LIABILITIES INCLUDED IN HEALTHCARE INSURANCE (CONTINUED)

B. Expenses by type of policy (continued)
3) In February 2013, The Phoenix Insurance signed a cut off agreement with a reinsurer. Under the agreement, the reinsurer will no longer serve as reinsurer for a certain percentage in some health insurance policies of The Phoenix, effective as from January 1, 2013. At the same time, The Phoenix Insurance signed a reinsurance agreement with another reinsurer after receiving its consent to serve as reinsurer for insurance business included in the cut off agreement, effective as from January 1, 2013. Signing of this agreement and the cut-off agreement increased the gain by NIS 72 million (before tax) in 2013.
4) The most significant coverage in each of the years 2012, 2013, and 2014, included in other longterm healthcare insurance is medical expenses, and short-term is overseas travel.

NOTE 21 - MOVEMENT IN LIABILITIES FOR UNIT LINKED AND NON-UNIT LINKED LIFE INSURANCE CONTRACTS, INVESTMENT CONTRACTS AND HEALTHCARE INSURANCE

Life insurance	Life insurance	Life insurance	Healthcare insurance
Insurance contracts	Investment contracts	Total
		NIS thousands
30,074,637 426,245 30,500,882 1,338,831 273,114 2,367,464 29,657 2,397,121 26,890 - 2,883,915 116,199 3,000,114 49,142 - (1,216,523) (102,615) (1,319,138) (1,937) - 75,251 - 75,251 28,834 16,870 397,624 - 397,624 97,781 27,874
34,582,368 469,486 35,051,854 1,539,541 317,858 3,010,060 30,713 3,040,773 37,251 - 3,007,727 749,376 3,757,103 52,282 - (1,098,413) (97,751) (1,196,164) (2,266) - 29,456 - 29,456 20,075 8,263 175,862 - 175,862 70,487 (40,740)
39,707,060 1,151,824 40,858,884 1,717,370 285,381 1,533,949 133,455 1,667,404 12,878 - 2,981,799 1,174,978 4,156,777 63,819 - (1,181,803) (171,123) (1,352,926) (2,163) - - - - 41,688 17,413 193,328 - 193,328 162,994 (18,501)
43,234,333	2,289,134	45,523,467	1,996,586 284,293

— 142 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 21 - MOVEMENT IN LIABILITIES FOR UNIT LINKED AND NON-UNIT LINKED LIFE INSURANCE CONTRACTS, INVESTMENT CONTRACTS AND HEALTHCARE INSURANCE(CONTINUED)

(1) Interest, linkage differences and investment gains – this item includes interest, linkage differences and investment gains for the balance as of the beginning of the year, with the addition of interest, linkage differences and investment gains for only the savings premiums recognized in the reporting period.
(2) Increase for premiums recognized under liabilities – this premium does not include the entire premiums recorded as income in the Group. The premium includes the premium savings and part of the premium in fixed premium products.
(3) Life insurance: In 2013, the Company adjusted its annuity estimates, based on updated studies. Healthcare insurance: In 2014, the change is mainly due to adjusted morbidity assumptions based on the Company's experience. In 2013, the provision increased, mainly due to adjustments in the rate of assumptions of expenses and cancellations based on the Company's experience.
(4) Other changes - this item includes changes in the reserve for outstanding claims, reserve for periodic claims IBNR, paid annuities, and similar types (based on the assumptions used at the end of the previous year). The section also includes the effect of interest, linkage differences and investment gains which were not included under the item for “interest, linkage differences and investment gains”, such as interest, linkage differences and investment gains on claim payments and non-savings premiums.

In 2014, an increase of NIS 158 million was recorded in insurance liabilities in life insurance and NIS 25 million in healthcare insurance, mainly due to an adjustment in the rate of risk-free interest and the illiquidity premium following a decrease in the rate of risk-free interest. In 2013, the change in the rate of interest did not have a material effect on life insurance and healthcare insurance liabilities For further information see Note 40, section 5.1.8

— 143 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 22 – INCOME TAX

A. Tax laws applicable to the Group companies

1. General

A) Corporate tax is applicable to the income of the Company and all other Group companies in accordance with the Income Tax Ordinance ("the Ordinance"). In addition, capital gains tax and payroll tax are applicable to the income of Group companies classified as "financial institutions", as defined in the Value Added Tax Law, 1975. It is noted that the operations of companies classified as financial institutions in the insurance, pension and finance branches constitute the bulk of the Group's operations.
B) As from 2008, the results for tax purposes are measured at nominal values, with the exception of certain adjustments for changes in the Israeli CPI up to December 31, 2007. Adjustments which refer to capital gains continue to apply until the disposal date.

2. Specific tax arrangements for the insurance industry

A) Agreement with the tax authorities

There is an agreement between the Israel Insurance Association and the tax authorities ("the Tax Agreement”), which is renewed and updated on a yearly basis, and which regulates tax issues specific to the branch for the tax years up to and including the 2012 tax year. The agreement addresses the following issues:

1 Deferred acquisition costs ("DAC"): Direct expenses of insurance companies for the purchase of life insurance contracts will be deductible for tax purposes in equal parts over four years. Deferred acquisition costs in disease and hospitalization insurance are amortized over a period of six years, similar to the amortization rate in the financial statements
Attribution of expenses to preferred income: Expenses will attributed to income that is subject to reduced tax rates and to the tax-exempt income of insurance companies ("the Preferred Income"), which means that part of the Preferred Income becomes income subject to the full rate of tax, according to the rate of attribution. The attribution rate set out in the agreement depends on the financial source generating the Preferred Income.

— 144 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 22 - INCOME TAX (CONTINUED)

A. Tax regulations applicable to Group companies (continued)

2. Specific tax arrangements for the insurance industry(continued)

Taxation of investment of funds from profit-sharing policies: To prevent possible tax distortions, it was agreed that taxation of profits from quoted securities and profits from the revaluation and disposal of real estate will be performed such that there is a matching of income to expenses.

No agreement has yet been signed for the 2013 and 2014 tax year. The tax provision for these tax years in the financial statements was made in accordance with the principles of the agreement.

B) Tax applicable to cancellation of the reserve for extraordinary risks in life insurance

The State Economic Arrangements Law (Amendments to Legislation to Achieve the Budgetary Goals and Economic Policy for the 2007 Fiscal Year), 2007, which passed on January 11, 2007, includes provisions regarding the tax applicable to cancellation of the reserve for extraordinary risks in life insurance, which was included in the financial statements until December 31, 2006. In accordance with the provisions, part of the reserve in life insurance calculated as 0.17% of the insurance amount at risk, in self retention, for which a capital requirement was defined, will be tax exempt. In accordance with the branch tax agreement, the exemption is based on the capital requirement, reflected as above, and if the capital requirement is canceled or reduced, the parties will discuss the resulting tax implications, if any.

B. Tax rates applicable to the Group companies

The statutory tax applicable to financial institutions, including the Company, which constitute the majority of the Group's operations, is comprised of corporate tax and capital gains tax.
Statutory tax rates applicable to financial institutions:

Year 2012 2013 2014 onwards	Corporate tax	Capital gains tax %	Total tax rate in financial institutions

	25 25 26.5	16.33 () 17.58 () 18.00	35.53 36.22 37.71

(*) Weighted rate

— 145 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 22 - INCOME TAX (CONTINUED)

C. Tax assessments

1. Final tax assessments

The Company has final tax assessments up to and including the 2005 tax year. The subsidiary, The Phoenix Insurance, has final tax assessments up to and including the 2010 tax year.

The subsidiary, The Phoenix Insurance Agencies (1989) Ltd., has final tax assessments up to and including the 2010 tax year.

The Phoenix Pension and Provident has final tax assessments up to and including the 2007 tax year.

The subsidiary, The Phoenix Investments, has final tax assessments up to and including the 2010 tax year.

The subsidiary, Excellence Investments Ltd., has final tax assessments up to and including the 2009 tax year.

The subsidiary, Ad 120 Residence Centers for Senior Citizens Ltd., has final tax assessments up to and including the 2009 tax year.

In accordance with and subject to the provisions of Section 145 of the Income Tax Ordinance, the reports submitted to the tax authority for the 2010 tax year are considered to be final.

2. Disputed tax assessments

The Phoenix Insurance filed a reservation with the Tax Authority for deduction assessments that were issued for 2007-2009. Since its reservation was dismissed, orders were issued, and The Phoenix Insurance filed grounds for appeal at the court. The Phoenix Insurance included an appropriate provision for the income tax requirements in these assessments.

D. Carry-forward losses for tax purposes

The Company has carry-forward losses for tax purposes as of December 31, 2014, December 31, 2013 and December 31, 2012 amounting to NIS 150,533 thousand, NIS 128,393 thousand and NIS 90,899 thousand, respectively. There are also capital losses for tax purposes amounting to NIS 70,778 thousand, NIS 72,083 thousand and NIS 70,824 thousand as of December 31, 2014, December 31, 2013 and December 31, 2012, respectively. Deferred taxes were not recognized for the balance of these losses

The subsidiaries have carry-forward business losses for tax purposes amounting to NIS 188,216 thousand, NIS 184,197 thousand and NIS 169,438 thousand as of December 31, 2014, December 31, 2013 and December 31, 2012, respectively. The subsidiaries also have capital losses for tax purposes amounting to NIS 45,264 thousand, NIS 46,325 thousand and NIS 43,932 thousand as of December 31, 2014, December 31, 2013 and December 31, 2012 respectively. Deferred tax assets of NIS 18,916 thousand were included in the financial statements for the balance of the business losses. See also Section G below.

In addition, carry-forward losses for tax purposes for a subsidiary acquired in the Prisma transaction amount to NIS 454 million (as at December 31, 2013, NIS 398 million and as at December 31, 2012, NIS 337 million). Deferred taxes were not recognized for the balance of these losses.

The subsidiaries did not recognize deferred tax assets for carry-forward business losses and for capital losses of NIS 160,904 thousand, in the absence of their expected utilization in the foreseeable future.

— 146 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 22 - INCOME TAX (CONTINUED)

E. Income tax in the statements of income

	Year ended
	December 31
2014	2013 2012 NIS thousands	2012
215,390 36,629 (341) - 251,678	369,607 37,492 (2,108) 12,976 417,967	152,605 (16,532) 859 1,579
		138,511

F. Taxes on income attributed to other comprehensive income

	Year ended
	December 31
2014	2013 2012 NIS thousands	2012
(40,057) 1,260 - (38,797)	11,663 1,832 118 13,613	93,321 593 286
		94,200

— 147 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 22 - INCOME TAX (CONTINUED)

G. Deferred taxes

Composition:

Deferred acquisition costs in life insurance	Available for sale financial assets	Property plant and equipment and investment property	Losses for tax purposes *()**	Others	Total

(162,848) (1,856) - - (1,244)	22,158 18,614 (93,321) - 1,089	(158,260) (31,187) - - (1,227)	22,729 1,586 - - -	17,143 29,375 (879) (1,000) (197)	(259,078) 16,532 (94,200) (1,000) (1,579)
(165,948) (6,337) - (8,647) -	(51,460) (19,394) (11,663) 2,268 -	(190,674) (33,537) - (9,845) (16,465)	24,315 (1,717) - - -	44,442 23,493 (1,950) 3,248 383	(339,325) (37,492) (13,613) (12,976) (16,082)
(180,932) (9,350) -	(80,249) 25,211 40,057	(250,521) (36,349) -	22,598 (3,682) -	69,616 (12,459) (1,260)	(419,488) (36,629) 38,797
(190,282)	(14,981)	(286,870)	18,916	55,897	(417,320)

(*) See section D above

Deferred taxes are presented in the balance sheet as follows:

Deferred tax assets Liabilities for deferred taxes	December 31	December 31	2012 36,835 376,160 (339,325)
	2014 2013 NIS thousands	2013
	7,906 425,226 (417,320)	6,844 426,332
		(419,488)

— 148 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 22 - INCOME TAX (CONTINUED)

H. Theoretical tax

The table below presents the adjusted tax amount that would be applicable if all the income and expenses, profits and losses in the statement of income were taxable at the statutory tax rates in Israel and the tax amount recognized in the statement of income.

	Year ended
	December 31
2014	2013	2012
	NIS thousands
782,863	1,178,093	418,015
37.71%	36.22%	35.53%
295,218 (23,472) (3,999) (16,126) 1,672 73 - (341) (1,347)	426,706 (9,916) (329) (15,738) (5,205) 7,626 12,976 (2,108) 3,955	148,521 (9,292) 495 (11,811) (3,140) 11,632 1,579 859 (332)
251,678	417,967	138,511
32.15%	35.48%	33.14%

NOTE 23 – ASSETS AND LIABILITIES FOR EMPLOYEE BENEFITS

Employee benefits consist of short-term benefits, post-employment benefits, other long-term benefits and termination benefits.

Post-employment benefits

Labor laws and the Severance Pay Law in Israel requires the Company to pay compensation to employees if they are dismissed or when they retire or to make routine deposits in defined deposit plans under section 14 of the Severance Pay Law, as described below. The Company's liability is accounted for as a postemployment benefit. The Company's employee benefit liability is calculated in accordance with a valid employment contract based on the employee's salary and employment term which establish the entitlement to receive the compensation.

Post-employment benefits are usually financed by contributions classified as a defined benefit plan or as a defined contribution plan as described below.

— 149 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 23 – ASSETS AND LIABILITIES FOR EMPLOYEE BENEFITS (CONTINUED)

1. Defined contribution plans

Section 14 of the Severance Pay Law, 1963 applies to part of the compensation payments, according to which the fixed contributions paid by the Group into pension funds and/or policies of insurance companies release the Group from any additional liability to employees for whom the contributions were made. These contributions and contributions for compensation represent defined contribution plans.

	Year ended
	December 31
2014	2013 NIS thousands	2012

55,412	51,127	48,464

2. Defined benefit plan

The Group accounts for the part of the compensation payments that are not covered by deposits in defined contribution plans as a defined benefit plan, according to which the liability for the benefits are recognized. The Group makes contributions to central compensation funds and suitable insurance policies.

December 31	December 31
2014	2013	2012

7,446 128,568	6,630 132,727	6,644 129,001
136,014 45,455	139,357 46,515	135,645 40,312
90,559 22,695	92,842 21,865	95,333 23,845
113,254	114,707	119,178

— 150 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 23 – ASSETS AND LIABILITIES FOR EMPLOYEE BENEFITS (CONTINUED)

2. Defined benefit plan (continued)

A. Changes in the present value of liabilities for a defined benefit plan

	December 31
2014 2013 NIS thousands		2012

132,727 4,205 7,897 (2,345) - (748) - (13,168) 128,568	136,001 4,255 8,533 (921) - (3,715) - (11,426) 132,727	131,416 6,003 7,912 - 419 - (16,749) -
		129,001

B. Changes in the present value of liabilities for a defined benefit plan

1. Plan assets

The plan assets include long-term assets held by the employee benefit fund and relevant insurance policies

Movement in fair value of plan assets:

	December 31
2014 2013 NIS thousands		2012

46,515 1,548 604 4,195 - - (7,407) 45,455	47,313 1,730 313 3,195 - - (6,036) 46,515	39,997 1,794 2,181 3,646 (642) (6,664) -
		40,312

(*) Deposits from a central compensation fund to personal employee funds to which section 14 of the Severance Pay Law applies.

— 151 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 23 – ASSETS AND LIABILITIES FOR EMPLOYEE BENEFITS (CONTINUED)

C. Main actuarial assumptions for determining liabilities for a defined benefit plan

Discount rate as of December 31 (*) Expected real wage increase Expected inflation rate	2014	2013 %	2012
	1.38 1.50 2.00	1.10 1.50 2.00	0.83 1.50 2.00

(*) The discount rate is based on high quality CPI-linked corporate debentures (2013 - government bonds). For information about the effect of the change on the discount rate, see Note 2BB.

D. Amounts, timing and uncertainty of future cash flows

Possible changes considered to be reasonable at the end of the reporting period, for each actuarial assumption, assuming that the other actuarial assumptions remained unchanged:

Balance as of December 31, 2014 Sensitivity to change in the expected rate of wage increase Change due to: Increase of 1% in salary Sensitivity to change in capitalization rate of the liability Change due to: Increase of 1% in discount rate Decrease of 1% in discount rate	Change in a defined benefit liability
	NIS thousands
	3,283 (1,633) 4,384

E. Expense recognized in the statement of income

Year ended December	Year ended December	31
2014 2013 NIS thousands		2012

7,897 4,205 (1,548) 10,554	8,533 4,255 (1,730) 11,058	7,912 6,003 (1,794)
		12,121

— 152 —

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Notes to the Consolidated Financial Statements

NOTE 24 – CREDITORS AND PAYABLES

	December 31
2014	2013 NIS thousands	2012

62,441 92,725 118,266 68,637 1,534 37,762 307,151 74,212 381,363 236,462 75,550 26,139 42,152 9,645 36,125 61,466 80,034 1,330,301	68,320 95,660 110,680 59,268 1,391 33,398 311,703 72,854 384,557 208,223 67,844 22,615 34,555 10,069 33,857 - 76,936 1,207,373	56,470 77,070 97,574 52,039 110 32,719 329,137 91,105
		420,242 241,427 69,538 30,953 50,714 10,153 167,671 - 84,028
		1,390,708

For information about the assets and liabilities divided into linkage bases, see Note 40. For information about other payables which are related parties, see Note 41.

(*) Regarding reclassification see Note 2 (AA)

NOTE 25 - LIABILITIES FOR DEBENTURES, ETFS, REVERSE CERTIFICATES AND COMPLEX CERTIFICATES

A. Liabilities for debentures, exchange-traded funds, reverse certificates, complex certificates and deposit certificates:

	December 31
2014	2013 NIS thousands	2012

35,532,000 2,776,000 617,000 38,925,000 (520,825) 38,404,175	31,894,000 3,032,000 358,000 35,284,000 (372,835) 34,911,165	22,308,000 3,049,000 146,000
		25,503,000 (354,006)
		25,148,994

— 153 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 25 – LIABILITIES FOR DEBENTURES, ETFS, REVERSE CERTIFICATES AND COMPLEX CERTIFICATES (CONTINUED)

B. The Group, through special purpose companies (“SPCs”), engages in the issue of ETFs and ETNs listed on the TASE. In this context, the Company issues ETFs that track share, commodity and sector indexes, reverse certificates for share indexes and covered warrants for indexes and commodities (“the Certificates”).

Each issuing company is a special purpose company ("SPC") that was set up to issue ETFs, commodity certificates and reverse certificates, and other securities approved by the board of directors of the TASE.

ETFs were issued by companies that exclusively issue ETFs and handle assets pledged in favor of the debenture holders. The certificates accurately track an index and are convertible into shares or at a financial value according to the reference index determined for that certificate. The certificates are backed by underlying assets that produce the yields of various share and goods indexes. Of the proceeds of the issuance, the companies deposit sums in accounts (banks or financial institutes) and underlying assets and/or financial instruments and derivatives that will be acquired to fulfill their obligations towards the debenture holders. The rights of the debenture holders will be exercised out of the net proceeds received from the companies from the pledged assets. Up to December 31, 2014, 179 certificates were issued (in December 31, 2013, 166 certificates and (in December 31, 2012, 136 certificates).
Deposit certificates were issued by companies that engage exclusively in issuing deposit certificates and handling assets that are pledged in favor of the deposit holders. Deposit certificates are linked (principal and interest) to the rate of exchange for a variety of currencies against the Israeli shekel and they bear interest. Each of the deposit certificate companies is an SPC which was set up for the sole purpose of issuing deposit certificates and these companies may not engage in any other commercial activity. The companies make bank deposits from the proceeds of the issuance to secure their liabilities towards the holders of the deposit certificates. The rights of the companies in the backup deposits are the sole source of repayment for obligations to the holders of the certificates of deposit. As of the reporting date, the certificates of deposit are rated ilAA +. Subsequent to the reporting date, the rating was upgraded to ilAAA. The rating is based, among others, on the rating of the banks in which the deposits are placed.
- Up to December 31, 2014, 5 certificates of deposit were issued (in December 31, 2013, 4 certificates and in December 31, 2012, 8 certificates).
C. The structured debentures were issued through special purpose companies that engage exclusively in issuing debentures and handling assets mortgaged in favor of the debenture holders (“Heharim companies”)

Heharim Companies are SPCs that were set up for the sole purpose of issuing bonds and these companies may not engage in any other commercial activity. The SPC acquires non-marketable structured debentures (“Notes”) from the proceeds of the issuance, which constitute the sole source of repayment of the liabilities of the Heharim Companies (non-recourse liabilities).

As of December 31, 2014, there are 5 series of structured debentures: one is listed on the Tel Aviv Stock Exchange Ltd. ("the TASE") and four were issued in private offerings. The debentures traded on the TASE have been rated by Maalot - the Israel Securities Rating Company Ltd. (“Maalot”) at ilAA+ as of the reporting date. Subsequent to the reporting date, the rating was upgraded to ilAAA.

Subsequent to the reporting date, final repayment was made for the listed debentures under the terms of the prospectus.

— 154 —

				Total		39,094,000		38,308,000	617,000	169,000					Total		35,538,000		34,926,000	358,000	254,000
NOTE 25 – LIABILITIES FOR DEBENTURES, ETFS, REVERSE CERTIFICATES AND COMPLEX CERTIFICATES (CONTINUED)	D. Additional information about the composition of assets and liabilities of SPCs as of December 31, 2014:	Israel Foreign	shares shares Israel Foreign Averaged and Indexes Deposit	indexes indexes debentures debentures strategic basket Certificates Others	NIS thousand	Backed up assets, net (*) 7,592,000 12,269,000 6,014,000 992,000 496,000 961,000 9,323,000 1,447,000		Certificates 7,515,000 12,090,000 5,730,000 964,000 472,000 954,000 9,302,000 1,281,000	Liabilities 57,000 92,000 268,000 26,000 3,000 - 5,000 166,000	20,000 87,000 16,000 2,000 21,000 7,000 16,000 -	(*) Less credit and credit balances and less liabilities for options for short sale of securities	Additional information about the composition of assets and liabilities of SPCs as of December 31, 2013:	Israel Foreign	shares shares Israel Foreign Leverage and Indexes Deposit	index index debentures debentures strategic basket Certificates Others	NIS thousand	Backed up assets, net (*) 8,222,000 8,907,000 5,196,000 736,000 435,000 587,000 9,565,000 1,890,000		Certificates 8,102,000 8,812,000 5,131,000 711,000 418,000 584,000 9,533,000 1,635,000	Liabilities 102,000 25,000 47,000 24,000 1,000 - - 159,000	18,000 70,000 18,000 1,000 16,000 3,000 32,000 96,000	(*) Less credit and credit balances and less liabilities for options for short sale of securities	Additional information about the composition of assets and liabilities of SPCs as of December 31, 2012:	Share Sector Foreign	indexes in share share Commodity Debenture	Israel indexes indexes indexes Exchange rates indexes Others Total	NIS thousands	Backed up assets, net (*) 9,068,000 129,000 5,166,000 559,000 314,000 7,243,000 7,000 22,486,000		Certificates 9,012,000 127,000 5,124,000 555,000 301,000 7,218,000 6,000 22,343,000	56,000 2,000 42,000 4,000 13,000 25,000 1,000 143,000	The total fair value for the entire balance of ETFs and deposit is not significantly different from their carrying amount.	— 155 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 25 – LIABILITIES FOR DEBENTURES, ETFS, REVERSE CERTIFICATES AND COMPLEX CERTIFICATES (CONTINUED)

E. Information about the SPCs that issue ETFs and certificates of deposit:

	Rate of holding
	December 31
2014	2013	2012
84% 84% 84% 100% 50% 100% 100% 99.5% 84% - - - - - -	84% 84% 84% 100% 50% 100% 100% 99.5% 100.0%	84% 84% 84% 100% 50% 100% 100% 99.5% - 100% 100% 100% 100% 100% 100%

(*) During the year, the company was sold to KSM Group.

(**) Non-marketable debentures

F. Management fees and conversion commission

SPCs are entitled to management fees and conversion fees calculated as a percentage of the obligation for the certificates held by the public. The management fees are deducted from the balance of the SPC's obligation for the certificates.

If any of the certificate holders of any of the series submits a conversion notice, the SPCs will receive a consideration (by way of deduction from the conversion proceeds), as described in the prospectus of the SPCs.

G. 1) As collateral for repayment of the principal, interest and linkage differences that the SPCs issuing structured instruments undertook to pay to the debenture holders, and to secure full and accurate fulfillment of all its other obligations under the terms of the debenture and deed of trust, these companies placed a fixed first lien on all its rights in the non-marketable debentures that were issued for them and a first floating lien on their rights in the bank accounts in which the consideration of the issuance and proceeds received from the non-marketable debentures were deposited. The pledged non-marketable debentures were deposited with a trustee.
2) As collateral for repayment of the consideration that the SPCs issuing ETFs and deposit certificates undertook to pay the certificate holders, these companies placed a current first lien on all the bank accounts in which the net consideration of the issuance was deposited and/or in which the base asset and financial instruments were deposited as collateral for holders of the ETFs. The deposits that will be used to cover the companies' activities in options and/or financial instruments were pledged in favor of the trustee in a second lien.
H. In 2014, final repayment was made for six series of structured debentures issued to the public, in a total amount of NIS 348 million. Subsequent to the reporting date, final repayment was made for a series of structured debentures (the marketable series), in a total amount of NIS 2,344 million.

— 156 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 25 – LIABILITIES FOR DEBENTURES, ETFS, REVERSE CERTIFICATES AND COMPLEX CERTIFICATES (CONTINUED)

I. Liability for short sale of securities and credit from banks

A. B.	Short sales of securities held for trading in series-specific accounts Shares Corporate debentures Government bonds Future transactions Swap Maof options Gains for future contracts Amounts payable for securities Borrowings from banks Bank credit in NIS Bank credit in USD Other bank credit	December 31	December 31
		2014	2013
		101,000 53,000 213,000 23,000 43,000 17,000 36,000 43,000	107,000 31,000 - 17,000 1,000 3,000 13,000 133,000
		529,000	305,000
		82,000 1,000 5,000	18,000 30,000 5,000
		88,000	53,000
		617,000	358,000

The fair value of the credit is similar to their carrying amount.

— 157 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 26 – FINANCIAL LIABILITIES

This Note provides information about the contractual terms of the financial liabilities. Additional information about the Group’s exposure to interest, exchange, and liquidity risks appears in Note 40 – Risk Management

A. Financial liabilities

See below	Book value	Book value		Fair value	Fair value	Fair value
	December 31			December 31
	2014	2013	2012	2014	2013	2012

st: D, E D, E D. I. or loss	60,000 848,482 1,718,845 24,897 713,303 75,777	105,208 949,503 1,340,948 124,555 684,815 55,938	201,393 841,080 1,506,565 165,564 607,055 229,889	60,000 944,965 1,882,962 24,897 713,303 75,777	105,208 1,055,076 1,507,258 124,555 684,815 55,938	201,393 889,384 1,662,634 165,564 607,055 234,242
	3,441,304	3,260,967	3,551,546	3,701,904	3,532,850	3,760,272
	52,000 101,806	- 51,149	- 87,048	52,000 101,806	- 51,149	- 87,048
	3,595,110	3,312,116	3,638,594	3,855,710	3,583,999	3,847,320
	1,534,247	1,319,269	1,302,280	1,680,737	1,471,565	1,437,187

— 158 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 26 – FINANCIAL LIABILITIES (CONTINUED)

B. Interest and linkage details

Linkage basis	December 31, 2014 Carrying amount Interest rate NIS thousands % 2,000 1.92% 891,026 1.57%-6% 2,548,278 0%-4.5% 3,441,304 December 31, 2013 Carrying amount Interest rate NIS thousands % 34,000 3.5% 585,001 3.77%-6% 2,641,966 0%-4.5% 3,260,967 December 31, 2012	December 31, 2014 Carrying amount Interest rate NIS thousands % 2,000 1.92% 891,026 1.57%-6% 2,548,278 0%-4.5% 3,441,304 December 31, 2013 Carrying amount Interest rate NIS thousands % 34,000 3.5% 585,001 3.77%-6% 2,641,966 0%-4.5% 3,260,967 December 31, 2012
	Carrying amount
Linked to foreign currency Shekel CPI-linked () Linkage basis*	NIS thousands
	2,000 891,026 2,548,278
	3,441,304
	Carrying amount NIS thousands 34,000 585,001 2,641,966 3,260,967 December
	Carrying amount NIS thousands 58,000 911,881 2,581,665 3,551,546	Interest rate
		%
		3.5% 3.5%-6.5% 0%-5.75%

(*) Including interest-free deposits from tenants See section I below.

C. Financial liabilities measured at fair value

Financial liabilities at fair value through profit or loss, according to hierarchy:

The table below presents analysis of the financial liabilities presented at fair value. The hierarchy is as follows:

Level 1: quoted prices (unadjusted) in active markets for identical instruments

Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly

Level 3: inputs that are not based on observable market data (unobservable inputs)

— 159 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 26 – FINANCIAL LIABILITIES (CONTINUED)

C. Financial liabilities measured at fair value (continued)

	December 31, 2014	December 31, 2014	December 31, 2014	December 31, 2014
Level 1	Level 2 Level 3 NIS thousand

52,000 - 52,000 Level 1 -	- 96,684
	96,684

	Level 2 Level 3 NIS thousand		Level 3

	45,834 5,315 December 31, 2012		5,315

Level 1	Level 2 Level 3 NIS thousands	Level 3

	78,192	8,856

				Derivatives
				NIS thousands
				5,315 (193)
				5,122
				Fair value measurement at the reporting date
				Derivatives
				NIS thousands
				8,856 1,529 (5,070)
				5,315
				Fair value measurement at the reporting date Derivatives NIS thousands 6,245 (2,147) 4,758 8,856

— 160 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 26 – FINANCIAL LIABILITIES (CONTINUED)

D. Repayment subsequent to the reporting date

1. Subordinated debt certificates

First year Second year Third year Fourth year Fifth year and onwards Less discounts and deferred acquisition costs	2014 3,541 181,756 525,257 181,756 839,870 1,732,180 (13,335) 1,718,845	December 31
		2013 NIS thousands	2012

		18,165 3,542 181,934 525,435 623,405 1,352,481 (11,533) 1,340,948	187,230 17,823 3,476 178,526 1,133,752
			1,520,807 (14,242)
			1,506,565

Debentures

	December 31
2014	2013	2012

92,241 93,533 92,241 93,533 92,241 93,533 92,241 93,533 520,768 623,311 889,732 997,443 (41,250) (47,940) 848,482 949,503		91,868 124,715 124,715 124,715 374,275
		840,288 792
		841,080

Under the deed of trust of the Company's Debentures (Series 2), the Company undertook that as long as the Debentures (Series 2) are unpaid in full, it will not create a general floating charge on its assets, unless at that date, a charge of the same rank is also created in favor of the holders of debentures (Series 2). In addition, for the Debentures (Series 2), the Company also assumed restrictions on distribution of dividends and expansion of the debenture series (Series 2), and undertook to comply with financial covenants, according to which the Company’s equity will not fall below NIS 1.3 billion and the ratio between the Company’s net financial debt and its total assets will not exceed 60%. .

For further information see the shelf offering memorandum of February 19, 2013.

— 161 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 26 – FINANCIAL LIABILITIES (CONTINUED)

D. Repayment subsequent to the reporting date (continued)

3. Loans from banks

	December 31
2014	2013	2012

14,927 31,750 9,970 31,640 - 28,821 - 13,344 - 19,000 24,897 124,555		40,198 31,654 31,683 25,967 36,062
		165,564

Change in the loan terms of Excellence and early repayment

At the completion date of the acquisition transaction for Prisma funds in June 2009, as described in Note 4 above, Excellence Mutual Funds Ltd. ("Excellence Funds") and the banks signed a financing agreement to provide Excellence Funds with a loan of NIS 130 million. The loan was payable in forty equal quarterly installments.

In June 2014, the loan was repaid prematurely.

In December 2014, a new financing agreement was signed between the mutual fund company and one of the banks. Under the agreement, a short-term loan of NIS 58 million was provided to Excellence Funds, which is recognized as short-term borrowings, representing the balance of the long-term loan that was redeemed prematurely in accordance with the original repayment schedule. Under the agreement, Excellence Funds undertook to comply with the financial covenants relating to EBITDA, revenues and debt ratios, as well as liens on its assets and interests. The guarantees and liabilities of Excellence remained the same as in the previous loan.

As of the date of the statements of financial position, Excellence and Excellence Funds were in compliance with all the financial covenants and obligations.

— 162 —

December 31, 2014	Series Issuance date Nominal value at the issuance date Rating and rating agency (4) Linkage terms Interest type Book value (NIS millions) Fair value (NIS *millions)() Principal payment dates Interest payment dates Type of capital Rights for premature repayment**	Debt certificates (Series A) September. 2009 500 Midroog Aa2 (stable outlook); Maalot ilAA (stable outlook) Linked 4.4% 543 597 Three equal payments on September 1st, in each year from 2016 to 2018 (inclusive) Semi-annual interest on March 1st and September 1st Subordin ated tier 2 - Debt certificates (Series B) September 2010(3) 413.7 Midroog Aa3 (stable outlook); Maalot ilAA- (stable outlook) Linked 3.6% 435 491.5 One payment on September 30, 2022 Semi-annual interest on March 31st and September 30th Hybrid tier 2 September 30, 2019 Debt certificates (Series C) September 2010(3) 343.5 Midroog Aa3 (stable outlook); Maalot ilAA- (stable outlook) NIS 6% 342 387.6 One payment on September 30, 2020 Semi-annual interest on March 31st and September 30th Hybrid tier 2 September 30, 2017 Debt certificates (Series D) September 2014 398.8 Midroog Aa2 (stable outlook) NIS 3.85% 395 403.7 One payment on January 31, 2026 Semi-annual interest on January 31st and July 31st Hybrid tier 3 January 31, 2026 Debentures (Series 1) March 2007(4) 631.2 Midroog Aa3 (stable outlook); Maalot A+ (stable outlook) Linked 4.5% 304 328 Six equal payments on March 26th, in each year from 2014 to 2019 (inclusive) Once a year on March 26 - - Debentures (Series 2) March 2013(4) 620 Midroog Aa3 (stable outlook) Linked 2.55% 544 616 Six equal payments at a rate of 5% each, on March 26 of each year from 2014 to 2019 (inclusive) and five equal payments at a rate of 14% each on March 26 of each year from 2020 to 2024 (inclusive). Semi-annual interest on March 26th and September 26th - -

December 31, 2013	Series Issuance date Nominal value at the issuance date Rating and rating agency (4) Linkage terms Interest type Book value (NIS millions) Fair value (NIS *millions)() Principal payment dates Interest payment dates Type of capital Rights for premature repayment**	Debt certificates (Series A) September 2009 500 Midroog Aa2 (stable outlook); Maalot ilAA (negative outlook) Linked 4.4% 543 616 Three equal payments on September 1st, in each year from 2016 to 2018 (inclusive) Semi-annual interest on March 1st and September 1st Subordin ated tier 2 - Debt certificates (Series B) September 2010 (3) 413.7 Midroog Aa3 (stable outlook); Maalot ilAA- (negative outlook) Linked 3.6% 434 488 One payment on September 30, 2022 Semi-annual interest on March 31st and September 30th Hybrid tier 2 September 30, 2019 Debt certificates (Series C) September 2010 (3) 343.5 Midroog Aa3 (stable outlook); Maalot ilAA- (negative outlook) NIS 6% 342 382 One payment on September 30, 2020 Semi-annual interest on March 31st and September 30th Hybrid tier 2 September 30, 2017 Debentures (Series 1) March 2007 (4) 631.2 Midroog Aa3 (stable outlook); Maalot A+ (stable outlook) Linked 4.5% 375 413 Six equal payments on March 26th, in each year from 2014 to 2019 (inclusive) Once a year on March 26 - - Debentures (Series 2) MARCH 2013 (4) 620 Midroog Aa3 (stable outlook) Linked 2.55% 575 643 Six equal payments at a rate of 5% each, on March 26 of each year from 2014 to 2019 (inclusive) and five equal payments at a rate of 14% each on March 26 of each year from 2020 to 2024 (inclusive). Semi-annual interest on March 26th and September 26th - - (*) Less interest accumulated as from the date of the last payment

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 26 – FINANCIAL LIABILITIES (CONTINUED)

E. Significant financial liabilities presented at amortized cost - additional information (continued)

Remarks:

Debt certificates (Series A-D) were issued by The Phoenix Capital Raising, a wholly-owned subsidiary of The Phoenix Insurance, which is wholly owned by the Company.

Debentures 1 and 2 were issued by the Company.

All the series are listed on the TASE.
In November 2011, debt certificates (Series B and C) were expanded in an amount of NIS 357 million par value.
In March 2013, NIS 318,235,354 par value Debentures (Series 1) were exchanged for NIS 445,529,496 par value Debentures (Series 2) through an exchange tender offer.
In September 2014, NIS 398,831 thousand par value debentures of NIS 1 par value each were issued, and are payable in one payment on January 31, 2026. The consideration for the acquisition amounted to NIS 394,706 thousand.

F. Exchange tender offer

In February 2015, The Phoenix Capital Raising, a wholly owned subsidiary of The Phoenix Insurance, announced that it is considering the possibility of a public offering of two new debenture series, which will be recognized as capital, by way of an exchange tender offer for Debentures (Series A) of The Phoenix Capital Raising, which will be listed on the TASE.

For further information, see Note 43(3) and Note 43(4) and the Company's immediate report of February 22, 2015 (ref. 2015-01-035590).

G. Subordinated notes: hybrid tier 2 and tier 3 capital

In accordance with the prospectuses for Series B - D, under the suspending circumstances defined below, the payment of principal and/or interest will be deferred for Series B and C, which the Commissioner of Insurance will recognize as complex tier 2 capital of The Phoenix Insurance, and for principal payments for Series D, which the Commissioner of Insurance will recognize as complex tier 3 capital of The Phoenix Insurance, for periods as set out in the prospectus.

"Suspending conditions for hybrid tier 2 and tier 3 capital": In accordance with the directives of the Commissioner of Insurance, this includes one or more of the following conditions:

(1) The Phoenix Insurance has no distributable earnings, as defined in the Companies Law, in accordance with its most recent financial statements (annual or quarterly) preceding the relevant payment date of the interest or principal.
(2) The amount of recognized equity The Phoenix Insurance falls below the minimum equity required of it (according to the provisions of the law applicable to The Phoenix Insurance and/or the directives of the Commissioner of Insurance), in the most recent financial statements (annual or quarterly) preceding the relevant repayment date for the principal and/or interest.
(3) The board of directors of The Phoenix Insurance orders the postponement of the principal or interest payment, if it finds that a near and present concern has arisen with regard to the ability of The Phoenix Insurance to meet its minimum required equity (in accordance with the provisions of the law applicable to The Phoenix Insurance, and/or in accordance with the directives of the Commissioner of Insurance), provided advance approval for such action has been received from the Commissioner of Insurance.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 26 – FINANCIAL LIABILITIES (CONTINUED)

G. Subordinated notes: hybrid tier 2 and tier 3 capital (continued)

(4) The board of directors of The Phoenix Insurance orders a postponement of the principal and/or interest payment if it finds that a near and present concern has arisen with regard to The ability of The Phoenix Insurance to repay, on time, liabilities whose priority rating is higher than that of the debentures offered in the prospectus, provided that advance approval for such action has been received from the Commissioner of Insurance.
(5) The Commissioner of Insurance ordered a postponement of the principal and/or interest payment, due to significant impairment of the recognized equity of The Phoenix Insurance, or if the Commissioner believes that there is a near and present concern regarding the ability of The Phoenix Insurance to fulfill its minimum equity requirements, in accordance with the provisions of the law applicable to The Phoenix Insurance, and/or in accordance with the directives of the Commissioner of Insurance. In this matter, "recognized equity" means the recognized equity of an Israeli insurer as defined in the provisions of the law applicable to an insurer and/or the directives of the Commissioner of Insurance. Any principal or interest amounts postponed as above will be postponed until the suspending circumstances no longer exist, and no longer than the period ending three years from the original repayment date of the debenture principal.

H. Rating of the Company

As of January 18, 2015 and December 31, 2014, the Company has a rating of ilA+ with stable outlook from Maalot.

As of January 18, 2015 and December 31, 2014, The Phoenix Insurance, a subsidiary of the Company, has a rating of ilAA+ with stable outlook from Maalot and a rating of Aa1 with stable outlook from Midroog.

I. Deposits from tenants

The balance includes the balance of deposits received from tenants under housing agreements for the right of use of housing units in centers. When leaving the protected housing units, the tenants (or their heirs in the event of death) are entitled to partial refund of their deposits, less the defined annual rate in the housing agreements, in accordance with the period of their stay. The deposits are linked to the CPI and do not bear interest.

— 166 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 27 – EARNED PREMIUMS

J. Contractual restrictions and financial covenants

For information about contractual restrictions and financial covenants for debentures issued by the Company, see section D.

Year ended	Year ended	Year ended
December 31, 2014
Gross	Reinsurance NIS thousands	On retention

3,867,151 1,559,412 2,330,218	62,620 132,374 471,692 666,686 22,323 644,363	3,804,531 1,427,038 1,858,526
7,756,781 58,508		7,090,095 36,185
7,698,273		7,053,910

Year ended	Year ended	Year ended
December 31, 2013
Gross	Reinsurance	On retention
	NIS thousands
3,860,745 1,406,972 2,269,013 7,536,730 62,673	62,170 126,157 461,696 650,023 2,069	3,798,575 1,280,815 1,807,317 6,886,707 60,604
7,474,057	647,954	6,826,103

Year ended	Year ended	Year ended
December 31, 2012
Gross	Reinsurance NIS thousands	On retention

3,752,958 1,273,497 2,124,911	62,609 159,702 441,037 663,348 (6,974) 670,322	3,690,349 1,113,795 1,683,874
7,151,366 (2,594)		6,488,018 4,380
7,153,960		6,483,638

(*) Mainly general insurance, see Note 18

— 167 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 28 – INVESTMENT GAINS (LOSSES), NET, AND FINANCE INCOME

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
	NIS thousands
76,611 347,477 134,813 300,342 892,332 36,474	61,936 661,476 325,870 873,075 1,210,938 (5,142)	31,643 621,272 535,412 466,515 705,181 1,086
1,788,049	3,128,153	2,361,109
81,589 81,890	83,378 72,830	59,340 47,398
163,479	156,208	106,738
214,981 (147,271) 97,550	296,737 111,463 53,343	69,817 (20,252) 39,472
165,260 399,403 193,863 40,607 23,769	461,543 552,259 203,041 22,280 24,000	89,037 489,426 202,925 40,961 26,745
2,774,430	4,547,484	3,316,941
1,248	2,175	2,179

(**) For information about exchange rate differences on financial liabilities, see Note 38.

— 168 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 28 – INVESTMENT GAINS (LOSSES), NET, AND FINANCE INCOME (CONTINUED)

A. Income (loss), net, from investments in available-for-sale assets

Year	ended December 31	ended December 31
2014	2013	2012
	NIS thousands
285,574 (70,593)	310,444 (13,707)	147,831 (78,014)
214,981	296,737	69,817

B. Income (loss) from investments in assets at fair value through profit or loss

Year	ended December 31	ended December 31
2014	2013	2012
	NIS thousands
(157,227) 9,956 (147,271)	103,301 8,162	(39,646) 19,394 (20,252)
	111,463

C. Gains (losses) from investments for assets presented as loans and receivables:

Year	ended December 31	ended December 31
2014	2013 NIS thousands	2012

78,984 18,566 97,550	83,910 (30,567) 53,343	77,651 (38,179)
		39,472

— 169 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 29 – REVENUE FROM MANAGEMENT FEES

A. Composition

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
312,414 154,000 137,882 237,095 14,320	292,897 148,000 218,956 205,056 8,392	305,478 152,000 - 171,590 6,670
855,711 2,100	873,301 2,189	635,738 2,020
857,811	875,490	637,758

B. Reduction of management fees

In June 2012, the Control of Financial Services Regulations (Provident Funds) (Management Fees), 2012, Control of Financial Services Regulations (Insurance) (Conditions in Insurance Contracts) (Amendment), 2012, and the draft Income Tax Regulations (Rules for Approval and Management of Provident Funds) (Amendment No. 4), 2012, were published, regarding amendment of management fees for pension savings products ("the Regulations"). In June 2012, a circular was issued for institutions regarding management fees in pension savings products ("the Circular"). The above provisions will be referred to as "the Management Fee Reform".

1. Changes in the maximum rate of management fees

In accordance with the management fees reform, there was a gradual change in the maximum management fees for managers insurance (for new products), provident funds and new general pension funds. The change in management fees will not apply to insurance policies issued before the Regulations came into effect, guaranteed-return insurance funds, guaranteed-return provident funds, old funds, new comprehensive pension funds, study funds, personally managed provident funds, central provident funds, branch provident funds, provident funds for sick pay, provident funds for vacation and provident funds for other purposes.

— 170 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 29 – REVENUE FROM MANAGEMENT FEES (CONTINUED)

B. Reduction of management fees (continued)

Changes in the maximum rate of management fees (continued)

The table below presents the main change in the maximum annual management fees of various products (except for members who receive annuities):

	Pension funds that do not pay an annuity	Study funds and provident funds that are not provident funds do not pay an annuity	Directors insurance and compensation insurance for self-employed	General pension fund	Comprehensive pension fund
Maximum management fees up to December 31, 2012	2% from the accrual + 0% from deposits	2% from the accrual + 0% from deposits	2% from the accrual + 13% from deposits in the event of: conversion to a percentage of the deposits at a ratio of 1:10(*)	2% from the accrual + 0% from deposits	0.5% from the accrual + 6% from deposits
Maximum management fees in 2013 (the transitionperiod)	1.1% from the accrual + 4% from deposits	Unchanged	1.1% from the accrual + 4% from deposits (**)	1.1% from the accrual + 4% from deposits	Unchanged
Maximum management fees as from 2014	1.05% from the accrual + 4% from deposits(****)	Unchanged(****)	1.05% from the accrual + 4% from deposits(***)	1.05% from the accrual + 4% from deposits	Unchanged

(*) Applies to policies issued as from January 1, 2004.

(**) Applies to policies issued as from January 1, 2013.

(***) Applies to policies issued as from January 1, 2014.

  - (****)  Notwithstanding the information in the table, as from 2016, the management fees from the total aggregate balance of members in all their accounts in a provident fund that is not an insurance fund, will not fall below NIS 6 per month.

Entry of the regulations into force and change in the maximum management fees resulted in a reduction in management fees charged by institutions in the Group, due to a reduction of management fees from the accrual in the annuity period, for existing members as well, from reduction in management fees for insurance products sold as from January 1, 2013, and from a reduction in management fees members with whom contact has been lost. In this context, it is noted that most of the provident activity of The Group is managed through Excellence and accordingly, goodwill attributable to provident activity was amortized by NIS 7 million in the financial statements for 2014, NIS 36 million in the financial statements for 2013, and NIS 113 million in the financial statements for 2011.
- In this context it is noted that entry of the regulations into force could raise the cancellation rate of policies with high management fees sold by the Company in the past and replacement with or migration to new policies with low management fees. The Company believes that this can be moderated by the cessation of marketing life insurance plans combining savings that include guaranteed annuities.
C. In 2012, the Company did not collect variable management fees for profit-sharing policies marketed until 2004, due to the aggregate negative real return. The deficit in management fees as of December 31, 2012 amounted to NIS 62 million. At the end of February 2013, the Company covered the full amount of the real investment losses accrued as a liability to the policyholders and started to collect variable management fees.

— 171 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 30 – INCOME FROM COMMISSIONS

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
153,261 105,970	147,046 116,877	144,642 102,920
259,231	263,923	247,562

NOTE 31 - INCOME FROM FINANCIAL AND OTHER SERVICES

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
143,822 48,000 1,000 10,000	112,525 49,000 3,000 14,000	121,987 51,000 (1,000) 6,000
202,822	178,525	177,987

(*) Income from ETFs and deposit:

December 31	December 31	December 31
2014	2013	2012
50,000 - 4,000 80,000	47,000 2,000 4,000 69,000	62,000 - 3,000 62,000
134,000	122,000	127,000
9,822 143,822	(9,475) 112,525	(5,013) 121,987

NOTE 32 - OTHER REVENUE

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
17,864 3,227 - 16,597 4,261	17,493 3,083 732 10,046 3,362	14,321 3,361 - 12,489 7,948
41,949	34,716	38,119

— 172 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 33 - PAYMENTS AND CHANGE IN LIABILITIES FOR INSURANCE AND INVESTMENT CONTRACTS IN RETENTION

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
497,012 34,367	461,277 30,717	434,498 32,251
462,645 997,525 121,367 105,115	430,560 887,490 116,777 80,454	402,247 930,058 107,285 61,775
1,686,652 3,894,368 147,775	1,515,281 5,529,751 39,105	1,501,365 4,659,285 36,327
5,728,795	7,084,137	6,196,977
1,430,705 280,924	1,408,131 243,575	1,357,181 175,772
1,149,781	1,164,556	1,181,409
1,205,497 137,517	1,032,577 176,696	986,559 171,957
1,067,980	855,881	814,602
7,946,556	9,104,574	8,192,988

NOTE 34 - COMMISSIONS, MARKETING EXPENSES, AND OTHER ACQUISITION COSTS

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
646,164 255,516 (141,425)	581,426 241,973 (115,209)	537,404 213,185 (71,463)
760,255	708,190	679,126
510,215 43,310	455,022 24,084	422,665 19,271
1,313,780	1,187,296	1,121,062

— 173 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 35 – GENERAL AND ADMINISTRATIVE EXPENSES

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
764,552 184,050 90,884 71,703 32,259 44,820 187,464	725,233 168,279 94,546 68,353 29,868 42,000 213,095	671,210 140,544 89,458 64,384 24,816 44,485 188,390
1,375,732 (63,092) (282,369)	1,341,374 (60,142) (253,790)	1,223,287 (56,028) (225,273)
1,030,271	1,027,442	941,986
230,437	215,900	193,114

NOTE 36 – SHARE-BASED PAYMENT

A. Recognized expense

The expense recognized in the financial statements for services received from employees is presented in the table below:

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
(304) 7,742	3,326 5,433	879 3,656
7,438	8,759	4,535

The share-based payment plans granted by the Company to its officers and employees are described below:

CEO of the Company

On June 1, 2009, Eyal Lapidot was appointed CEO of the Company. On August 30, 2009, the Company's board of directors approved a private placement of 6,177,879 options (unlisted for trading), which are offered to the Company's CEO for no consideration. Each option is exercisable into one ordinary registered share of NIS 1 par value of the Company, at an exercise price equal to NIS 7.976, plus annual interest at a rate of 3.75%, to be calculated for each lot of options, except for the first lot of options. The options will vest in four equal lots as from June 1, 2010 and up to June 1, 2013. Each lot is exercisable as from the vesting date up to June 1, 2014. The value of the benefit is measured at the grant date of the options using the binomial model. The average value of one option was estimated at NIS 4.86, and at the same date, the total value of the allocated options was estimated at NIS 30 million.

— 174 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 36 – SHARE-BASED PAYMENT (CONTINUED)

A. Recognized expense (continued)

CEO of the Company(continued)

In June 2013, Eyal Lapidot exercised 6,177,879 options that were granted to him. Following the exercise, Eyal Lapidot was allotted 2,502,539 ordinary shares of the Company of NIS 1 par value each, at a value reflecting the rate of the benefit.

2013 plan for employees and officers

On November 3, 2013 ("the Grant Date"), the Company's board of directors approved the allotment of 5,686,285 options to 39 employees of the Company and its subsidiaries, of which, 1,616,285 options were allotted to five officers in the Company and 4,070,000 options were allotted to 34 officers in the Company's subsidiaries. Following the exercise of these options, the underlying shares are ordinary shares of NIS 1 par value of the Company according to the number of options ( conversion rate of 1:1).

The exercise price of each option is NIS 13.77. At the exercise date, the Company will allocate the underlying shares according to the number of options multiplied by the difference between the quoted share price at the exercise date and the exercise price divided by the quoted share price.

The options will vest in three equal lots, subject to the continuation of employment in the Company.

The fair value at the Grant Date is based on the valuation received from an external assessor using the binomial model. The average value of one option was estimated at NIS 3.41, and at the same date, the total value of the allocated options was estimated at NIS 19 million.

The following assumptions were used in measuring the fair value of equity-settled options for the 2013 plan:

Lot	Expected fluctuations in shareprice(A)	Risk-free interest rate(b)	Vesting date	Expiry date
1 2 3	32.68% 32.68% 32.91%	1.47% 1.47% 1.90%	11.2014 11.2015 11.2016	11.2016 11.2016 11.2017

A. Expected fluctuations in share price

The expected fluctuations (standard deviation) is based on historical fluctuations of the share price (according to daily margins) The expected fluctuation of the share price reflects the assumption that the historical fluctuation of the share price is an indication of the expected future fluctuations.

B. Risk-free interest

The interest rate used to calculate the value of the options to offerees is based on the risk-free nominal yield curve for redemption, based on the yield of unlinked Shahar government debentures

C. Churn rate (subsequent to the vesting period)

The model assumes a churn rate of 5% between the vesting date and the expiry of the option. The model does not assume the churn rate in the vesting period.

D. Dividends

The exercise price of the options in the plan is adjusted to dividends. Accordingly, calculation of the value of the options disregards future distribution of dividends.

— 175 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 36 – SHARE-BASED PAYMENT (CONTINUED)

A. Recognized expense (continued)

2007 and 2012 plan for employees and officers

In 2007, the Company approved the allocation of options to Company employees, and accordingly, options were allocated to Company employees in 2007, 2008, and 2010. Most of the options allotted under this plan expired. As of January 1, 2014, there are 120,000 outstanding options issued under this plan. In April 2014, all the options remaining under this plan were exercised for shares. In July 2013, 414,000 options were exercised for shares out of the plan.

On December 10, 2012, the Company's board of directors, after approval of the audit committee, approved the grant of 200,000 options exercisable for 200,000 ordinary Company shares of NIS 1 par value each, to the Group's executive deputy CEO. Each option is exercisable into one ordinary share for an exercise price equal to NIS 9.69 plus adjusted annual interest at a rate of 3.75%, which is measured as from the date of the board of director's resolution through to October 1, 2014. The options vested on October 1, 2014 and are exercisable until October 1, 2015. As of December 31, 2014, options that were allotted under this plan were unexercised.

B. Movements during the year

The following table presents the number of share options, the weighted average of their exercise price and the changes in employee options plans over the current year:

2014	2014	2013	2013	2012	2012
No. of options	Weighted average of adjusted exercise price	No. of options	Weighted average of adjusted exercise price	No. of options	Weighted average of adjusted exercise price
6,006,285 - (120,000) - (350,000)	13.52 - 9.06 - 12.97	6,921,879 5,686,285 (6,591,879) (10,000) -	8.47 13.77 8.04 16.30 -	8,138,879 200,000 - (1,119,600) (297,400)	9.87 10.05 - 16.93 15.99
5,536,285	12.80	6,006,285	13.52	6,921,879	8.47
2,045,428	12.50	120,000	9.06	4,977,409	8.25

— 176 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 36 – SHARE-BASED PAYMENT (CONTINUED)

C. The weighted average of the remaining contractual life of options at December 31, 2014 is 2.11 years (in 2013, 3.08 years; in 2012, 1.43 years).
D. The range of exercise prices of the options as of December 31, 2014 is between NIS 8.19 and NIS 12.97 (in 2013, between NIS 9.02 and NIS 13.77, and in 2012, between NIS 7.78 and NIS 16.3).

E. Cash-settled share-based payments

On March 18, 2012, the Company's board of directors approved, after the approval of the audit committee, the terms of the agreement between the Company and a company owned by Moshe Bareket, who served as chairman of the company's board of directors up to October 10, 2014 ("the Management Company"). In accordance with the agreement, the Management Company was entitled to a bonus of 0.4% of the annual increase in the Company's share value for the period of the chairman's service, calculated according to a formula that will be determined, provided the bonus does not exceed NIS 4 million (linked to the CPI) and the bonus for the entire period does not exceed NIS 9 million (linked to the CPI).

NOTE 37 - OTHER EXPENSES

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
26,675 7,000 2,291 - 90	31,243 58,686 9,283 - 87	41,611 - 2,458 23,348 -
36,056	99,299	67,417

(*) See Note 4.
(**) For further information, see Note 7(4)(H).

NOTE 38 – FINANCE EXPENSES

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
66,278 37,259 1,000 3,627 3,345 13,260 1,791	89,553 61,083 7,056 19,910 8,389 (7,383) 2,595	96,113 56,751 22,469 18,086 7,650 (2,243) 2,790
126,560	181,203	201,616

— 177 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 39 – EARNINGS PER SHARE

Basic and diluted earnings per share

The calculation of basic and diluted earnings per share was based on the earnings attributable to holders of ordinary shares, divided by the weighted average of the number of ordinary shares in circulation, as follows:

Year ended December 31	Year ended December 31	Year ended December 31
2014	2013	2012
*NIS 1par value()**
246,190 (192) 29	243,576 (95) 1,530	243,983 (304) 423
246,027	245,011	244,102
12	62	355
246,039	245,073	244,457

(*) On April 24, 2014, a special general meeting of the Company's shareholders approved the consolidation of the Company's registered issued share capital, so that each Company share of NIS 5 par value was split into five Company shares of NIS 1 par value each. Accordingly, the Company's articles of association and regulations were amended. The record date for the capital consolidation is May 16, 2014, and the effective date for the consolidation is May 18, 2014. Subsequent to the capital consolidation, the Company's issued and paid up capital amounts to 250,461,389 ordinary shares of NIS 1 par value each and the Company's registered capital consists of 300,000,000 ordinary shares of NIS 1 par value. For further information, see the Company's immediate report of May 11, 2014, ref. 2014-01-060618.

NOTE 40 – RISK MANAGEMENT

The Group operates in the following main segments: Life insurance and long-term saving including pension funds and provident funds, healthcare insurance, general insurance and finance. The Group also has operations in financial services, ETFs and structured bonds.

The Group's operations in these area expose it to the following risks:

Macro risks, including the state of the economy and level of employment
Market risks
Liquidity risks
Credit risks, including credit risk of reinsurers
Operating risks
Insurance risks
Legal risks arising from legal precedents, and claims and class actions
Regulatory and compliance risks
Goodwill risk and impairment of the Group's financial robustness
Business risks, including risks of competition and level of portfolio retention

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

Macro risks: risks arising from the state of the economy and level of employment Economic recession and decline in employment may result in a decrease in deposits in long-term savings, and withdrawal of pension and medium-term savings (study funds) for current needs, an increase in bad debts, reduced cover purchased in insurance policies, an increase in the number of insurance cases and claims (due to an increase in theft and fraud), filing of claims on earlier dates, and intensification of competition in various operating segments.

Market risks: The risk that the fair value or future cash flows of financial assets, financial liabilities or insurance liabilities will change as a result of changes in market prices. Market risks include risks arising from changes in interest rates, share prices, the CPI and foreign currency.

Liquidity risks: The risk that the Company will have difficulties in fulfilling obligations related to its liabilities, due to inability to sell assets immediately or without impairing their value.

Credit risks: The risk of loss due to the failure of a borrower/reinsurer to meet their obligations, or due to changes in credit spreads on the capital market.

Operating risks: The risk of a loss due to inadequacy or failure of internal processes, human error, system failures or external events.

Insurance risks: Life and healthcare insurance risks and actuarial risks in pension funds (the actuarial risks in the pension fund apply to members, and their effect on the management company is with respect to the management fees) arise from uncertainty in the anticipated future claims payment with respect to the assumptions relating to mortality/life expectancy rates, morbidity/disability rates, expenses, cancellations or surrenders. General insurance risks arise mainly from pricing uncertainty, assessment of reserves and catastrophe.

Legal risks: The Group is exposed to judicial decisions which may constitute a binding legal precedent for insurance operations, change the scope of the Group’s liabilities, and result in costs that were not expected when the insurance policies were purchased or in prior estimates of the insurance liabilities. The Group is also exposed to claims with the potential of becoming class actions, and the Group might be obliged to pay considerable sums.

Goodwill risk: The Group’s goodwill, financial stability and reputation constitute an important factor in the scope and profitability of the Group’s operations, agreements with new customers and retention of existing customers. Embezzlement, legal proceedings against the Group, and improper or illegal acts might impair its reputation.

Business risks: Intensified competition in areas in which the Group operates might impair the Group's profits. Increased competition can include intensified competition from existing competitors, entry of new competitors, and entry of new distribution channels. Operations in life insurance, provident funds and pension funds are exposed to policy cancellations and redemptions in the policy period. The Group's ability to retain its existing portfolio depends, inter alia, on its ability to achieve attractive returns compared to its competitors. The public’s tendency to choose alternative products in the various sectors, or the public’s tendency not to purchase insurance may affect the demand for the Group’s products, and its profits in the various sectors.

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APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

Regulatory and compliance risks: Risks arising from the effect of regulatory changes on financial reporting, business operations and profitability. In addition, non-compliance with regulatory requirements may result in sanctions and financial penalties on the team.

This Note presents information about the Group's exposure to each of the above risks, and the Group's objectives, policies and processes regarding the measurement and management of the risk. Additional quantitative disclosure is included throughout these consolidated financial statements.

1. Risk management procedures and methods

The Group has separate risk-management systems for insurance operations and for financial services. Excellence performs risk management for financial operations.

1.1. Insurance operations

Risk management at The Phoenix Insurance is designed to support and protect the Company against unexpected losses that may prevent it from achieving its business objectives, while complying with regulatory requirements.

The risk management process is performed in cooperation with supporting units that include actuarial, investments, reinsurance and accounting units.

At least once a year, a report is submitted to the board of directors and investment committees, identifying and mapping significant risks to the Company's financial robustness, the level of exposure to identified risks, means of control for these risks and recommendations to improve control, to the extent required.

The board of directors appointed a risk management committee on its behalf, which discussed the issues related to preparation for implementation of the Solvency II directive.

The Group attributes great importance to the involvement of the board of directors and investment committees in the risk management process. The board of directors of The Phoenix sets risk limits such as asset-liability management ("ALM"), CPI linkage limits, average maturity limits, and liquidity limits, for exposure to market risks as well as limits for aggregate exposure due to investment activity.

The board of directors and investment committees of The Phoenix approve the investment policy for profit-sharing portfolios and for nostro portfolios, as well as the credit management policy.

1.1.1. Market and liquidity risks

The Phoenix's investments are subject to policies established by the board of directors and implemented by various the various investment committees, subject to investment regulations.

The Company implemented systems to monitor its market risks. Controls are based on value at risk ("VAR") calculations and stress scenarios defined by the Company, using accepted methods for their implementation. The risk is measured for assets and liabilities (ALM) using accepted methodologies based on VAR calculations and stress scenarios, which are performed according a scenario defined as the result of extreme and simultaneous changes in the main parameters of the market risks, including interest rates, exchange rates and inflation, taking into account the correlation between the various risk factors. The board of directors set limits for the risk values and receives a report on compliance with them Routine reports summarizing the information are submitted for review to the investment committees, which convene regularly.

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APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

1. Risk management procedures and methods (continued)

1.1. Insurance operations (continued)

1.1.1. Market and liquidity risks

As part of the ALM policy, the board of directors also set a minimum and maximum average duration limit for debt assets, a maximum rate of non-CPI linked assets and minimum rate of liquid assets.

In addition, the investment department holds discussions and performs routine controls on positions and on market developments and changes. There is also routine control in the back office unit for the integrity and reliability of the information. In addition, there are controls for compliance with the restrictions of the board of directors, investment committees and investment regulations, which are reviewed regularly by the investment control unit.

The board of directors set overall exposure restrictions (including debentures, loans and shares), referring to the single issuer, group, geographical distribution and rating. Reports of exposures and compliance with restrictions are submitted to the investment committees and the board of directors.

The investment committees examine the cash balances of The Phoenix, with an overview of the Company's liquidity requirements and the situation in the financial markets.

For further information about the exposure to market risks, see section 3 below and to liquidity risks, see section 4 below.

1.1.2. Exposure to credit risk for investment property and reinsurers

Exposure to credit risk for investment property

The exposure policy for credit risks establishes procedures for approving and providing loans, from authorized approval through to assessment of the borrower's rating and analyses, and up to the approval of the senior level or the relevant investment/credit committees as required, subject to the type and amount of the loan. The Company's credit policy is partially based on the borrower's debt service ability, quality of collateral, financial stability, and diversification of its credit portfolio among a large number of borrowers.

Detailed reports on the overall exposure in nostro portfolios and profit-sharing portfolios are produced frequently. These reports include different breakdowns, such as exposure to the issuer, exposure to the Group, geographic exposure, and exposure to credit ratings. The board of directors set limits for maximum exposure for each of the above breakdowns, and based on these reports, any exceptions are reported to the investment committees and board of directors.

The Phoenix developed and implemented a business credit rating model, which was approved by the Commissioner of Insurance. In addition, VAR calculations include the spread risk for quantification of the credit risk.

The risk management department analyses and rates new credit that is presented to the credit committee for approval and issues a reference paper analyzing the central risks.

The Phoenix has appointed a debt forum, which includes investment, accounting and risk management professionals, to control and classify problematic debts and report to the board of directors in their respect.

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APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

1. Risk management procedures and methods (continued)

1.1. Insurance operations (continued)

1.1.2. Exposure to credit risk for investment property and reinsurers(continued)

Credit risk in exposure to reinsurers

The Phoenix Insurance purchases reinsurance in international markets. The Company's ability to purchase reinsurance on good terms is affected by the Group's performance in particular and the global reinsurance capacity in general (which is partially dependent on the reinsurers’ stability and the occurrence of global catastrophic events Etc.). Changes in the cost and scope of reinsurance offered in these markets affect the Group's profits and its ability to expand the insurance volume and commit to certain insurance liabilities. In addition, reinsurance does not exempt the Group from its obligations towards its policyholders in accordance with the insurance policies, and for that reason, the financial stability and credit rating of the reinsurers affect the business results of insurance companies. ’ Accordingly, the failure of a reinsurer to meet its obligations to the Group might have a significant effect on its ability to meet its obligations to its clients (for example, in the event of a catastrophe).

At least once a year, the board of directors of the insurance company discusses the exposure to reinsurers and the insurer's preparation for exposure management and control. The quality of the existing tools for managing exposure to reinsurers is also discussed and the control on it. The policy for exposure to reinsurers includes the policy for exposure management for reinsurers in life, general and healthcare branches, and defines a limit for maximum exposure to reinsurers, according to parameters set by the board of directors. As from 2002, The Phoenix Insurance enters into agreements with reinsurers with a rating of A- and above. As from 2012, the board of directors approved agreements with reinsurers with a rating of BBB + for short-tail business only, up to 10% of the exposure.

The Board of Directors approved a set of restrictions designed to ensure an adequate distribution between reinsurers as a function of rating and exposure, for catastrophe events and in the regular course of business.

For further information about the exposure to credit risks of investment property and reinsurers, see section 6 below.

1.1.3. Operating risk

In the course of its business, the Group is exposed to many operational risks, such as: the failure of internal systems, failure of computing and information systems, including a lack of information security, human error (employees, agents and suppliers), fraud, computer crime and external damage to the Company, such as an earthquake. The materialization of one or more of these risks could cause extensive damage.

Operating risk management includes a range of controls on different levels. These controls include operations of the audit committee and discussions of control in the CEO forum, using controls in the business process and controls in applications in information systems. The control system is based on work procedures and practices defined by the officers responsible for operations and on regulatory requirements, such as fraud and embezzlement circulars, information security and SOX 404. There are other control entities in the business sector.

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APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

1. Risk management procedures and methods (continued)

1.1. Insurance operations (continued)

1.1.3. Operating risk (continued)

The Group's internal control system performs controls on a range of operations, and, among other things, examines the existence of controls against operating risks, and provides recommendations for strengthening and improving the controls. The Phoenix has implemented a process to assess the main operational risks. The process includes mapping and rating of core processes in the Group and the main risks arising from them.

The Group's information security policy includes The Phoenix's obligation to this matter. The policy defines principles of secure use as a basis for development, implementation of controls, procedures and information security mechanisms in The Phoenix's information systems. There are principles that address disclosure, early warning, prevention and documentation of exposures and materialization of damage events to availability and survivability, reliability, integrity and confidentiality in The Phoenix's information systems. Guidelines, responsibilities and scope were defined for implementation and integration of information security guidelines for ongoing business and operational aspects.

Appropriate administrative infrastructure was defined to establish and implement all information security operations. The Phoenix has an ordered process of assessing information security risks in information systems and interfaces. The risk assessment defines the sensitivity of the systems and addresses all potential information security risks arising from the information systems and routine business. Management directs appropriate resources to reduce risk according to risk assessment results.

To ensure that the information systems meet external and internal compliance requirements and international standards, and to assess management efficiency and protection measures applied in relation to risk assessment, information security risk surveys and controlled penetration tests of the Company's information technology system are carried out periodically, and before implementing major changes in the system or before these systems go live.

In recent years, the Group established and implemented a business continuity management (BCM) array. The project included establishment of an emergency portfolio, preparation of a procedure for immediate response to an emergency, strategy for business continuity, mapping of critical processes in the different units and confirmation times, definition of resources and human resources required for confirmation, benchmark scenarios, BCP sites, and an emergency management for the Group , and the appointment of special teams for handling emergencies and business emergency teams. In addition, in 2014, DRP and BCP training and drills were performed.

1.1.4. Insurance risks

Insurance risk controls are performed simultaneously on several levels: On the board of directors, senior management, actuarial, reinsurance department and control department level. The controls include generating reports, routine discussions and reporting, including for exposure reports, adequate reserves, and introduction of new insurance plans and/or new products.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

1. Risk management procedures and methods (continued)

1.1. Insurance operations (continued)

1.1.4. Insurance risks (continued)

In addition, the material risks in life, healthcare, and general insurance are evaluated to the extent possible, using a set of stress tests for the different portfolios, in compliance with IQIS requirements.

The Company's new products are approved by the chief risk officer, supervising actuary and chief information officer. These entities assess the risks and exposures associated with the product. Each new operating segment is reported to the board of directors.

Risks involved in insurance products are moderated by a wide distribution of insurance contracts. The risks are reduced by selecting and implementing underwriting strategies and by distribution over branches, geographic areas, types of risk and coverage limits.

In addition, to reduce risk exposure, the Company implements a strict evaluation policy for claims and ongoing evaluation of processes for handing claims.

The exposure of The Phoenix Insurance to earthquake risk in Israel, which is the main catastrophe to which it is exposed, is evaluated using international models and the Company acquires protection against this risk based on this assessment.

For further information about exposure to insurance risks, see section 5 below.

1.2. Financial services - managed by Excellence

1.2.1 Financial risk factors

The activities of Excellence expose it to various financial risks, such as Market risk (including currency risk and fair value risk for interest rates and CPI risk), credit risk and liquidity risk.

1. Market risk

Excellence Group companies operate, directly and indirectly, in the management of investments, portfolios, financial products, mutual funds, and real estate funds in the capital market, which is volatile, partially due to geo-political, security, and economic influences in Israel and the world, over which the Group companies have no control. The fluctuations affect the volume of public activity in the capital market and the prices of securities. Changes in the volume and value of investment portfolios, fund assets, and ETFs managed by the Group, and the number of the Group's customers, affect revenues of Group companies. Therefore, negative trends in prices of securities and the volume of activity in the capital market could have a negative effect on the Group's results.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

1. Risk management procedures and methods (continued)

1.2. Financial services - managed by Excellence (continued)

1.2.1 Financial risk factors (continued)

1. Market risk (continued)

A) Exposure to the capital market

Excellence operates in different areas of the capital market, which are highly volatile and affect the scope of the public's activities in the capital market and prices of securities, and consequently, the business results of Excellence. SPCs may perform hedging strategies on risks arising from changes in the market value. In general, the other Group companies do not hedge risks arising from the effect of changes in the market value of financial assets on the Company's assets.

Changes in prices of shares or debentures: changes in share prices or debenture indexes may result in profit or loss for the Group in the amounts to which the SPCs will be exposed from time to time, for the share indexes or debenture indexes, as the case may be.

Discrepancy between the composition of the shares or debentures in the indexes and the composition of the shares or debentures, as the case may be, may result in a change in the prices of the relevant shares or debentures, for the subsidiaries, gain or loss on the amounts for which there will be exposure from time to time to those shares or debentures, as the case may be.

B) Exchange rate risk

Excellence is exposed to exchange rate changes, mainly in the activities of SPCs that issue debentures linked to foreign CPI and as a result may be affected by foreign currency fluctuations. However, since the SPCs invest the proceeds from these issued products in underlying assets that track the index, including foreign currency, and/or which have the same linkage as the issued products, the net exposure to foreign currency, if any, is low and does not have a material effect on the Company's operating results.

2. Fair value of financial instruments

Marketable securities are exposed to fluctuations in market prices (market risks). Debentures are exposed to interest risks and exchange fluctuations since fluctuations in interest rates and exchange rates in the money market could affect the fair value and consequently, the market value of the security.

The financial instruments of Excellence are cash and cash equivalents, short term investments, credit for acquisition of securities, credit and short-term loans from banks, loans from banks and certain accounts payable and other payables, and liability for ETFs and deposits presented at the value of the liability. The Company's financial instruments are current and their maturity or exercise date is over the next year (other than a bank loan).

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

1. Risk management procedures and methods (continued)

1.2. Financial services - managed by Excellence (continued)

1.2.1 Financial risk factors (continued)

3. Trading difficulties

Suspension of trading or other trading difficulties in the underlying assets or options may prevent transactions and may create a situation where open positions cannot be closed and daily balance transactions in SPCs cannot be performed.

4. Risk for changes in the underlying assets and indexes

Sharp fluctuations in the underlying assets compared to the derivative assets: Sharp fluctuations in the underlying assets compared to short-term assets result in an increase in the premiums paid for the purchase of options, reflecting the uncertainty in the market, and may affect the volume of assets and liabilities of SPCs for options that the companies will create and/or acquire, which could have a positive or negative effect on the business results arising from such activity.

5. Risk for the use of derivatives

As part of the coverage activities, the subsidiary may use derivatives, such as options and future contracts. Use of derivatives creates additional risk exposure (such as changes in market expectations for interest rates and fluctuations of the underlying asset), for the use of underlying assets only, and therefore there may not be full consistency between their yields and the yields of the underlying assets.

6. Risk for borrowings (short sale)

Excellence's exposure for securities with a low trading volume increases with short sale transactions (borrowings) when trading is suspended or there are trading difficulties. This may result in a situation where the subsidiary will be unable to close the borrowing transaction in the quantities and time required when performing the coverage transactions and in accordance with the terms of the borrowing transactions.

7. Operating risk

Hedging the subsidiary's exposure to changes in the underlying assets requires continuous monitoring and supervision of these changes. Impairment of the subsidiary's ability to monitor the changes, for operational reasons (such as human error, breach of trust, or faults in the information and trading systems) could prevent it from successful hedging of the exposure.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

1. Risk management procedures and methods (continued)

1.2. Financial services - managed by Excellence (continued)

1.2.1 Financial risk factors (continued)

8. Risk for regulatory changes

Regulatory and legislative changes relating to securities in general, and financial products in particular, may have an adverse effect on the ability of the Group companies to operate in their field of activities and on the Group's profitability in this area, including due to costs arising for the Group companies from these regulatory changes, impairment of revenue and additional equity requirements.

9. Risk for time lag in overseas trading

For ETFs on a foreign underlying asset, when there is trading in Israel but not abroad, the issuer of the ETFs is unable to back itself by purchasing an underlying asset abroad, and accordingly, trading in the secondary market is expected to have lower liquidity and is based on market expectations for the prices of the underlying asset at the start of trading in the foreign market.

1.2.2. Credit risk

Credit risks are managed on the level of Excellence Group. Credit risks arise from cash and cash equivalents, short-term investments and deposits in banks and other financial institutions.

In addition, as part of its business activities, a subsidiary provides credit to the customers. The credit is secured by collateral of marketable securities in accordance with the TASE bylaws, and if their price falls, the collateral may be insufficient to cover the credit.

When there is high volatility in the prices of assets in this collateral, the customers' collateral may erode, which could significantly increase the credit risk in the credit that was provided.

Excellence's investments in non-marketable structured back-to-back debentures (nonrecourse) are the sole financing source for payments to holders of the structured debentures issued by subsidiaries, therefore, the Group is not exposed to credit risk in their respect.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

1. Risk management procedures and methods (continued)

1.2. Financial services - managed by Excellence (continued)

1.2.3. Liquidity risk

The Group is acting to maintain an adequate ratio between the receipt of ongoing financing and the existing flexibility, through using credit and short term loans..

As part of the future backing activities of SPCs, the SPCs hold the assets relevant to the series and from time to time, cash, derivatives and relevant financial instruments. If a significant part of the holders of certificates of a particular series seek to convert the ETF at date unexpected by the SPCs, there is a risk that the SPCs ability to convert the full amount of the backing assets that are not assets, to shares will be impaired, and to transfer to the holders of the certificates the full amount of the shares in kind at that date. There is a risk that when converting or redeeming the certificates, the certificate holders will not receive the shares that comprise the index according to their weight, among other things, if the SPCs' backing activities result in their inability to fully repay their liabilities to the certificate holders.

SPCs that manage mutual funds, ETFs and deposits, and provident funds, deposit the balance of the funds and securities under their management in banks and TASE companies. A call for significant volumes of moneys may adversely affect the value of the customers' assets

Other than a long-term loan, which will be repaid within two years, all the assets and liabilities of the Company are current, and can be redeemed in the coming year.

1.2.4. Clearing risk

Excellence provides brokerage services for customers, including purchase of Israeli and foreign securities with a time lag of up to t+3 between the purchase of the securities and the receipt of the consideration for the purchase. Until the consideration for the purchase is received, the purchase consideration is secured by the purchased securities. As a result of the time lag, if the customer fails to pay the consideration, the Company is exposed to fluctuations in prices of the purchased securities that serve as collateral for the purchase consideration.

1.2.5. Capital risk management

The objectives of Excellence's capital risk management are to maintain the Group's ability to continue as a going concern in order to provide shareholders with a return on their investment and benefits for other interested parties, and to maintain an optimal capital structure to reduce the cost of capital.

Excellence may take various steps to maintain or adjust its capital structure, including a change in the amount of dividends paid to shareholders, return of capital to shareholders, issue of new shares, or sale of assets to repay debts.

Similar to other entities in the industry, Excellence monitors capital using its leverage ratio. This ratio is calculated by dividing the amount of the net debt by total capital. The amount of the net debt is calculated as the total credit (including “current credit and non-current credit" in the consolidated statements of financial position), less cash and cash equivalents. The total capital is calculated as the amount of capital in the consolidated statements of financial position, plus net debt.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

2. Legislative requirements

The Group operates within the existing regulatory requirements and complies with schedules for implementation of the various provisions. The main regulatory requirements issued for risk management in recent years are as follows:

2.1. Joint circular addressing risk management

In January 2014, the Commissioner of Insurance issued Chapter 10 of the joint circular addressing risk management in financial institutions. The circular includes general guidelines for qualifying conditions of the risk officer and the establishment of a risk management unit, which will be separate from the business lines that it reviews, to review at least market risks, counterparty risks and insurance risks. In addition, the circular defines the authority of the risk officer to receive information and access the data required to perform the duties of the unit as well as the resources required for it. In addition, the circular describes the duties and work methods of the risk officer, including identification of material risks, quantification and evaluation of material risks, and reports to the relevant organs.

2.2. Regulations for credit risk management, assessment and control

The circular of the Commissioner of Insurance issued on August 27, 2007 (regarding credit risk management for investment operations) establishes regulations to ensure the existence of management systems, adequate supervision and control for credit risk management of investments, including determining a credit policy by the board of directors according to criteria set out in the circular and rules for supervision, control and reporting to the board of directors by the investment committees.

Further to the above circular, the circular of the Commissioner of Insurance of the same date (regarding the provision of non-marketable credit by institutions - infrastructure for administrative, professional and operational support), establishes regulations to ensure administrative, professional and operational support, an appropriate organizational structure and infrastructure, and adequate supervision and control systems for providing non-marketable credit for investment operations, due to credit risks to which the Group is exposed when managing its investments. The circular includes provisions for construction of a professional organizational infrastructure, characterized by structural separation to prevent conflicts of interest; principles for the use of professional quality assurance tools to evaluate non-marketable credit (internal model for credit rating), and determining compulsory actions, the officers responsible for their implementation, and the relationship between them. The Phoenix developed and implemented a credit rating model, which was approved by the Commissioner of Insurance.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

2. Legislative requirements (continued)

2.3. Regulations for managing exposure to reinsurers

The Commissioner's circular regarding management of exposure to reinsurers establishes instructions and guidelines for management of exposure to reinsurers, a requirement for determining exposure policy and exposure limits for reinsurers, and regulations for reporting to the Commissioner. At least once a year, the board of directors will discuss and determine exposure policy and the insurer's preparation for managing and controlling exposure, for the individual reinsurer and a group of reinsurers with an economic connection, to estimate the quality of the tools for management and control of exposure to reinsurers.

The Phoenix Insurance has a policy for management of exposure to reinsurers that includes exposure to reinsurers in life, general, and healthcare branches, and has defined maximum exposure to reinsurers, according to parameters established by the board of directors.

2.4. Regulations for managing specific categories of operating risks: embezzlement and fraud, information security, and control on financial reporting (SOX)

The Group operates in accordance with the provisions in circulars issued by the Commissioner, which refer to management of operating risks arising from fraud and embezzlement, management of information security risks and control on financial reporting (SOX). For further information, see section 1.1.3 above.

2.5. Guidelines on the preparation for Solvency II

Solvency II defines capital requirements and risk management in insurance companies. The directive establishes a uniform set of capital requirements from insurance companies belonging to the European Union and beyond. The purpose of the directive is to improve the protection of policyholders' funds, deepen integration between markets and increase competition in the field. The proposed directive includes a comprehensive review of the risks to which insurance companies are exposed and sets standards for their management and measurement, while addressing the allocation of capital to the risks entailed in their operations. In addition to quantitative requirements, including the definition of two levels of required capital: Minimum Capital Requirement" (MCR) and Solvency Capital Requirement" (SCR), the proposed directive also focuses on internal supervision and control, as well as on market discipline, disclosure and reporting. The directive is expected to be implemented in Europe as from the beginning of 2016. The Commissioner of Insurance in Israel proposed a risk-based solvency governance system in the spirit of the directive and promoted a business culture that takes into account risk management considerations and allocation of capital when making decisions based on the principles of the directive, with the required adjustments for Israel.

In the context of the circulars for Solvency II preparations (of July 2008, March 2009, and May 2010), the Commissioner of Insurance required insurance companies to start a process to ensure organizational preparation to implement the proposed directive. As part of the preparations, the Commissioner issued guidelines for establishment of a development team and process officer (management member) on behalf of the Company and appointment of a board committee responsible for supervision and control of the process and the duty of reporting to the board of directors and the financial statements, The Phoenix is preparing to implement the directive. In addition, to calibrate the standard models for calculating capital adequacy, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) issued a series of five quantitative impact surveys (QIS). The Commissioner of Insurance in Israel required preparation of the last two quantitative surveys (QIS4 and QIS 5). The Commissioner also required preparation of two other quantitative surveys in 2012 and 2013, with a number of adjustments to Israel (IQIS) for December 2011 and 2012, respectively. The Company completed the surveys and their results were presented to the board of directors and reported to the Commissioner.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

2. Legislative requirements (continued)

2.5. Guidelines on the preparation for Solvency II (continued)

To date, the Commissioner's guidelines have been revised each year, and accordingly, the calculation results of capital requirements have also changed. Implementation of Solvency II, according to the current IQIS model, may result in a significant increase in capital requirements, alongside an increase in existing capital. At the current stage, the model is sensitive to changes in market and other factors and therefore the capital requirements reflected by these changes might be volatile. In addition, application of the final guideline may affect the patterns of business operations. The model has not yet been approved, and there are fundamental issues which are being discussing in Europe as well as in Israel. See also Note 7(5)(3) above.

2.6. The Commissioner's regulations for capital requirements

The Group is subject to the Commissioner's regulations for capital requirements. For information about the capital requirements, see Note 7.

2.7. Investment regulations

The Company's assets are managed in accordance with the investment regulations.

3. Market risks

Market risk is the risk that the fair value or future cash flows of financial assets, financial liabilities or insurance liabilities will change as a result of changes in market prices. Market risks include among other risks arising from changes in interest rates, share prices, the CPI and foreign currency.

The main market risks facing the Group are as follows:

Interest risk : The risk that the value of a financial asset and/or liability will change as a result of changes in market interest rates. In most of the Group’s businesses, the average duration of the assets does not match the average duration of the liabilities, mainly that of life insurance liabilities in which the average duration of liabilities is considerably longer than the average duration of assets. As a result, maintaining the interest at the current rate and an additional decrease in the interest rate will lower future yields when refunding the assets compared to liabilities, and to a decrease in the embedded value of the life insurance portfolio.

Risks related to shares and real assets : Risks arising from a change in share prices or a change in the fair value of real assets.

Risks related to the CPI : A real loss arising from erosion in the value of shekel assets due to inflation being higher than the expectations reflected in the capital market, compared to CPI-linked insurance liabilities. In life insurance (for the portion of the life insurance portfolio that is not backed by designated bonds), general insurance and equity, there is no full correlation between the linkage basis of the assets and the linkage basis of the liabilities. This risk has a significant effect on nostro portfolios in which the liabilities are almost fully linked to the CPI, while not all the assets are linked to the CPI.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

3. Market risks (continued)

Currency risk : The risk that the fair value or future cash flows of a financial instrument will change as a result of changes in foreign currency exchange rates.

The value of the Group's assets and liabilities is exposed to the risks described above. Accordingly, investment income against insurance reserves and equity has a material effect on the profits of insurance companies. A major part of the Group’s asset portfolio is invested in marketable securities in the capital market, and in financial derivatives, which are characterized by fluctuations as a result of political and economic events in Israel and around the world. Marketable securities are reported at their quoted price as of the reporting date. Therefore, the fluctuations in the value of these investments are likely to have a significant effect on the Group’s profitability and equity. The extent of the impact on profits depends on the characteristics of the insurance liabilities (nostro and unit linked) and the conditions of the management fees in products for which the relevant reserve is held.

3.1 Unit linked contracts

Unit linked liabilities are liabilities for contracts in which the beneficiary is entitled to receive insurance benefits are based on the yield arising from investments made against the liabilities for these policies, less management fees as follows:

In profit-sharing policies issued from 2004 onwards, yields from investments are allocated to the policyholders and the insurer is entitled to fixed management fees. In accordance with the decision of the Knesset Finance Committee, as from January 2014, maximum annual management fees are limited to up to 1.05% of the accrual balance and up to 4% of the current deposits. Up to 0.6% of the assets against liabilities will be paid for annuities. It is noted that, with regard to insurance policies, it was decided that the maximum management fee will not be applicable for insurance policies issued prior to January 1, 2013. For these products, the impact of the yields on the profits of the insurance company is reduced to exposure arising from the total scope of the reserve from which the insurer’s management fees are derived.
In profit-sharing policies issued up to December 31, 2003, the yield from the investments is credited to policyholders and the insurer is entitled to fixed management fees at a rate of 0.6% of the accrual and variable management fees at a rate of 15% of the real profit achieved after deducting the fixed management fees. In these policies, when the yield is negative, the Company may not collect variable management fees until a positive yield is achieved that will cover the accrued negative yield. In these products, in addition to the exposure arising from the amount of the accrual, there is an effect on the Company’s profits as a result of the rate of variable management fees arising from the real yields allocated to policyholders.
In pension and provident branches, the yield from the investments (less fixed management fees) is credited to members, therefore the effect of the investment results on the management company of the pension fund or provident fund is derived from the management fees paid to the management company, based on the scope of the assets.

Regarding assets and liabilities for these products, the insurance company does not have direct exposure for changes in interest rates, fair value of the investments, or the CPI. The effect of the financial results on the insurance company's profits is limited to the exposure arising from variable management fees which change according to fluctuations in yields credited to the policyholders (for policies issued up to 2004 only) and the total scope of liabilities, from which the fixed management fees of the insurer for all unit linked products are derived.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

3. Market risks (continued)

3.1 Unit linked contracts (continued)

In view of the aforesaid, the sensitivity tests and maturity dates of the liabilities set out in the tables below do not include unit linked contracts.

Below is a sensitivity test for unit linked contracts and the effect of any change in yield on profit (loss).

Any change of 1% in the real yield on the investments according to unit linked contracts for policies issued up to 2004, with liabilities of NIS 22 billion in their respect as of December 31, 2014, affects variable management fees in the amount of NIS 33 million and fixed management fees in the amount of NIS 1.3 million. The effect of the change on policies issued from 2004 onwards is not material. For further information about variable management fees, see Note 29.

In non-profit sharing life insurance policies, the life insurance portfolio is mainly comprised of yield guaranteed policies, which are for the most part backed by designated bonds (HETZ), issued by the Bank of Israel throughout the entire lifetime of the policy. Therefore, the Company has financial coverage which overlaps the main financial liabilities, in terms of interest and linkage over the lifetime of the policies. As of December 31, 2014, designated bonds covered 67.95% of total insurance liabilities in life insurance in these programs (in December 2013, 67.04%). Therefore, changes in the capital market, the CPI, and exchange rates may have a material effect on the Group's operating results.

For the Company's remaining investments, in life insurance business, there is exposure to the interest rates which will be in force upon the refinancing of investments, which may have a shorter lifetime than the average lifetime of the insurance liabilities. For these products and for ongoing payment claims in long-term care insurance and in permanent health insurance, the calculation of insurance liability is based on the interest rate in the policy.

For information about risks in financial services, see Note 25.

3.2 Sensitivity tests relating to market risks for non-unit linked contracts

The tables below describe the sensitivity tests presenting the change in profit (loss) and comprehensive income (equity) for the financial assets, the financial liabilities, and the liabilities for insurance and investment contracts for the relevant risk variable as of each reporting date, assuming that all the other variables are fixed. For example, the change in interest assumes that all other parameters remain unchanged. These sensitivity tests do not include, as mentioned, the impact of unit linked contracts as described above. The changes in the variables are in relation to the carrying amount of the assets and liabilities. In addition, it was assumed that the changes do not reflect permanent impairment of assets stated at reduced cost or available-for-sale assets, therefore, in the sensitivity tests, impairment losses were not included for these assets. The sensitivity tests reflect direct impacts only, without secondary impacts.

It is noted that the sensitivities are not linear, hence larger or smaller changes in relation to the changes described below are not necessarily simple extrapolation of the impact of the changes.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

3. Market risks (continued)

3.2 Sensitivity tests relating to market risks for non-unit linked contracts (continued)

December 31, 2014:

ecember 31, 2014:
Profit (loss) Comprehensive income (loss) (4)	Interest rates(1)		Investment in equity instruments(3)		Rate of change in the CPI		Change in exchange rate of foreign currency
	+1%	-1%	+10%	-10%	+1%	-1%	+10%	-10%

	175,693 40,008	(301,433) (165,747)	29,754 138,652	(29,754) (30,607) (138,652) (30,607)		30,607 30,607	(17,634) 27,019	17,634 (27,019)

December 31, 2013:

Interest rates(1)	Interest rates(1)	Interest rates(1)	Investment in equity instruments(3)	Investment in equity instruments(3)	Investment in equity instruments(3)	Rate of change in the CPI	Rate of change in the CPI	Change in exchange rate of foreign currency	Change in exchange rate of foreign currency	Change in exchange rate of foreign currency
+1%	-1%		+10%		-10%	+1%	-1%	+10%	-10%

139,111 (229,889) 16,313 (107,089) Interest rates(1) +1% -1%			9,011 (9,011) (25,090) 25,090 102,764 (102,764) (25,090) 25,090 Investment in equity instruments(3) Rate of change in the CPI +10% -10% +1% -1% NIS thousands			(25,090) 25,090 (25,090) 25,090 Rate of change in the CPI		(25,143) 25,143 20,471 (20,471) Rate of change in the exchange rate
+1%			+10%				-1%	+10%		-10%

29,471 (75,440)		(14,239) 90,673	12,031 91,667	(12,031) (26,070) (91,667) (26,070)			26,070 26,070	(43,851) (8,765)		43,851 8,765

December 31, 2012:

(1) The analysis of sensitivity to interest changes refers to fixed interest instruments and variable interest instruments. The exposure is for the carrying amount of the instrument. The sensitivity tests did not take into account, out of the assets with direct interest risk, non-marketable debt assets, cash and cash equivalents, reinsurance assets, and non-marketable financial liabilities.
(2) The sensitivity analysis includes the effect on the insurance liabilities, including the effect of due diligence for guaranteed-return life insurance reserves, disability for payment, and long term care against the value of the portfolio in effect as described in Note 2H(1)(e) and Note 2H(3)(2).
(3) Investments in instruments that have no fixed cash flow, or the Company has no information about this cash flow (according to IFRS 7, this does not include investments in associates).
(4) The sensitivity analysis for comprehensive income (loss) also reflects the effect of profit (loss) for the period.
(5) In the sensitivity test to the CPI and to currency, non-monetary items were also taken into account.

Direct interest risk is the risk that a change in market interest will result in a change in the fair value or cash flows arising from the asset or liability. This risk refers to assets settled in cash. The addition of the word “direct” emphasizes the fact that the interest change can also effect other types of assets but not directly, such as the effect of the interest change on share rates.

— 194 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

3. Market risks (continued)

3.2 Sensitivity tests relating to market risks for non-unit linked contracts (continued)

Assets and liabilities according to exposure to interest risks:

	December 31, 2014	December 31, 2014
Non-unit linked NIS thousands 5,503,979 6,580,549 3,989,922 100,448 677,461 1,318,530 18,170,889 8,640,229 26,811,118 3,466,192 18,381,210 - 21,847,402 1,724,005 3,929,142 27,500,549 3,239,711 193,866	Unit linked NIS thousands 15,209,782 295,931 4,091,081 203,276 2,651,399 80,396 22,531,865 12,807,366 35,339,231 76,918 35,149,671 - 35,226,589 153,336 - 35,379,925 (40,694) -	Debentures, ETFs, reverse certificates, complex certificates and deposit certificates NIS thousands - - - 39,186,300 - - 39,186,300 - 39,186,300 52,000 - 38,404,175 38,456,175 - - 38,456,175 730,125 -	Total
			NIS thousands
			20,713,761 6,876,480 8,081,003 39,490,024 3,328,860 1,398,926
			79,889,054 21,447,595
			101,336,649
			3,595,110 53,530,881 38,404,175
			95,530,166 1,877,341 3,929,142
			101,336,649
			3,929,142
			193,866

(*) Assets without a direct interest rate risk include shares, fixed assets and rental property, deferred acquisition costs and other assets and equity groups of financial assets (premiums receivable, current balances of insurance companies and other receivables) with an average duration of up to six months, therefore the interest risk is relatively low.

(**) Liabilities without a direct interest rate risk include tax reserves and credit and debit balances

— 195 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

3. Market risks (continued)

3.2 Sensitivity tests relating to market risks for non-unit linked contracts (continued)

Assets and liabilities according to exposure to interest risks(continued):

	December 31, 2013()*	December 31, 2013()*
Non-unit linked NIS thousands 5,424,370 6,233,161 3,852,075 96,815 585,981 1,279,744 17,472,146 7,917,977 25,390,123 3,260,134 17,541,565 - 20,801,699 1,596,033 3,654,345 26,052,077 2,992,391 68,346	Unit linked NIS thousands 12,383,638 274,339 3,886,278 231,252 2,240,940 84,665 19,101,112 11,941,950 31,043,062 43,982 30,892,508 - 30,936,490 115,697 - 31,052,187 (9,125) -	Debentures, ETFs, reverse certificates, complex certificates and deposit certificates NIS thousands - - - 35,643,244 - - 35,643,244 - 35,643,244 61,000 - 34,911,165 34,972,165 - - 34,972,165 671,079 -	Total
			NIS thousands
			17,808,008 6,507,500 7,738,353 35,971,311 2,826,921 1,364,409
			72,216,502 19,859,927
			92,076,429
			3,365,116 48,434,073 34,911,165
			86,710,354 1,711,730 3,654,345
			92,076,429
			3,654,345
			68,346

(*) Assets without a direct interest rate risk include shares, property, plant and equipment and rental property, deferred acquisition costs and other assets and equity groups of financial assets (premiums receivable, current balances of insurance companies and other receivables) with an average duration of up to six months, therefore the interest risk is relatively low.

(**) Liabilities without a direct interest rate risk include tax reserves and credit and debit balances

— 196 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

3. Market risks (continued)

3.2 Sensitivity tests relating to market risks for non-unit linked contracts (continued)

Assets and liabilities according to exposure to interest risks (continued):

	December 31, 2012	December 31, 2012
Non-unit linked NIS thousands 5,277,927 5,780,091 3,004,460 109,028 965,632 1,279,925 16,417,063 7,314,291 23,731,354 3,408,737 15,918,319 - 86,007 19,413,063 1,741,118 3,249,409 24,403,590 2,577,173 19,450	Unit linked NIS thousands 9,591,028 261,226 3,599,945 337,334 1,700,297 72,187 15,562,017 10,024,764 25,586,781 77,850 25,521,266 - - 25,599,116 160,414 - 25,759,530 (172,749) -	Debentures, exchange- traded funds, reverse certificates, complex certificates and deposit certificates NIS thousands - - - 11,692,979 14,367,000 - 26,059,979 - 26,059,979 66,000 - 25,148,994 - 25,214,994 - - 25,214,994 844,985 -	Total
			NIS thousands
			14,868,955 6,041,317 6,604,405 12,139,341 17,032,929 1,352,112
			58,039,059 17,339,055
			75,378,114
			3,552,587 41,439,585 25,148,994 86,007
			70,227,173 1,901,532 3,249,409
			75,378,114
			3,249,409
			19,450

*) Assets without a direct interest rate risk include shares, property, plant and equipment and rental property, deferred acquisition costs and other assets and equity groups of financial assets (premiums receivable, current balances of insurance companies and other receivables) with an average duration of up to six months, therefore the interest risk is relatively low.

**) Liabilities without a direct interest rate risk include tax reserves and credit and debit balances

— 197 —

December 31, 2014	Foreign	currency or	USD or EUR or foreign Non- Liabilities for	NIS CPI- USD- EUR- currency- financial and ETFs linked to unit linked	NIS unlinked linked linked linked linked others indexes contracts Total	NIS thousands	Intangible assets - - - - - 1,754,454 - - 1,754,454	Deferred tax assets - - - - - 7,906 - - 7,906	Deferred acquisition costs - - - - - 1,354,278 - 3,849 1,358,127	Property, plant and equipment - - - - - 370,604 - - 370,604	Investments in associates 54,346 13,539 - - 6,170 508,764 - - 582,819	Investment property for unit linked contracts - - - - - - - 1,094,954 1,094,954	Other investment property - - - - - 1,857,433 - - 1,857,433	Reinsurance assets 65,567 1,188,831 64,132 - - - - 80,396 1,398,926	Debtors and receivables 125,815 38,002 61,973 274 - - - 35,869 261,933	Credit for acquisition of securities - - - - - - 160,000 - 160,000	Current tax assets - - - - - 42,083 - - 42,083	Premiums collectible 406,830 135,971 20,085 - - - - 33,958 596,844	Financial investments for holders of debentures,	exchange-traded funds , reverse certificates,	complex certificates and certificates of deposit - - - - - - 39,026,300 - 39,026,300	Financial investments for unit linked contracts - - - - - - - 31,438,806 31,438,806	Other financial investments	Marketable debt assets 1,133,998 4,079,417 144,972 41,891 103,701 - - - 5,503,979	Non-marketable debt assets 118,971 10,076,390 322,513 40,984 11,613 - - - 10,570,471	Shares - - - - - 745,245 - - 745,245	Others 119,839 79,551 - 82 738 1,036,695 - - 1,236,905	Total other finance investments 1,372,808 14,235,358 467,485 82,957 116,052 1,781,940 - - 18,056,600	Cash and cash equivalents for unit linked	contracts - - - - - - - 2,651,399 2,651,399	Other cash and cash equivalents 667,140 - 9,000 1,321 - - - - 677,461	Total assets 2,692,506 15,611,701 622,675 84,552 122,222 7,677,462 39,186,300 35,339,231 101,336,649	(*) The information in the table is presented in accordance with accounting classification rules and does not necessarily reflect the actual exposure to foreign	currency. For information about exposure to foreign currency, see the sensitivity table in section 3.2.

December 31, 2014	Foreign	currency or	USD or foreign Non- Liabilities for	NIS NIS CPI- USD- EUR or currency- financial and ETFs linked to unit linked	unlinked linked linked EUR-linked linked others indexes contracts Total	NIS thousands	Total equity - - - - - 3,929,142 - - 3,929,142	Liabilities	Liabilities for non-unit linked insurance	contracts and investment contracts 805,238 17,482,596 93,376 - - - - - 18,381,210	Liabilities for unit linked insurance contracts	and investment contracts - - - - - - - 35,149,671 35,149,671	Liabilities for deferred taxes - - - - - 425,226 - - 425,226	Liabilities for employee benefits, net 113,254 - - - - - - - 113,254	Liabilities for current taxes - 8,560 - - - - - - 8,560	Creditors and payables 582,986 488,751 258,508 56 - - - - 1,330,301	Liabilities for debentures, ETFs, reverse	certificates and complex certificates - - - - - - 38,404,175 - 38,404,175	Financial liabilities 997,631 2,545,479 - - - - 52,000 - 3,595,110	Total liabilities 2,499,109 20,525,386 351,884 56 - 425,226 38,456,175 35,149,671 97,407,507	Total shareholders' equity and liabilities 2,499,109 20,525,386 351,884 56 - 4,354,368 38,456,175 35,149,671 101,336,649	Total equity exposure 193,397 (4,913,684) 270,791 84,496 112,222 3,323,094 730,125 189,560 -	Exposure to base assets using derivative instruments in Delta terms 873,059 - (685,873) (112,766) (74,420) - - - -	Total exposure 1,066,456 (4,913,684) (415,082) (28,270) 47,802 3,323,094 730,125 189,560 -	Most of the Company's insurance business is dominated in NIS and its exposure to exchange rate changes is not material. Any exposure to exchange rates is	mainly due to exposure to the US dollar and the euro.	(*) The information in the table is presented in accordance with accounting classification rules and does not necessarily reflect the actual exposure to foreign	currency. For information about exposure to foreign currency, see the sensitivity table in section 3.2.

December 31, 2013	Foreign	currency or	USD or foreign Non- Liabilities for	NIS NIS CPI- USD- EUR or currency- financial and ETFs linked to unit linked	unlinked linked linked EUR-linked linked others indexes contracts Total	NIS thousands	Intangible assets - - - - - 1,702,838 - - 1,702,838	Deferred tax assets - - - - - 6,844 - - 6,844	Deferred acquisition costs - - - - - 1,212,154 - 4,548 1,216,702	Property, plant and equipment - - - - - 376,954 - - 376,954	Investments in associates 38,625 14,332 - - - 435,956 - - 488,913	Investment property for unit linked contracts - - - - - - - 1,005,774 1,005,774	Other investment property - - - - - 1,725,908 - - 1,725,908	Reinsurance assets 109,991 1,112,515 57,238 - - - - 84,665 1,364,409	Debtors and receivables 125,581 53,658 96,372 350 - - - 36,201 312,162	Credit for acquisition of securities - - - - - - 165,000 - 165,000	Current tax assets - - - - - 35,314 - - 35,314	Premiums collectible 394,166 104,831 21,446 - - - - 36,331 556,774	Financial investments for holders of	debentures, exchange-traded funds ,	reverse certificates, complex certificates	and certificates of deposit - - - - - - 35,478,244 - 35,478,244	Financial investments for unit linked	contracts - - - - - - - 27,634,603 27,634,603	Other financial investments	Marketable debt assets 944,197 4,440,950 27,682 7,460 4,081 - - - 5,424,370	Non-marketable debt assets 20,699 9,861,413 173,883 15,897 13,344 - - - 10,085,236	Shares - - - - - 646,193 - - 646,193	Others 66,748 55,996 - - 388 900,138 - - 1,023,270	Total other finance investments 1,031,644 14,358,359 201,565 23,357 17,813 1,546,331 - - 17,179,069	Financial investments for unit linked	contracts - - - - - - - 2,240,940 2,240,940	Other cash and cash equivalents 441,532 - 90,164 40,329 13,956 - - - 585,981	Total assets 2,141,539 15,643,695 466,785 64,036 31,769 7,042,299 35,643,244 31,043,062 92,076,429	(*) The information in the table is presented in accordance with accounting classification rules and does not necessarily reflect the actual exposure to foreign	currency. For information about exposure to foreign currency, see the sensitivity table in section 3.2.

December 31, 2013	Foreign	currency or	USD or foreign Non- Liabilities for	NIS NIS CPI- USD- EUR or currency- financial and ETFs linked to unit linked	unlinked linked linked EUR-linked linked others indexes contracts Total	NIS thousands	Total equity - - - - - 3,654,345 - - 3,654,345	Liabilities	Liabilities for non-unit linked insurance	contracts and investment contracts 987,390 16,474,836 83,339 - - - - - 17,545,565	Liabilities for unit linked insurance contracts	and investment contracts - - - - - - - 30,892,508 30,892,508	Liabilities for deferred taxes - - - - - 426,332 - - 426,332	Liabilities for employee benefits, net 114,707 - - - - - - - 114,707	Liabilities for current taxes - 12,318 - - - - - - 12,318	Creditors and payables 609,269 398,249 199,777 78 - - - - 1,207,373	Liabilities for debentures, ETFs, reverse	certificates and complex certificates - - - - - - 34,911,165 - 34,911,165	Financial liabilities 650,817 2,600,299 - - - - 61,000 - 3,312,116	Total liabilities 2,362,183 19,485,702 283,116 78 - 426,332 34,972,165 30,892,508 88,422,084	Total shareholders' equity and liabilities 2,362,183 19,485,702 283,116 78 - 4,080,677 34,972,165 30,892,508 92,076,429	Total equity exposure (220,644) (3,842,007) 183,669 63,958 31,769 2,961,622 671,079 150,554 -	Exposure to base assets using derivative instruments in Delta terms 652,598 - (505,794) (146,804) - - - - -	Total exposure 431,954 (3,842,007) (322,125) (82,846) 31,769 2,961,622 671,079 150,554 -	Most of the Company's insurance business is dominated in NIS and its exposure to exchange rate changes is not material. Any exposure to exchange rates is mainly	due to exposure to the US dollar and the euro.	(*) The information in the table is presented in accordance with accounting classification rules and does not reflect the actual exposure to foreign currency. For	information about exposure to foreign currency, see the sensitivity table in section 3.2.

December 31, 2012	Foreign	currency Non-	USD or EUR or or foreign financial Liabilities for	NIS NIS CPI- USD- EUR- currency- and ETFs linked unit linked	unlinked linked linked linked linked others to indexes contracts Total	NIS thousands	Intangible assets - - - - - 1,714,984 - - 1,714,984	Deferred tax assets - - - - - 36,835 - - 36,835	Deferred acquisition costs - - - - - 1,096,263 - 5,230 1,101,493	Property, plant and equipment - - - - - 416,039 - - 416,039	Investments in associates 54,978 3,933 - - 94 406,049 - - 465,054	Investment property for unit linked contracts - - - - - - - 444,906 444,906	Other investment property - - - - - 1,338,650 - - 1,338,650	Reinsurance assets 145,107 1,071,808 63,010 - - - - 72,187 1,352,112	Debtors and receivables 146,983 121,375 86,883 486 - - - 84,423 440,150	Credit for acquisition of securities - - - - - - 237,000 - 237,000	Current tax assets - - - - - 40,680 - - 40,680	Premiums collectible 390,843 106,200 26,064 - - - - 48,734 571,841	Financial investments for holders of debentures,	exchange-traded funds , reverse certificates, complex	certificates and certificates of deposit - - - - - - 11,455,979 - 11,455,979	Financial investments for unit linked contracts - - - - - - - 23,231,004 23,231,004	Other financial investments	Marketable debt assets 1,153,204 4,079,920 22,835 8,056 13,912 - - - 5,277,927	Non-marketable debt assets 9,792 8,644,288 102,260 12,620 15,591 - - - 8,784,551	Shares - - - - - 585,409 - - 585,409	Others 57,662 31,042 794 17,814 - 743,259 - - 850,571	Total other finance investments 1,220,658 12,755,250 125,889 38,490 29,503 1,328,668 - - 15,498,458	Cash and cash equivalents pledged for holders of	debentures, exchange-traded funds , reverse certificates,	complex certificates and certificates of deposit - - - - - - 14,367,000 - 14,367,000	Financial investments for unit linked contracts - - - - - - - 1,700,297 1,700,297	Other cash and cash equivalents 887,229 - 58,221 9,868 10,314 - - - 965,632	Total assets 2,845,798 14,058,566 360,067 48,844 39,911 6,378,168 26,059,979 25,586,781 75,378,114	(*) The information in the table is presented in accordance with accounting classification rules and does not necessarily reflect the actual exposure to foreign	currency. For information about exposure to foreign currency, see the sensitivity table in section 3.2.	— 202 —

3. Market risks (continued)	*3.3 Assets and liabilities by linkage basis (continued)**	December 31, 2012	Foreign	currency Non- Liabilities	USD or EUR or or foreign financial for unit	NIS NIS CPI- USD- EUR- currency- and ETFs linked linked	unlinked linked linked linked linked others to indexes contracts Total	NIS thousands	Total equity - - - - - 3,249,409 - - 3,249,409	Liabilities	Liabilities for non-unit linked insurance contracts and	investment contracts 938,729 14,887,847 91,743 - - - - - 15,918,319	Liabilities for unit linked insurance contracts and	investment contracts - - - - - - - 25,521,266 25,521,266	Liabilities in respect of deferred taxes - - - - - 376,160 - - 376,160	Liabilities for employee benefits, net 119,178 - - - - - - - 119,178	Liabilities in respect of current taxes - 15,486 - - - - - - 15,486	Creditors and payables 630,017 559,260 201,380 51 - - - - 1,390,708	Liabilities for debentures, ETFs, reverse certificates and	complex certificates - - - - - - 25,148,994 - 25,148,994	Financial liabilities 864,514 2,577,073 37,000 8,000 - - 66,000 - 3,552,587	Provision for payment for acquisition of an investee - 86,007 - - - - - - 86,007	Total liabilities 2,552,438 18,125,673 330,123 8,051 - 376,160 25,214,994 25,521,266 72,128,705	Total shareholders' equity and liabilities 2,552,438 18,125,673 330,123 8,051 - 3,625,569 25,214,994 25,521,266 75,378,114	Total equity exposure 293,360 (4,067,107) 29,944 40,793 39,911 2,752,599 844,985 65,515 -	Exposure to base assets using derivative instruments in Delta terms 772,555 - (595,414) (177,142) - - - - -	Total exposure 1,065,915 (4,067,107) (565,469) (136,349) 39,911 2,752,599 844,985 65,515 -	Most of the Company's insurance business is dominated in NIS and its exposure to exchange rate changes is not material. Any exposure to exchange rates is mainly	due to exposure to the US dollar and the euro.	(*) The information in the table is presented in accordance with accounting classification rules and does not reflect the actual exposure to foreign currency. For	information about exposure to foreign currency, see the sensitivity table in section 3.2.	— 203 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

3. Market risks (continued)

3.4. Exposure to market branches in Israel for investments in shares:

Market branch Industry Building and real estate Electricity and water Trade Communications and computer services Banks Financial services Other business services Total			December 31, 2014	December 31, 2014		% of total 34.5% 22.8% 13.4% 0.9% 5.7% 10.2% 7.6% 4.8% 100.0%
	Traded on the Tel Aviv 100 Index	Traded on the Yeter Share Index	Non- marketable Abroad NIS thousands		Total
	134,922 93,014 53,875 1,698 35,204 71,072 19,293 21,512 430,590	49,493 30,856 10,771 4,584 2,382 2,619 358 231 101,294	2,069 21,147 - - - 2,571 - 13,673 39,460	70,989 24,881 35,169 663 5,063 - 37,136 - 173,901	257,473 169,898 99,815 6,945 42,649 76,262 56,787 35,416 745,245

Market branch Industry Building and real estate Electricity and water Trade Communications and computer services Banks Financial services Other business services Public services Other Total			December 31, 2013	December 31, 2013		% of total 35.7% 16.8% 13.8% 1.7% 7.3% 10.3% 9.9% 3.0% 0.5% 1.0% 100.00%
	Traded on the Tel Aviv 100 Index	Traded on the Yeter Share Index	Non- marketable Abroad NIS thousands		Total
	114,099 51,942 66,484 3,338 39,604 64,547 20,995 12,792 - - 373,801	32,736 37,083 10,962 7,752 - - 1,925 3,260 3,132 135 96,985	1,568 17,049 - - - 2,297 - 3,479 - 5,451 29,844	82,459 2,790 11,861 - 7,578 - 40,875 - - - 145,563	230,862 108,864 89,307 11,090 47,182 66,844 63,795 19,531 3,132 5,586 646,193

— 204 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

3. Market risks (continued)

3.4. Exposure to market branches in Israel for investments in shares: (CONTINUED)

Market branch Industry Building and real estate Electricity and water Trade Communications and computer services Banks Financial services Other business services Public services Other Total			December 31, 2012	December 31, 2012		% of total 44.7% 13.8% 12.1% 1.7% 7.4% 7.9% 3.9% 6.0% 2.0% 0.5% 100.00%
	Traded on the Tel Aviv 100 Index	Traded on the Yeter Share Index	non- marketable Abroad NIS thousands		Total
	121,268 47,924 48,372 6,248 37,922 42,054 17,989 33,203 - - 354,980	29,266 12,191 12,416 3,421 3,876 1,679 4,685 1,776 5,569 3,663 78,542	9,332 17,631 - - - 2,415 - - 6,201 - 35,579	101,648 3,073 10,051 - 1,536 - - - - - 116,308	261,514 80,819 70,839 9,669 43,334 46,148 22,674 34,979 11,770 3,663 585,409

— 205 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

4. Liquidity risks

The inability to sell assets immediately or without impairing their value due to low marketability may lead to losses on disposal. The Company holds, among other things, non-marketable assets and assets with low marketability. These holdings include corporate bonds, loans, non-marketable shares, shares with low marketability and alternative investments. Marketability difficulties intensify during a crisis, when a deterioration in the market has a negative effect on the liquidity of assets.

The Phoenix Insurance is exposed to risks arising from uncertainty regarding the date the Company will be required to pay claims and other benefits to policyholders for the scope of finances that will be available at that date. However, a significant part of its insurance liabilities in the life insurance sector is not exposed to liquidity risk due to the nature of the insurance contracts as described below. It is noted, however, that an unexpected requirement to raise funds in a short time could require significant disposal of assets within a short time, at prices that do not necessarily reflect their market value.

Unit linked contracts in life assurance: In accordance with the conditions of the contracts, the policyholders are entitled to receive the value of the investments, and no more. Therefore, if the value of the investments falls for any reason, there will be a corresponding decrease in the level of the Company’s liabilities.

23.5% of the life insurance portfolio is for non-unit linked contracts, however they guarantee n agreed yield. These contracts are mainly backed by designated bonds (Hetz life linked bonds) issued by the Bank of Israel. The Company may exercise these bonds when these policies are called for redemption.

The Company's liquidity risk arises, therefore, mainly from the assets balance that are not designated debentures and are not against unit linked contracts. These assets represent 59% only (NIS 59 billion) out of all the assets of the Company. Out of the above balance of assets, NIS 8 billion are marketable assets that can be sold immediately. NIS 39 billion are held against holders of benchmark certificates, exchange traded funds, reverse certificates, complex certificates and certificates of deposit.

According to the insurance regulations, The Phoenix Insurance is required to hold liquid assets amounting to at least 30% of the required capital.

Management of assets and liabilities

The Company manages its assets and liabilities in accordance with the requirements of the Control Law and its regulations and the instructions of the board of directors.

The tables below summarize the estimated maturity dates of the Company’s non-discounted insurance and financial liabilities. As the amounts are not discounted, there is no correlation between them and the balance of the insurance and financial liabilities in the balance sheet.

1) The estimated maturity dates of the life assurance and health insurance liabilities are included in the tables as follows:

Savings: contractual maturity dates, in other words, retirement age, without assumed cancellations, and assuming the savings will be withdrawn as a lump-sum and not as an annuity.

Annuity for payment, disability income insurance for payment, and long term care for payment based on an actuarial estimate.

Other – reported under “Without a defined maturity date”.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

4. Liquidity risks (continued)

Management of assets and liabilities (continued)

2) The estimated payment dates of gross general insurance liabilities are based on an actuarial estimate that assigns an estimated date to the total undiscounted liabilities according to claim payment experience.
Total liabilities include provisions for expected deviations and an unearned premium reserve less deferred acquisition costs. Surplus revenue over expenses is classified under the column "Without a defined repayment date".

Liabilities are exposed to reserve risks. The actuarial models are based on the assumption that the pattern of past behavior and claims will also continue in the future. The estimated flow is exposed to model risk and parameter risk, which include the risk that the amount paid to settle the Company's insurance liabilities will be different than expected.

3) The maturity dates of financial liabilities and liabilities for investment contracts were included on the basis of the contractual maturity dates. In contracts where the counterparty is entitled to choose the timing of the payment, the liability is included on the basis of the earliest date by which the Company may potentially be required to pay the liability.
4) The table for financial liabilities and liabilities for investment contracts presents an analysis of its financial liabilities, including liabilities for acquisition of an investee, classified according to the remaining maturity period of the contractual repayment date as of December 31, 2014. Derivative financial liabilities are included in the contractual maturity analysis essential for an understanding of the timing of the cash flows. The amounts presented in the table are undiscounted contractual cash flows. The Group has diverse sources for repaying the liabilities presented in the table.

Liabilities for life insurance and healthcare insurance contracts (*)

Up to 1 year	More than 1 year and up to 5years	More than 5 years and up to 10years More than 10 years and up to 15years More than 15years NIS thousands	More than 5 years and up to 10years More than 10 years and up to 15years More than 15years NIS thousands	More than 5 years and up to 10years More than 10 years and up to 15years More than 15years NIS thousands	Without a defined maturity date	Total

2,269,583 2,130,236 1,905,063	5,011,733 4,685,164 4,179,161	2,672,630 2,796,579 3,000,820	1,183,931 1,293,039 1,324,151	984,014 1,163,469 1,310,437	1,345,393	13,467,285 13,096,737 12,586,141
					1,028,250
					866,509

*) Not including liabilities for unit linked contracts

Liabilities for general insurance contracts:

More than 1 year and up to 3 years	More than 3 years and up to 5 years	More than 5 years Without a defined maturity date NIS thousands	More than 5 years Without a defined maturity date NIS thousands	Total

2,975,283 2,931,154 2,819,693	878,162 834,356 816,769	1,056,667 980,585 913,358	205,050 265,042 258,519	5,115,161
				5,011,137
				4,808,339

— 207 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

4. Liquidity risks (continued)

Financial liabilities and liabilities for investment contracts

Up to 1 year	More than 1 year and up to 5 years	More than 5 years and up to 10years	More than 10 years and up to 15years	More than 15years	Total

147,361	546,743	301,900	-	-	996,004
60,000	-	-	-	-	60,000
14,927	9,970	-	-	-	24,897
76,746	794,730	1,316,387	-	-	2,187,863
713,303	-	-	-	-	713,303
220,545	-	-	-	-	220,545
1,232,882	1,351,443	1,618,287	-	-	4,202,612
1,503	267	-	693	-	2,463
2,288,182	-	-	-	-	2,288,182
Up to 1 year	More than 1 year and up to 5 years	More than 5 years and up to 10years	More than 10 years and up to 15years	More than 15years	Total

144,786	538,878	441,788	-	-	1,125,452
158,208	-	-	-	-	158,208
31,750	73,804	19,000	-	-	124,554
79,060	764,255	887,294	-	-	1,730,609
684,815	-	-	-	-	684,815
107,087	-	-	-	-	107,087
1,205,706	1,376,937	1,348,082	-	-	3,930,725
5,676	2,050	21	693	-	8,440
1,144,940	-	-	-	-	1,144,940

— 208 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

4. Liquidity risks (continued)

Financial liabilities and liabilities for investment contracts(continued)

Up to 1 year	More than 1 year and up to 5years	More than 5 years and up to 10 years More than 10 years and up to 15years NIS thousands	More than 5 years and up to 10 years More than 10 years and up to 15years NIS thousands	More than 15 years	Total

33,857 201,393 40,198 19,125 254,754 607,055 87,048 158,699 1,402,129 2,381 462,484	603,159 - 89,304 - 610,344 - - 67,520 1,370,327 6,739 -	267,722 - 36,063 - 1,102,888 - - - 1,406,673 288 -	- - - - - - - - - 680 -	- - - - - - - - - - -	904,738
					201,393
					165,564
					19,125
					1,967,986
					607,055
					87,048
					226,219
					4,179,128
					10,088
					462,484

(*) Liabilities up to one year include an amount of NIS 2,288,182 thousand (December 31, 2012, NIS 1,144,940 thousand) repayable on demand. These liabilities were classified as repayable up to one year, even though the actual repayment dates could be later.

— 209 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks

The Group is exposed to risks arising from pricing policies and assessment of insurance liabilities. The insurance policies sold by the Company cover a range of risks, such as life expectancy, disease, natural disasters and theft. Pricing of policies and the assessment of insurance liabilities are based on past experience, assessment of the current legal situation, and the assessment of the change in other risk factors. Insurance risk, including:

Underwriting risks : the risk of using incorrect prices due to deficiencies in the underwriting process and due to the gap between the risk when pricing and establishing the premium and the actual occurrence so that the collected premiums are insufficient for covering future claims and expenses. The gaps may arise from accidental changes in business results and from changes in the cost of the average claim and/or the incidence of the claims as a result of various factors.

Reserve risks : The risk of an incorrect assessment of the insurance liabilities which might cause the actuarial reserves to be inadequate for covering all the liabilities and claims. The actuarial models according to which the Company assesses its insurance liabilities are based on the fact that the pattern of the behavior of past claims represents forward looking information. The Company's exposure is comprised of the following risks:

1) Model risk – the risk of choosing an incorrect model for pricing and/or assessing the insurance liabilities
2) Parameter risk – the risk of using incorrect parameters, including the risk that the amount paid for settling the Company's insurance liabilities or that the date of settlement of the insurance liabilities is different than expected

Catastrophe risk : the exposure to a single catastrophe such as natural disaster, war, terror, natural damages or earthquake that will result in significant damage. The material catastrophe to which the Company is exposed is an earthquake in Israel.

The amount of the expected maximum loss in 2015 in general insurance business in Israel, due to exposure to a single catastrophic event or aggregate damage for a particularly large event with maximum possible loss (MPL) of 2.1% is NIS 1,874 million gross and NIS 60 million in self retention.

In life insurance business, there is a capital requirement against damage for a particularly large event (catastrophe) at a rate of 0.17% of the amount of the risk for death and a reinsurer agreement covering catastrophe.

For further information about the various insurance branches for which exposure arises for insurance risk, see the description of insurance liabilities according to insurance risks in Note 3.

5.1. Insurance risk in life insurance and health insurance contracts

5.1.1. General

Following is a description of the various insurance products, methods, and the assumptions used to calculate their respective liabilities based on product type.

According to the Commissioner's directives, the insurance liabilities are calculated by an actuary pursuant to standard actuarial methods and consistently with the previous year. The liabilities are calculated according to the relevant coverage data, such as age and gender of policyholder, term of insurance, date of commencement of insurance, type of insurance, periodic premium and insurance amount. The provision is made gradually for policies with a unit linked savings component ("unit linked policies") only.

— 210 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.1. Insurance risk in life insurance and health insurance contracts (continued)

5.1.2. Actuarial methods used to calculate the insurance liabilities

1) Adif and investment track insurance plans

Adif and investment track insurance plans consist of an identified savings component. The basic and main reserve is in the amount of the aggregate savings plus the yield according to the policy’s terms as follows:

Principal linked to an investment portfolio (unit linked contracts)
Principal linked to the CPI plus a fixed guaranteed interest or credited by a guaranteed yield against adjusted assets (unit linked contracts)

For insurance components that are attached to these policies (such as occupational disability, death and long term care) the insurance liability is calculated separately as set out below.

2) Insurance plans such as endowment (traditional)

Endowment and similar insurance programs include a savings component in the event that the policyholder is still alive at the end of the term of a program with an insurance component of death risk during the period of the program. For these products, the insurance liability is calculated for each covered aspect as a discounting of the cash flows for the anticipated claims, including payment at the end of the period, net of future anticipated premiums. This calculation is based on assumptions according to which the products were priced and/or on assumption based on the claims experience, including the interest rates ("the Tariff Interest"), mortality or morbidity tables. The calculation is according to the net premium reserve method, which does not include the component that was loaded on the premium tariff for covering the commissions and expenses, in the anticipated flow of receipts and on the other hand it does not deduct the anticipated expenses and commissions. The reserve for unit linked traditional products based on the actual yield achieved less management fees.

3) Liabilities for annuities are calculated according to anticipated life expectancy on the basis of the updated mortality tables that are constructed in accordance with information published by the Ministry of Finance in the Commissioner’s circular.

— 211 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.1. Insurance risk in life insurance and health insurance contracts (continued)

5.1.2. Actuarial methods used to calculate the insurance liabilities (continued)
4) Liabilities for annuities paid for life for valid policies which have not yet reached the annuity realization stage, or the policyholder has not reached retirement age, are calculated according to the probability of annuity withdrawals and life expectancy, as well as according to the number of cancellations expected in the annuity portfolio up to the retirement date.

The provision for supplementary reserve for annuities is made gradually, for policies with a unit linked savings component ("unit linked policies") only, in accordance with the Commissioner's regulations, taking into account the profits expected from the policies until the policyholders reach retirement age.

The gradual provision is performed using the K discount factor, which is limited to the rate of the future income that is expected from the management fees arising from investments held against insurance reserves or from premium payments, net of the expenses that relate to the policy. The K factor is determined so as to provide an adequate gradual accrual of the reserve until the anticipated retirement date. The K factor in a unit linked policy is 0.85%, unchanged from last year.

The supplementary reserve for annuity included in the Company's financial statements, amounts to NIS 776 million, NIS 571 million and NIS 438 million as of December 31, 2014, December 31, 2013 and December 31, 2012 respectively. The balance of the provisions recognized gradually in profit or loss, using the discounted K factors, until the policyholders reach retirement age, amount to NIS 870 million as of December 31, 2014. Alongside recognition of the provisions, investment revenue and other revenues over the period will be recognized in profit or loss, so that the Company believes that total revenue less the provision in profit or loss over the period is positive.

The information about the supplementary reserve for annuities and the balance of the provisions that will be recognized in the future refer to funds accrued in policies up to the end of each of the reporting periods and do not include liability for additional future accrual.

5) Other life insurance plans include pure risk products (such as loss of occupational disability, death, diseases, disabilities etc.), are sold as independent policies or are attached to policies with a basic plan such as Adif, investment track or traditional. An actuarial liability is calculated for some of these plans. The calculation is according to the gross premium reserve method which includes all the premium components in the anticipated flow of receipts and deducts the liability cost and the anticipated expenses and commissions. Negative provisions were not offset by positive provisions. Some of the plans used the net reserve premium method, described above.
6) Liabilities for continuous claims in payment, in long term care and occupational disability insurance are calculated according to the duration of the anticipated payment.
7) Liabilities for outstanding claims in life assurance and health insurance are calculated on the basis of the experience of the Company.
8) Liabilities for claims incurred but not yet reported (IBNR) in life assurance and health insurance are calculated on the basis of the experience of the Company.

— 212 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.1. Insurance risk in life insurance and health insurance contracts (continued)

5.1.2. Actuarial methods used to calculate the insurance liabilities (continued)

9) Insurance liabilities for collective insurance consist of an IBNR reserve (claims incurred but not yet reported), reserve for continuity and provision for future losses, if necessary.
10) For collective life, health and long-term care insurance, including dental and sick leave insurance, the actuarial liability is calculated on the basis of the experience of the individual collective.

5.1.3. Capitalization rate

For endowment and similar insurance programs(traditional) (see section 5.1.2(2) above). For pure risk products with fixed premium, the interest used for discounting is as follows:

In insurance policies that are mainly backed by designated debentures, the Tariff Interest is at a rate of 3% to 5%;
For unit linked products issued in 1991 onwards, the Tariff Interest is at a rate of 2.5%, linked. In accordance with the terms of the policy, changes in interest are carried to policyholders.
In addition to use of the interest rate nominated in the designated bonds, where relevant, a risk-free interest is used, in addition to a liquidity premium for: liabilities for whole life annuities under policies in force (active or paid up) and for whole life annuities in payment where the insurance plan is mainly backed by designated bonds, and for liabilities under some of the long-term care products.
A decrease in long-term interest could increase the insurance reserve for the free component (which is not backed by designated debentures) of policies where the savings component includes a guaranteed return that is higher than the discounted interest rate, due to the requirement to meet additional reserves in accordance with the liability adequacy test (LAT). See Note 2H(1)(e).
See also section 5.1.8 below.

— 213 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.1. Insurance risk in life insurance and health insurance contracts (continued)

5.1.4. Morbidity and mortality rates

A) The mortality rates used in the calculation of insurance liabilities for death of policyholders prior to attaining the age of retirement (meaning, excluding the mortality of policyholders who receive retirement annuities and those receiving monthly compensation for disability or long term care) are generally the same as the rates used to determine the tariff.
B) The liability for whole life annuity payments is based on updated mortality tables. Increase in the mortality rate assumption, due to increase in actual mortality rate to a level exceeding the existing assumption, will result in an increase of insurance liabilities for mortality of policyholders prior to attaining the age of retirement and decrease in liability for annuities payable for life.
It is noted that there has been a reverse trend of increase in the life expectancy and decrease in mortality rate in the last decades. The mortality assumption used in the calculation of the liability for annuity takes into account assumptions for future increase in life expectancy.
C) The morbidity rates relate to the prevalence of claims for mortality from serious diseases, occupational disability, long term care, operations and hospitalization and disability from accident. These rates are based on the Company’s experience or researches of reinsurers. In areas of long term care and disability, the period for paying annuities is determined according to the company’s experience or researches of reinsurers.

As the assumption regarding the morbidity rate increases, the insurance liability for morbidity rate from serious diseases, disability, long term care, operations and hospitalization will increase.

In 2014, morbidity assumptions were adjusted for some healthcare products, in accordance with the Company's updated experience. The effect of the adjustments on the reserve amounts to NIS 24 million before tax.

5.1.5. Pension rates

Life insurance policies, including savings component, were maintained for funds deposited until 2008 in two tracks: capital track and annuity track. In certain policies, the policyholder may select the track upon retirement. Since the insurance liability is different in each of these tracks, the company is required to determine the rate of policies in which the policyholder selects the pension track. This rate is based on the supervision guidelines with adjustment to the Company’s experience. As from 2008, all plans are for pension.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.1. Insurance risk in life insurance and health insurance contracts (continued)

5.1.6. Cancellation rates

The cancellation rates affect the insurance liabilities for part of the healthcare insurances and the annuities paid for life during the period before beginning the payments. The cancellation of insurance contracts can also be due to the cancellation of policies initiated by the company due to discontinuation of the premium payments or surrenders of policies at the policyholders' request. The assumptions regarding the cancellation rates are based on the company's experience and they are based on the type of product, the life span of the product and sales trends.

5.1.7. Continuity rates

There are health insurances and collective long-term care insurances in which the policyholders are entitled to continue to be insured under the same conditions, even if the collective contract is not renewed. For this option of the policyholders, the company has a liability that is based on assumptions regarding the continuity rates of the collective insurances and the continuity rates of the contracts with the policyholders after the collective contract expires. If there is a higher probability that the collective contract will not be renewed, the insurance liability will also increase, since the insurance will continue under the previous conditions, without adjusting the underwriting to the change in the policyholders' state of health.

In March 2012, a circular was issued regarding preparation of a long-term care insurance plan, which means application of the continuity section in collective long term care policies. At the end of 2013, a new draft was published, revising the rules for continuity and deferring the effective date to June 2015. The Company has a large number of collectives with a long-term care component, which including continuity provisions for the transition from the collective to the individual. In addition, the transition to individual policies will affect the increase of the Company's individual long-term care portfolio.

5.1.8 Change in the rate of risk-free interest and illiquidity premium, and due diligence of reserves

The Company is assessing the adequacy of the life insurance and healthcare insurance reserves as described in Note 2H(1)(e) and Note 2H(3)(c). As a result of the assessment, and mainly in view of the decrease in the rate of risk-free interest and the resulting change in the illiquidity premium, an increase of NIS 44 million was recorded in life insurance liability (LAT) in 2014,and an increase of NIS 25 million in long-term care insurance liabilities (LAT) was recorded in 2014.

In addition, the change in the rate of risk-free interest and the illiquidity premium resulted in an increase of NIS 114 million in pension and annuity payments in 2014.

In 2013, the change in the rate of risk-free interest did not have a material effect on the increase in insurance liabilities.

Subsequent to the reporting date, interest rates continued to decline, which may lead to the need for further increase in liabilities for insurance contracts. This decrease is part of the macro economic effects and it is yet too early to estimate their overall effect on the financial results. See Note 43(1)

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.1. Insurance risk in life insurance and health insurance contracts (continued)
5.1.9. Sensitivity analysis in life and healthcare insurance

Cancellation rate (surrenders, settlements and reductions)	Cancellation rate (surrenders, settlements and reductions)	Cancellation rate (surrenders, settlements and reductions)	Morbidity rate 10% -10% NIS thousands	Morbidity rate 10% -10% NIS thousands	Morbidity rate 10% -10% NIS thousands	Mortality rate 10% -10% 159,554 (185,444) Mortality rate 10% -10% 118,884 (94,327) Mortality rate	Mortality rate 10% -10% 159,554 (185,444) Mortality rate 10% -10% 118,884 (94,327) Mortality rate
10%	-10%		10%			10%

17,156			(286,554)			159,554

10%	-10%		10% -10% NIS thousands	-10%		10%

9,777	(11,668)		(190,125) Morbidity		45,747
					rate
		-10%	10% -10% NIS thousands		-10%	10%	-10%

		(16,823)	(110,845)		39,748	79,063	(75,578)

5.2. Insurance risk in general insurance contracts

5.2.1. Summary of the main insurance branches in which the Company operations

The Company underwrites general insurance contracts, mainly in the compulsory motor insurance, liability, motor casco and property branches.

Compulsory motor insurance covers the policyholder and driver for any liability that they might incur, in accordance with the Road Accidents Victims Compensation Law, 1975, due to bodily injury to the driver, passengers or pedestrians injured by the vehicle. Compulsory motor insurance claims are long tail, meaning, it could be several years before the claim is settled.

Liability insurance is designed to cover the policyholders' liability for damage that he may cause to a third party. The main types of insurance are third party liability insurance, employer liability insurance and other liability insurances such as professional liability, product liability and director and officeholder liability. The time of filing the claims and settlement is affected by a number of factors such as the type of coverage, the policy terms and legislation and legal precedents. Liability insurance claims are generally long tail, meaning, it could be several years before the claim is settled.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.2. Insurance risk in general insurance contracts (continued)

5.2.1. Summary of the main insurance branches in which the Company operations (continued)

Policies that insure against motor vehicle damage and third party motor property damage grant the policyholder coverage for property damage. The coverage is generally limited to the value of the vehicle that was damaged. The premium for motor vehicle property insurance requires approval of the general policy by the Commissioner of Insurance and is an actuarial rate and partially differential (which is not uniform for all insured parties and is adjusted for risk). The premium is based on a number of parameters, those related to the vehicle of the policyholder (such as type of vehicle and year of manufacture), and those related to the nature of the policyholder (such as the age of the driver and claims history). Underwriting is partly through the actual tariff, and partly through a system of procedures which are intended to check the claims history of the policyholder including presentation of proof of "no-claims" from the previous insurer for the last three years, and proof of updated protection, which are integrated automatically when issuing the policies. In most cases, motor vehicle property insurance policies are issued for one year. In most cases, claims for these policies are made close to the time that the insurance incident occurs.

Property insurance provides policyholders with coverage for physical damage to their property.

The main risks covered by property insurance are risks of fire, explosion, break-in, earthquake and damage by natural forces. Property insurance sometimes includes coverage for loss of profits following physical damage to the property. Property insurance is an important part of residential, merchant, engineering, and cargo (maritime, land, air) insurance policies. In most cases, claims against these policies are settled close to the date of the insurance event.

5.2.2. Principles for calculating actuarial valuations in general insurance

5.2.2.1. General

a) Liabilities for general insurance contracts include the following main components:
Provision for unearned premium
Premium deficiency
Outstanding claims including indirect expenses for their settlement
Excess of income over expenses (aggregate)
Less deferred acquisition costs

The provision for unearned premium, deferred acquisition costs, and excess of income over expenses is calculated independently of any assumptions and accordingly, is not exposed to the reserve risk. For the manner in which these provisions are calculated, see Note 2 regarding accounting principles.

— 217 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.2. Insurance risk in general insurance contracts (continued)

5.2.2. Principles for calculating actuarial valuations in general insurance (continued)

5.2.2.1. General (continued)

b) According to the Commissioner's directives, the outstanding claims are calculated by an actuary, according to standard actuarial methods and consistently with the previous year. The selection of the appropriate actuarial method for each branch of insurance and for each year of occurrence/underwriting, is based on the compatibility of the method to the branch and sometimes there is a combination of methods. The valuations are primarily based on past experience of the development of claim payments and/or development of the amount of the payments and specific estimates. The valuations include assumptions regarding the average cost of claim, cost of handling the claims and frequency of the claims. Additional assumptions may address changes in interest rates, exchange rates and timing of payments. Payment of claims includes direct and indirect expenses of settlement claims less recoveries and deductible.
c) The use of actuarial methods that are based on the development of the claims is mainly adequate when there is stable and sufficient information regarding the payment of the claims and/or the specific valuations in order to estimate the total expected cost of claims. When the available information in handling the claims is insufficient, sometimes the actuary uses a computation which weighs the known estimate (in the company and/or the branch) such as LR with the actual development of the claims. Greater weight is given to the valuation based on experience as time passes and additional information is accumulated for the claims.
d) In addition, quality valuations and judgments are also taken into account as to the degree that past trends will not continue in the future. For example: due to a non-recurring event, internal changes such as change in the portfolio mix, underwriting policy and handling procedures of claims and for external factors such as legal ruling and legislation. If the above changes were not fully reflected in past experience, the actuary updates the models and/or makes specific provisions on the basis of statistical and/or legal estimates, as appropriate.
e) The actuarial assessment is based on statistical estimates that include a component of uncertainty. The statistical estimate is based on various assumptions, which may not necessarily be realized, therefore, the actual cost of claims could be higher or lower than the statistical estimate.
f) In several large claims with non-statistical profile, the reserve (gross and in retention) is determined on the basis of the opinion of the company's experts and in accordance with the recommendations of their legal advisors.
g) The reinsurers share of the outstanding claims is calculated according to the type of agreement (proportionate or unproportionate), actual claims experience and the premium that was transferred to the reinsurers
h) The evaluation of the outstanding claims for the Company's share of the pool in incoming transactions and joint insurance received from other insurance companies (leading insurers) was based on a calculation made by the pool or by the leading insurers or by the Company.

— 218 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.2. Insurance risk in general insurance contracts (continued)

5.2.2. Principles for calculating actuarial valuations in general insurance (continued)

5.2.2.2. Actuarial methods in main insurance branches:

a) Motor property insurance branch

In the motor property branch, the liabilities are calculated on the basis of the development of claim payments and/or development of outstanding claims model (link ratio / chain ladder), with reference to the types of coverage, such as comprehensive, third party, types of vehicles, such as 4- ton and over 4-ton and types of damage, such as accident, theft and natural disasters.

For recent months of damage, which are not mature, use was also made in the averages method in determining the cost of claim per policy.

There are separate estimates of the claims department in the following cases:

Old claims
Claims for car theft and natural damages

The individual estimates take into account the deductibles should collect from costumer.

Subrogation and remnants are taken into consideration and the actuarial model takes into account the development of all the payments (positive and negative). In addition, a model was built to estimate the expected amount of subrogation, and appropriate provision for indirect expenses to settle claims was calculated.

b) Compulsory motor and liability insurance branches

In the motor property and liability branch, the liabilities are calculated on the basis of the development of payments and/or development of outstanding claims model (link ratio / chain ladder). For later underwriting years, the cost of claims is based on the LR rate and the payments development model and/or outstanding claims development model (Bornhuetter-Ferguson). The tail of the development is calculated on the basis of the Sherman model.

There are separate estimates of the claims department in the following cases:

Old outstanding claims
Large claims

The outstanding claims are estimated separately on the gross level and on the reinsurance level. The share of the reinsurer in excess contracts for the last three underwriting years is based on the distribution adjustment model for large claims, taking into account known claims for these years. In older underwriting years, the estimate is for actual claims.

Estimates for facultative reinsurance are made in a separate model (gross and in retention). The individual estimates include the deductibles should collect from costumer.

— 219 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.2. Insurance risk in general insurance contracts (continued)

5.2.2. Principles for calculating actuarial valuations in general insurance (continued)

5.2.2.2. Actuarial methods in main insurance branches(continued):

b) Compulsory motor and liability insurance branches (continued)

Subrogation is taken into consideration and the actuarial model is based on the developments of all the payments (positive and negative). In addition, a provision was calculated for indirect expenses for settling claims.

The valuation of the outstanding claims for the Company's share of the pool in based on the calculation made by the Association of Insurance Companies in Israel.

c) Property and other branches

In the property and other branches, liabilities are calculated on the basis of the claim payments development and outstanding claims development (link ratio / chain ladder). For periods that are not mature, use was also made in the averages method in determining the cost of claim per policy.

There are separate estimates of the claims department in the following cases:

Old claims
Claims arising from natural disasters

The outstanding claims are estimated separately on the gross level and on the reinsurance level.

The share of the reinsurer in claims for excess is estimated according to the actual claims.

Estimates for facultative reinsurance are made in a separate model to claims in branches in which the share of the reinsurer is material. The individual estimates take into account the deductibles that should be collected from customer.

Subrogation is taken into consideration and the actuarial model takes into account the development of all the payments (positive and negative). In addition, a provision was calculated for indirect expenses for settling claims.

d) Branches in which actuarial assessment is not made

Sailing vessels, aircraft, other risks and incoming business include outstanding claims on the basis of a separate evaluation of each claim, according to the opinion of the attorneys and experts of The Phoenix who handle the claims, and according to the reports of ceding companies for incoming business, with the addition of IBNR if necessary.

— 220 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.2. Insurance risk in general insurance contracts (continued)

5.2.2. Principles for calculating actuarial valuations in general insurance (continued)

5.2.2.3. Assumptions and essential models for determining insurance liabilities in general insurance:

Chain ladder/link ratio

These methods are based on the development of historical claims (such as development of payments and/or development of amount of payments, and valuations of the individual claims and development of the number of claims), in order to valuate the anticipated development of existing and future claims. The use of these methods are mainly suitable after a sufficient period since the event occurred or the policy is underwritten, when there is enough information from the existing claims in order to evaluate the total anticipated claims. The difference between the methods is due to the method for calculation of the average development (simple or weighted average). In branches with highly diverse claims, as well as the average development coefficient, the standard deviation of the development coefficients is calculated.

Bornhuetter-Ferguson (BF)

This method combines early estimates known in the company or branch, and an additional estimate based on the claims themselves. The early estimates utilize premiums and loss ratio for evaluating the total claims. The second estimate utilizes actual claims experience based on other methods (such as chain ladder). The combined claims valuation weighs the two estimates, while greater weight is given to the valuation based on the claims experience as time passes and additional information is accumulated for the claims. This method is mainly used when there is insufficient information.

The averages

At times, as in the Bornhuetter-Ferguson method, when the claims history in the last periods is insufficient, the historical average method is utilized. In this method, the predicted claims cost is determined based on the average cost of the claim per policy for earlier years and the number of policies in the later years. Another method for calculation is the multiplication of the cost of the historical claim for the policy and the number of policies in the relevant period.

Sherman model

This is a mathematic model used to adjust non-linear distribution with development coefficients calculated using chain latter/link ratio models. Through the distribution, it is possible to calculate the development coefficients for prior periods for which information is not available (development tail).

— 221 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.2. Insurance risk in general insurance contracts (continued)

5.2.2. Principles for calculating actuarial valuations in general insurance (continued)

5.2.2.4. Proposed changes in the calculation of insurance reserves in general insurance

In January 2015, the Commissioner published the following:

A circular for calculation of insurance reserves in general insurance - update
The Commissioner's position: Best practice for calculating insurance reserves in general insurance for financial reporting.
Circular regarding an the actuarial valuation in general insurance (update of earlier circular)

Circular regarding calculation of insurance reserves in general insurance - update, eliminates the calculation of the reserve for excess income over expenditure as from the financial statements as of December 31, 2015.

Notwithstanding the aforesaid, an insurance company may cancel the calculation of the reserve for excess income over expenditure as from the financial statements as of December 31, 2014, provided that it also acts in accordance with the Commissioner's position - best practice for calculation of reserves in general insurance, for financial reporting and in accordance with the provisions in circular regarding the actuarial valuation in general insurance.

The Phoenix elected not to cancel the calculation of the reserve for excess income in the financial statements as of December 31, 2014.

In addition, as a complementary measure for the change, the Commissioner's Position was published, regarding the best practice for actuaries when calculating general insurance reserves for the financial statements to properly and adequately reflect the insurance liabilities. The Commissioner's Position includes the following:

a) Suitable reserve for coverage of the insurer’s obligation” means that it is fairly likely that the insurance obligation determined will be sufficient to cover the insurer’s obligation. For outstanding claims in compulsory motor insurance and liability branches, "fairly likely" means a probability of at least 75%. However, if there are limitations in the statistical analysis, the actuary may decide to use accepted actuarial principles. Examples of possible treatment for the limitations:
Random risk: assessment of several actuarial methods, and the use of judgment when determining the estimate for the results of the different methods.
Systemic risk: identification of material systemic influences (internal and external), and the use of judgment in their integration.

— 222 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.2. Insurance risk in general insurance contracts (continued)

5.2.2. Principles for calculating actuarial valuations in general insurance (continued)

5.2.2.4. Proposed changes in the calculation of insurance reserves in general insurance (continued)
b) The appropriate discounted interest rate for testing caution is in accordance with the risk-free interest curve adjusted to illiquid liabilities. In addition, this test takes into account the revaluation of financial assets in the financial reports that are held against liabilities.
c) Grouping: to calculate the margins for uncertainty in statistical branches (as defined in the circular), each branch should be considered separately, however, the risks of each underwriting (or damage) year in the branch can be grouped. Nonstatistical branches can all be considered as a single set.
d) Determination of the level of insurance obligations for policies sold shortly before the reporting date and for risks subsequent to the reporting date: The Company is reviewing the general effect of the cancellation of the surplus income reserve on the financial statements, together with the position of the Commissioner, which will come into effect on December 31, 2015.

5.2.2.5. The main assumptions taken into consideration in the actuarial valuation:

a) Outstanding claims in the compulsory motor insurance and liability branches were discounted at the lower of annual interest at a rate of 3% or a risk-free interest rate. The change in the rate of risk-free interest resulted in an increase of NIS 15 million in insurance liabilities in the motor insurance and liability branches in 2014. In 2013, the change in the rate of risk-free interest did not have a material effect on the insurance liabilities
b) An increment was included for the risk margin (standard deviation) in the base of the reserve in the compulsory motor insurance and liability branches.
c) When analyzing development of payments, the Company calculates the claims tail according to the Sherman model, to the extent required.
d) The basic assumption for each calculation method is that the historical behavior of the claims reflects the future behavior.

— 223 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

5. Insurance risks (continued)

5.2. Insurance risk in general insurance contracts (continued)

5.2.2. Principles for calculating actuarial valuations in general insurance (continued)
5.2.2.5. The main assumptions taken into consideration in the actuarial valuation: (continued)
- e) In 2013, the provision for large claims in the third party branch was adjusted, due to the increase in the quantitative threshold for defining a claim as a large claim, and as a result, a decrease of NIS 10 million (net of tax) in actuarial liabilities was recorded. The change in the quantitative threshold is due to the fact that in prior years, statistics in this branch are not adequately significant, and there was concern that the actuarial valuation does not predict large claims with sufficient reliability. Moreover, this is a long-term branch, and the large claims in particular continue for many years. This concern grew following the Group's 2004 merger between The Phoenix Insurance and other insurance companies in the Group (Hadar, Dolev), which resulted in a significant change in the Company's portfolio in terms of size and business mix, since there were insufficient years of maturity on the Group level. Over the years, the claims matured and confidence in the model for the large claims increased. In addition, over the years, the number of large claims and their weight compared to the total portfolio increased, and it can be observed that the basic model has higher prediction reliability.

For further information and the disclosure provided at the request of the Capital Market division and Israel Securities Authority regarding the gains in the liability branches in 2013, see Note 18E(2) to the financial statements.

6. Credit risks

6.1. Debt assets by location

ebt assets by location
In Israel Abroad Total debt assets	December 31, 2014
	Marketable *	Non- marketable	Total
		NIS thousands
	5,314,666 189,313	10,339,851 230,620	15,654,517 419,933
	5,503,979	10,570,471	16,074,450

December 31, 2013	December 31, 2013	December 31, 2013
Marketable *	Non- marketable	Total
	NIS thousands
5,382,781 41,589	9,970,423 114,813	15,353,204 156,402
5,424,370	10,085,236	15,509,606

— 224 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

6. Credit risks (continued)

6.1. Debt assets by location (continued)

December 31, 2012	December 31, 2012
Marketable Non- marketable NIS thousands*		Total

5,232,324 45,603 5,277,927	8,694,161 90,390 8,784,551	13,926,485 135,993
		14,062,478

(*) Marketable debt assets are mainly classified as available for sale and stated at fair value.

6.2. Assets by ratings

6.2.1 Debt assets

	*Local rating ()**	*Local rating ()**	*Local rating ()**
	December 31, 2014
A and above	A to BBB Lower than BBB Unrated NIS thousands			Total

3,064,126 984,025 4,048,151 6,580,548 280,558 614,585 - 111,347 - 461,706 4,617 8,053,361 12,101,512 288,816	- 989,579 989,579 - 1,509,234 - - - 67,235 402,266 65,320 2,044,055 3,033,634 897,835	- 254,976 254,976 - 21,847 - - - - 12,867 - 34,714 289,690 45,061	- 21,960 21,960 - 10,687 - 58,818 - - 114,351 23,865 207,721 229,681 -	3,064,126 2,250,540
				5,314,666
				6,580,548 1,822,326 614,585 58,818 111,347 67,235 991,190 93,802
				10,339,851
				15,654,517
				1,231,712

(*) Each rating includes all the ranges, for example: A includes A- to A+.

— 225 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

6. Credit risks (continued)

6.2. Assets by ratings (continued)

6.2.1 Debt assets (continued)

	*International rating ()**	*International rating ()**	*International rating ()**
	December 31, 2014
A and above	A to BBB	Lower than BBB	Unrated	Total

10,724 5,615	54,215 33,399	- 49,716	- 35,644	64,939 124,374
16,339	87,614	49,716	35,644	189,313
216 - - -	- - 94,575 -	- 7,495 - -	- - 143 128,191	216 7,495 94,718 128,191
216	94,575	7,495	128,334	230,620
16,555	182,189	57,211	163,978	419,933
5,615	94,575	7,495	-	107,685

(*) Each rating includes all the ranges, for example: A includes A- to A+.

	*Local rating ()**	*Local rating ()**	*Local rating ()**
	December 31, 2013
A and above	A to BBB	Lower than BBB	Unrated	Total

3,380,072 833,200	- 977,604	- 171,931	- 19,974	3,380,072 2,002,709
4,213,272	977,604	171,931	19,974	5,382,781
6,233,161 302,723 691,842 - 112,975 - 480,155 18,802	- 1,469,986 - - - 69,118 304,516 4,443	- 23,260 - - - - 5,792 69,608	- - - 74,691 - - 89,244 20,107	6,233,161 1,795,969 691,842 74,691 112,975 69,118 879,707 112,960
7,839,658	1,848,063	98,660	184,042	9,970,423
12,052,930	2,825,667	270,591	204,016	15,353,204
584,722	846,723	47,617	-	1,479,062

(*) Each rating includes all the ranges, for example: A includes A- to A+.

— 226 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

6. Credit risks (continued)

6.2. Assets by ratings (continued)

6.2.1 Debt assets (continued)

	*International rating ()**	*International rating ()**	*International rating ()**
	December 31, 2013
A and above	A to BBB Lower than BBB Unrated NIS thousands			Total

	- - - 7,624 17,138 224 7,624 17,138 224 - - - - 4,286 - 9,904 - 7,393 - - 93,026 9,904 4,286 100,419 17,528 21,424 100,643 9,904 4,286 - A includes A- to A+. *Local rating ()**			16,603 24,986
				41,589
				204 4,286 17,297 93,026
				114,813
				156,402
				14,190
				Total 3,442,868 1,789,456 5,232,324 5,780,091 1,087,346 759,602 62,505 106,159 93,847 642,564 162,047 8,694,161 13,926,485 1,545,058
	December 31, 2012
	A to BBB Lower than BBB Unrated NIS thousands
	- 810,355 810,355 - 724,067 206 - - 93,847 282,898 241 1,101,259 1,911,614 842,693	- 144,924 144,924 - 36,279 - 62,505 - - 35,589 143,004 277,377 422,301 181,633	- 5,697 5,697 - 3,949 - - - - - - 3,949 9,646 -

(*) Each rating includes all the ranges, for example: A includes A- to A+.

— 227 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

6. Credit risks (continued)

6.2. Assets by ratings (continued)

6.2.1 Debt assets (continued)

	*International rating ()**	*International rating ()**	*International rating ()**
	December 31, 2012
A and above	A to BBB Lower than BBB Unrated NIS thousands			Total

- 3,780 3,780 215 - - - - 215 3,995 1,618	- 6,004 6,004 - - - 10,329 - 10,329 16,333 10,329	- 2,222 2,222 - - - 379 18,239 18,618 20,840 20,840	- 33,597 33,597 - - 11,390 - 49,838 61,228 94,825 -	- 45,603
				45,603
				215 - 11,390 10,708 68,077
				90,390
				135,993
				32,787

(*) Each rating includes all the ranges, for example: A includes A- to A+.

6.2.2. Credit risks for other assets (in Israel)

	*Local rating ()**	*Local rating ()**	*Local rating ()**
	December 31, 2014
A and above	A to BBB	Lower than BBB	Unrated	Total

- - - 599,760 677,461	- - 197,613 - - 180,711 - - 7,906 17,214 - 168,877 - - -			197,613 180,711 7,906 785,851 677,461

— 228 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

6. Credit risks (continued)

6.2. Assets by ratings (continued)

6.2.2. Credit risks for other assets (in Israel) (continued)

	*Local rating ()**	*Local rating ()**	*Local rating ()**
	December 31, 2013
A and above	A to BBB Lower than BBB Unrated NIS thousands	Lower than BBB	Unrated	Total

- - - 383,828 585,981	- - 182,147 - - 327,589 - - 6,844 673 9,363 133,722 - - -			182,147 327,589 6,844 527,586 585,981

	*Local rating ()**
	December 31, 2012
A and above	A to BBB Lower than BBB Unrated NIS thousands	Total

- - - 329,096 965,632	- - 182,004 - - 313,844 - - 36,835 4,958 81,442 2,597 - - -	182,004 313,844 36,835 418,093 965,632

(*) Each rating includes all the ranges, for example: A includes A- to A+.

(**) Included under investments in associates

— 229 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

6. Credit risks (continued)

6.2. Assets by ratings (continued)

6.2.3. Credit risks for off-balance sheet instruments (in Israel)

	*Local rating ()**	*Local rating ()**	*Local rating ()**
	December 31, 2014
A and above	A to BBB		Unrated	Total

-	-		193,866	193,866

	December 31, 2013
A and above	A to BBB		Unrated	Total

-	-		68,346	68,346
				Total 19,450
	December 31, 2012
A and above	A to BBB Lower than BBB Unrated NIS thousands

19,450	-	-	-

(*) Each rating includes all the ranges, for example: A includes A- to A+.

6.2.4. Credit risks for other assets (in other countries)

	*International rating ()**	*International rating ()**
	December 31, 2014
A and above	A to BBB	Unrated	Total

17,143	104,704 10,194 319,013 *International rating ()**		451,054
	December 31, 2013
A and above	A to BBB	Unrated	Total

158,335	69,795 100,144 167,410 *International rating ()**		495,684 Total 432,478
	December 31, 2012
A and above	A to BBB Lower than BBB Unrated NIS thousands

276,073	635 67,917 87,853

(*) Each rating includes all the ranges, for example: A includes A- to A+.

— 230 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

6. Credit risks (continued)

6.3. Additional information about credit risks

1) Internal rating model

The Phoenix developed and implemented a credit rating model for companies based on quantitative and qualitative elements:

Quantitative: A quantitative score is based on the rated company's financial statements and according to the financial ratios.

Qualitative: based on a subjective questionnaire containing questions about parameters, such as the nature of the owners and competition in the market.

In addition, the model distinguishes between different types of companies such as incomeproducing real estate, real estate projects and holding companies.

The model was approved by the Commissioner of Insurance. The internal ratings determined by the model are recognized for purposes of capital requirements.

2) The information about credit risks in this note does not include the assets for unit linked contracts, which are presented in a separate note.
3) For reinsurance receivable balances of NIS 1,398,926 thousand, see Notes 16 and 17.
4) For premium balances of NIS 596,844 thousand, see Note 11.

6.4 Exposure to branches for investments in marketable and non-marketable financial debt assets

December 31, 2014	December 31, 2014	December 31, 2014
Balance sheet credit risk		Off-balance sheet risk
NIS thousands	% of the total	NIS thousands
332,408 1,224,801 819,946 53,803 322,372 2,442,487 110,619 499 683,430 590,063	2.07% 7.62% 5.10% 0.33% 2.01% 15.19% 0.69% - 4.25% 3.67%	- - 119,265 26,001 - - - - 48,600 -
6,580,428 9,494,022	40.93% 59.07%	193,866 -
16,074,450	100.00%	193,866

— 231 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

6. Credit risks (continued)

6.4 Exposure to branches for investments in marketable and non-marketable financial debt assets (continued)

Market branch Industry Building and real estate Electricity and water Trade Communications and computer services Banks Financial services Other business services Public services Other Government bonds Total Market branch Industry Building and real estate Electricity and water Trade Communications and computer services Banks Financial services Other business services Public services Other Government bonds Total	December 31, 2013	December 31, 2013
	Balance sheet credit risk Off-balance sheet risk NIS thousands % of the total NIS thousands 171,918 1.17% - 1,089,608 7.40% - 613,893 4.17% 18,630 55,154 0.37% 49,716 214,148 1.46% - 2,509,135 11.66% - 78,165 0.53% - 494 - - 746,707 5.07% - 400,344 2.72% - 5,879,566 34.55% 68,346 9,630,040 65.45% - 15,509,606 100.00% 68,346 December 31, 2012 Balance sheet credit risk Off-balance sheet risk NIS thousands % of the total NIS thousands 124,844 0.89% - 1,026,241 7.30% - 521,478 3.71% 10,919 64,539 0.46% 8,531 246,274 1.75% - 1,696,268 12.06% - 89,353 0.64% - 698 - - 606,072 4.31% - 460,176 3.27% - 4,835,943 34.39% 19,450 9,226,535 65.61% - 14,062,478 100.00% 19,450	Off-balance sheet risk
		NIS thousands
		- - 18,630 49,716 - - - - - -
		68,346 -
		68,346
	Balance sheet credit risk NIS thousands % of the total 124,844 0.89% 1,026,241 7.30% 521,478 3.71% 64,539 0.46% 246,274 1.75% 1,696,268 12.06% 89,353 0.64% 698 - 606,072 4.31% 460,176 3.27% 4,835,943 34.39% 9,226,535 65.61% 14,062,478 100.00%
	NIS thousands 124,844 1,026,241 521,478 64,539 246,274 1,696,268 89,353 698 606,072 460,176 4,835,943 9,226,535 14,062,478

— 232 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

6. Credit risks (continued)

6.5 Reinsurance

The Phoenix Insurance insures some of its businesses with reinsurance, mainly through foreign reinsurers. However, reinsurance does not exempt the direct insurers of their liability towards the policyholders according to the insurance policies.

The Phoenix Insurance is exposed to risks due to uncertainty regarding the ability of the reinsurers to pay their share of the liabilities for insurance contracts (reinsurance assets) and their liabilities for claims paid. This exposure is managed by ongoing monitoring of the situation of the reinsurer in the global market and compliance with its financial obligations.

The Company is exposed to credit risk to a single reinsurer, due to the structure of the reinsurance market and the limited number of reinsurers with an adequate rating.

According to the directives of the Commissioner, the Company's board of directors determines, once a year, the maximum exposure for reinsurers, based on international rating. The Company manages these exposures by individual evaluation of each of the reinsurers. In addition, the Company's exposures are dispersed amount different reinsurers, generally reinsurers with high international rating.

— 233 —

						six	months	and one Over one	year year			- -	- -	- -	98 -	98 -	456 166	- -	26 54	580 220
								Total	exposure			37,778	196,811	98,833	140,676	474,098	563,429	10,879	13,684	1,062,090
								Reinsurer	deposits			83,565	78,953	35,003	18,640	216,161	89,527	1,463	-	307,151
								Liabilities	insurance			11,696	31,992	-	87,738	131,426	282,398	408	12,991	427,223
					Reinsurance assets			Healthcare Assets	insurance insurance			69,747 29,651	100,381 63,756	102,941 28	11,225 61,272	284,294 154,707	- 358,239	- 11,788	- 2,897	284,294 527,631
								Total in life	insurance			22,096	90,662	30,252	2,264	145,274	13,311	52	1,141	159,778
NOTE 40 – RISK MANAGEMENT (CONTINUED)	6. Credit risks (continued)	6.5 Reinsurance(continued)	6.5.1 Exposure to credit risks of reinsurers	December 31, 2014 (NIS thousands):		Total Balance	premium for debt	reinsurers (credit)	Name of reinsurer for 2014 net (b)	Rating group	AA and above	Munich Reinsurance Co AG 54,551 (11,847)	Swiss Reinsurance Co 112,774 (11,027)	Kölnische Rückversicherungs 58,797 615	Others 103,619 (3,183)	AA or above 329,741 (25,442)	A 331,646 (992)	BBB 4,664 94	Lower than BBB or unrated 635 (3,345)	Total 666,686 (29,685)

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)
6.
Credit risks (continued)
6.5
Reinsurance(continued)
6.5.1
Exposure to credit risks of reinsurers
December 31, 2013 (NIS thousands):
Reinsurance assets
Debts in arrears
Name of reinsurer
Total
premium for
reinsurers
for 2013
Balance
debt
(credit)
net (b)
Total in life
insurance
Healthcare
insurance
Assets
insurance
Liabilities
insurance
Reinsurer
deposits
Total
exposure
Between
six
months
and one
year
Over one
year
Rating group
AA and above
Munich Reinsurance Co AG
93,613
(8,886)
22,537
105,830
31,571
15,313
111,817
54,548
-
-
Swiss Reinsurance Co
95,865
(10,701)
92,514
84,242
52,878
35,618
77,806
176,745
-
-
Kölnische Rückversicherungs
63,983
11,491
30,100
95,309
47
1
34,048
102,900
-
-
Others
71,609
(3,287)
1,909
-
59,816
109,305
12,547
155,196
13
-
AA or above
325,070
(11,383)
147,060
285,381
144,312
160,237
236,218
489,389
13
-
A
306,024
(4,463)
13,481
-
287,989
275,127
68,514
503,620
345
600
BBB
18,931
3,113
-
-
31,611
1,169
6,971
28,922
-
-
Lower than BBB or unrated
(2)
(7,817)
795
-
461
16,786
-
10,225
152
786
Total
650,023
(20,550)
161,336
285,381
464,373
453,319
311,703
1,032,155
510
1,386

						six	months	and one Over one	year year			- -	- -		- -	20 86	20 86		- -	84 -	84 -	- -	1,146 901	1,251 987
								Total	exposure			166,475	181,496		126,712	46,235	520,919		110,993	293,841	404,834	20,225	27,775	973,753
								Reinsurer	deposits			140,721	70,617		-	41,254	252,593		97	69,389	69,486	7,058	-	329,137
								Liabilities	insurance			75,314	100,551		-	41,741	217,606		103,663	142,272	245,935	595	22,537	486,673
					Reinsurance assets			Healthcare Assets	insurance insurance			197,780 25,707	23,604 51,216		96,474 -	- 42,672	317,858 119,595		- 21,046	- 216,299	- 237,345	- 26,877	- 2,359	317,858 386,176
							Total in	life	insurance			22,655	93,501		30,238	1,475	147,869		-	12,724	12,724	-	812	161,405
NOTE 40 – RISK MANAGEMENT (CONTINUED)	6. Credit risks (continued)	6.5 Reinsurance(continued)	6.5.1 Exposure to credit risks of reinsurers	December 31, 2012 (NIS thousands):		Balance	Total premium debt	for reinsurers (credit) net	Name of reinsurer for 2012 (b)	Rating group	AA and above	Munich Reinsurance Co AG 130,405 (14,259)	Swiss Reinsurance Co 80,921 (16,758)	Kölnische Rückversicherungs-	Gesellschaft AG - -	Others 121,657 1,602	�Total AA or above 332,983 (29,416)	A	Lloyd's 55,821 (13,619)	Others 254,248 (8,065)	Total A 310,069 (21,684)	BBB 19,683 (188)	Lower than BBB or unrated 613 2,067	Total 663,348 (49,222)

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

6. Credit risks (continued)

6.5 Reinsurance(continued)

6.5.1 Exposure to credit risks of reinsurers

Remarks:

(a) The total exposure to reinsurers is as follows: net debit (credit) balance reinsurance assets, net of deposits and net of the amount of the credit notes received from the reinsurer to secure their liabilities, plus (less) the net current debit (credit) balance.
(b) After deducting a provision for doubtful debts in the amount of NIS 380 thousand The balance does not include balances of insurance companies for co-insurance.
(c) The total provisions for doubtful debts plus reduction of the reinsurers' share in outstanding claims and reserves amounts NIS 380 thousand, representing 0.0358% of the total exposure.
(d) The rating is determined mainly by S&P rating agency. When there is no S&P rating, the rating is determined by other rating agencies and converted as set out in the Investment Regulations.
(e) The total exposure of reinsurers to earthquake with a damage probability of 2.1% (MPL) is NIS 6,866 million, of which the share of the most significant reinsurer in this exposure is NIS 1,097 million.
(f) There are no other reinsurers other than those listed above for which exposure exceeds 10% of the total exposure of reinsurers or with a premium exceeding 10% of the total premiums for reinsurance in 2014.
(g) The unrated companies include reserves for outstanding claims through brokers up to and including 2003, with an exposure of NIS 10,212 thousand.

7. Regulation risks

The Group's activities are subject to broad regulatory requirements, including supervision of the management fees collected. Regulatory requirements and enforcement of regulations are becoming stricter. Non-compliance with regulatory requirements might result in a range of sanctions and damage to goodwill. Changes in regulation affect the Company's financial reporting, business activities and profitability.

Some of the Group companies operate in accordance with permits and licenses granted by the Commissioner of Insurance in accordance with the law. Non-compliance with the terms of the permits and licenses might result in sanctions or even cancellation of the licenses.

In addition, regulation in the insurance industry has a significant effect on the structure of products sold and the premiums collected for the different products. The provisions in law, guidelines and agreements relating to the structure of savings in Israel, mainly pension-related savings, including the tax implications, affect changes in the scope of operations in the branch and the changeability between the products, including options for movement. As a result, these regulations affect the life insurance and long-term savings portfolio of the companies. The Group's insurance agencies are subject to regulations, and any changes in these regulations may affect their business operations and profitability.

— 237 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

7. Regulation risks(continued)

In addition to the regulation in the insurance and long-term saving branches, the Group is subject to regulatory requirements of securities laws and companies laws. Failure to comply with these laws could result in sanctions and impairment of goodwill.

Since the Group is controlled by Delek Group, affected by the Proper Conduct of Banking Business Regulations issued by the Supervisor of Banks in Israel. These regulations include, among other things, restrictions on the scope of the loans that Israeli banks can grant to "single borrower", and the six larges borrowers and the largest group of borrowers in the banking corporation (as these terms are defined in the aforesaid regulations).

The Phoenix Insurance is subject to capital adequacy requirements. Low equity (even if it complies with the capital adequacy requirements) may impair the Company's operations and its ability to insure new businesses. When implementing Solvency II, insurance companies may be required to complement additional capital. For further information, see section 2.5 above.

8. Financial investments for unit linked contracts

8.1. Investments by linkage base *

		December 31, 2014	December 31, 2014	December 31, 2014
NIS unlinked	NIS linked to the CPI	USD or linked to the USD		Foreign currency or foreign currency linked	Non-finance and other Items	Total

2,325,916 7,535,476 368,782	- 6,812,937 3,657,677	289,108 600,550 479,327	26,492 107,373 57,727 191,592	9,883 416,790 86,237	- 8,797,104 3,767,852	2,651,399 24,270,230 8,417,602
10,230,174	10,470,614	1,368,985		512,910	12,564,956	35,339,231

— 238 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

8. Financial investments for unit linked contracts (continued)

**8.1. Investments by linkage base *(continued)**

		December 31, 2013	December 31, 2013	December 31, 2013
NIS unlinked	NIS linked to the CPI	USD or linked to the USD		Foreign currency or foreign currency linked	Non-finance and other Items	Total

1,965,233 4,998,942 277,001	- 7,088,709 3,863,765 10,952,474	239,477 312,564 268,852	29,475 5,006 20,238 54,719	6,755 149,302 37,521	- 8,712,481 3,067,741	2,240,940 21,267,004 7,535,118
7,241,176		820,893		193,578	11,780,222	31,043,062

		December 31, 2012	December 31, 2012	December 31, 2012
NIS unlinked	NIS linked to the CPI	USD or linked to the USD	EUR or linked to the EUR NIS thousands	Foreign currency or foreign currency linked	Non-finance and other Items	Total

1,093,711 5,462,422 214,412 6,770,545	- 4,285,857 3,662,014 7,947,871	548,986 19,121 202,980 771,087	57,484 371 31,367 89,222	117 64,010 44,375 108,502	- 7,688,912 2,210,643 9,899,555	1,700,297 17,520,693 6,365,791
						25,586,781

(*) The information in the table is presented in accordance with accounting classification rules and does not reflect the actual exposure to foreign currency.

8.2. Credit risk for assets in Israel

	*Local rating ()**	*Local rating ()**	*Local rating ()**
	December 31, 2014
AA and above	A to BBB	Lower than BBB	Unrated	Total()**

10,547,379 1,906,612 1,711,151	- 1,810,722 1,929,937	- 467,894 68,162	- 52,791 205,964	10,547,379 4,238,019 3,915,214
14,165,142	3,740,659	536,056	258,755	18,700,612
456,778	1,547,528	103,442	-	2,107,748

— 239 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

8. Financial investments for unit linked contracts (continued)

8.2. Credit risk for assets in Israel (continued)

	*Local rating ()**	*Local rating ()**	*Local rating ()**
	December 31, 2013
AA and above	A to BBB Lower than BBB Unrated NIS thousands		Unrated	Total()**
8,810,216 1,314,263 1,701,796 11,826,275 820,948	- 1,855,944 1,924,483 3,780,427 1,601,064	- 349,103 78,740 427,843 56,591	- 10,177 170,910	8,810,216 3,529,487 3,875,929 16,215,632 2,478,603
			181,087
			-

	*Local rating ()**	*Local rating ()**	*Local rating ()**
	December 31, 2012
AA and above	A to BBB Lower than BBB NIS thousands		Unrated	Total()**

6,657,760 1,140,957 1,595,330 9,394,047 732,168	- 1,810,353 1,874,794 3,685,147 1,388,714	- 215,187 106,082 321,269 69,286	- 9,553 - 9,553 -	6,657,760 3,176,050 3,576,206
				13,410,016
				2,190,168

(*) The sources for the rating in Israel are Maalot and Midroog rating companies. The data of Midroog were transferred to rating symbols according to accepted conversion coefficients.

(**) The carrying amount approximates the maximum credit risk. Accordingly, the total column presents maximum credit risk.

— 240 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

8. Financial investments for unit linked contracts (continued)

8.3. Credit risk for foreign assets

	*International rating ()**	*International rating ()**	*International rating ()**
	December 31, 2014
AA- and above	BBB+			Total()**

90,173 17,841	369,580			896,182
	157,993			193,709

	December 31, 2013
AA- and above	BBB+			Total()**

151,215 2,460	12,448			328,623
	-			11,113
				Total()** 42,183 577
	December 31, 2012
AA- and above	BBB+ Lower than BBB NIS thousands		Unrated
16 16	737 -	1,803 561	39,627 -

() Sources for international rating are rating agencies approved by the Commissioner, S&P, Moody's, and Fitch. (*) The carrying amount approximates the maximum credit risk. Accordingly, the total column presents maximum credit risk.

9. For information about the composition of the assets and liabilities of special purpose companies, see Note 25.

10. Sensitivity tests for SPCs

SPCs use the VaR method for sensitivity analysis. VaR is a standard index for estimating exposure to changes in market risks. The VaR is the amount that reflects the maximum potential loss in value of positions due to changes in market factors over a defined time and on a defined significance level. The Company uses a historical simulation model for one day at a significance level of 95%. This means that if, for example, the VaR is NIS 1 million, then in accordance with the model, with a probability of 95%, the portfolio will not absorb a loss greater than NIS 1 million in the next trading day, In other words, there is a chance of 1 to 20 (5%) that the portfolio will present results that are lower than the reported VaR.

— 241 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 40 – RISK MANAGEMENT (CONTINUED)

10. Sensitivity tests for SPCs (continued)

VaR results of Excellence for the reporting period: There was a distinction between the VaR arising from the investments portfolio held by the Group (nostro), the net exposure arising from SPCs for ETF and deposit operations, and SPCs for structured bonds, which were calculated according to a weekly measurement with set intervals, in 2014 (NIS thousands):

Shares and debentures(nostro)	ETFs and deposit and structuredproducts	ETFs and deposit and structuredproducts

NIS thousands
240 340 Year ended December 31, 2014
170 240 110 3 Shares and debentures(nostro)	310 520 130 17 ETFs and deposit and structuredproducts

NIS thousands
210 340 Year ended December 31, 2013
120 250 210 70 80 140 - 24 Shares and debentures(nostro) ETFs and deposit and structuredproducts December 31, 2012		250 70 140 24 ETFs and deposit and structuredproducts
NIS thousands
570 190 Year ended December 31, 2012
600 260 1,250 480 230 140 - 3

— 242 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES

A. The Company's major interested parties

Delek Group Ltd. ("Delek Group") is the controlling shareholder in the Group.

Mayer Cars and Trucks Co. Ltd. ("the Mayer Group") is an interested party in the Group.

In the ordinary course of business, under regular commercial terms, the Company and its investees carry out transactions with Delek Group, such as insurances and purchase of fuel. As these transactions are negligible transactions, in accordance with the procedures adopted by the Company, as set out in Section 41(A)(6)(a) of the Securities Law (Annual Financial Statements), 2010, they are not described in these reports.

B. Benefits for key managers (including directors)

The CEO and senior managers in the Group are entitled, in addition to their salary, to non-monetary benefits, such as the use of a company car and health insurance. In addition, the Group contributes to defined post-employment benefit plans and defined contribution plans.

Senior managers also participate in option plans for the Company’s shares. See Note 36 - Share Based

Payments.

On November 9, 2014, the general meeting of the Company's shareholders approved the revised compensation policy for the Company's officers (based in part on the Companies Law (Amendment 20), 2012 and the circular for compensation policy in institutional entities of April 2014 ("the Compensation Circular"), which sets out guidelines for the compensation policy for officers, key functionaries, and other employees in financial institutions. For information about the compensation policy for officers, senior employees, investment employees and Company employees, including the obligation for indemnity and insurance, and the options plan for employees and officers, see section 1.3.3 of the Description of the Company's Business.

1. Benefits for employment of key managers, including:

Year ended December 31	Year ended December 31	Year ended December 31	Year ended December 31	Year ended December 31	Year ended December 31
2014		2013		2012
No. of people	Amount	No of people	Amount	No. of people	Amount
13 13 4 12	NIS thousands	13 13 3 13	NIS thousands	13 13 3 4	NIS thousands
	25,826 1,420 796 6,005		29,119 1,373 92 3,669		18,273 1,144 54 3,875
	34,047		34,253		23,346

— 243 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

B. Benefits for key managers (including directors)

Benefits for directors who are not employed by the Company:

	Year ended	Year ended	December 31	December 31
	2014		2013		2012
No. of people	Amount	No of people	Amount	No. of people	Amount
8	NIS thousands	8	NIS thousands	8	NIS thousands
	3,703		7,873		4,593

(*) These amounts include management fee expenses and share-based payments for the chairman of the Company's board of directors (Dr. Moshe Bareket), who terminated his service as chairman of the Company's board of directors on October 10, 2014. For further information about the agreement with Dr. Moshe Bareket, see the immediate report of The Phoenix Holdings on March 29, 2012, ref. 2012-01087303. For information about the share-based payments, see Note 36.
The Company participates in directors and officers insurance (for the Company and Group companies)

Year ended December 31	Year ended December 31	Year ended December 31
NIS thousands
2014	2013 1,089	2012
1,076		1,082

4. CEO's employment agreement

In March 2009, the Company's Board of Directors approved the appointment of Eyal Lapidot as CEO of the Company and CEO of ''The Phoenix Insurance Company. At that date, the Company's Board of Directors approved (after receiving the approval and recommendation of the Company's audit committee on the same day) the Company's employment agreement with Eyal Lapidot (the employment conditions also apply for The Phoenix Insurance Company Ltd.) ("the Agreement" or "the Employment Contract"). The employment contract came into effect on June 1, 2009, and is valid for five years, meaning until March 31, 2014 ("the Employment Period").

For further information, see also Note36 to the financial statements and the immediate reports published by The Phoenix Holdings on March 22, 2009 (ref. 2009-01-062865), July 23, 2009 (ref. 200901-178092), August 3, 2009 (ref. 2009-01-184824) and August 31, 2009 (ref. 2009-01-2162).,

On December 4, 2013, the Company's Board of Directors approved an amendment to the Agreement (the general meeting of The Phoenix Holdings approved the amendment to the Agreement on January 13, 2014), whereby, as from January 1, 2013, Eyal Lapidot is entitled to an additional annual fixed amount of NIS 1.352 million, linked to the CPI, with the base CPI being September 2013. The CEO will not be entitled to any social contributions for the additional fixed amount.

In addition, an amendment to the annual bonus mechanism was approved, replacing the current mechanism in the Agreement with the mechanism set out in the compensation policy for the Company's officers that was in effect on the approval date.

For information about the amendment to the Agreement, see the immediate report The Phoenix Holdings on December 8, 2013, ref. 2013-01-091960. The Agreement and the amendment are referred to hereinafter as "Amended Agreement". For information about the Company's compensation policy that was in effect at the approval date of the amendment, see the immediate report of The Phoenix Holdings of August 29, 2013, ref. 2013-01-132687.

— 244 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

B. Benefits for key managers (including directors) (continued)

4. CEO's employment agreement(continued)

On October 2, 2014, the Company's Board of Directors approved the renewal of the validity of an amendment to Eyal Lapidot's employment agreement, and the extension of the validity from April 1, 2014 until December 31, 2017 (inclusive) ("The Revised Employment Agreement") (on November 9, 2014, the Revised Employment Agreement was also approved by the general meeting of the Phoenix Holdings).

Key points in the employment terms of the CEO, as formulated by the Company: Notice and adjustment period: The Company and the CEO may, at any time and for whatever reason, terminate the employment agreement with six (6) months’ advance written notice to the other party ("the Notice Period"). If the Company informs the CEO of termination of his employment agreement, the Company may waive the CEO's work in the Notice Period, in full or in part, however it will be required to pay the CEO his full salary, including bonuses (if approved in the future) and social contributions, and to continue to provide him with all the payments, rights, and benefits, and this period will be considered as an employment period for all purposes.

Notwithstanding the above, the Company may terminate the employment agreement immediately and without severance pay in some cases, including in the event of a conviction under certain conditions, breach of fiduciary duty towards the Company. and damage to the Company ("the Immediate Release"). On termination of the CEO's employment in the Company, for any reason, except in circumstances of Immediate Release, the CEO will be entitled to an adjustment period of six (6) consecutive months from the end of the Notice Period until actual utilization of his accrued leave, which will not require the CEO to perform any work for the Company ("the Adjustment Period"). In the Adjustment Period, the CEO will receive a full salary from the Company, including the payments, contributions, benefits, and rights to which he is entitled under the Employment Agreement. The Adjustment Period will be considered as a cooling-off period ("the Cooling Off Period"). If the CEO waives his right to receive his full salary and the rights to which he is entitled in the Adjustment Period, the Cooling Off period will be cancelled. The employer-employee relationship between the Company and the CEO will terminate at the end of the cumulative period of the Notice Period, the Adjustment Period, and period of actual utilization of accrued leave. ("the Severance Date").

Salary: The CEO will receive a gross monthly salary of NIS 120,000 ("the Total Salary"). The Total Salary will be adjusted to reflect increases in the CPI every month, with the base CPI being the CPI for November 2008. The Total Salary, as adjusted from time to time, is the fixed salary that was agreed on as a basis for contributions to social conditions, including the study fund. As of the reporting date, the Total Salary amounts to NIS 136 thousand.

Additional fixed component (cash): In addition to the Total Salary, the CEO will be entitled to additional fixed annual amount of NIS 1.1 million, which will be adjusted to reflect increases in the CPI, with the base CPI being the CPI for April 2014 ("the Additional Fixed Amount"). If the CEO's entitlement period to the Additional Fixed Amount is for part of the year, it will be calculated proportionately. The CEO is not entitled to any social contributions for the Additional Fixed Amount, but will be entitled to its payment until the Severance Date as described above.

Incidentals: The CEO is entitled to social contributions, incidentals, and reimbursement of expenses, including expenses for entertainment, travel (including abroad), car, telephone and other communications (including grossing up of the full value of use), and per diem and meals. The Company will provide a company car to the CEO (equivalent to level 7) for his use. All expenses related to its maintenance and use will be covered by the Company, including grossing up of its value in use. The CEO is also entitled to leave and convalescence, and to sick days, which are not redeemable. In addition, the CEO is entitled to any welfare benefits to which the Company's employees are entitled, including, but not limited to, contributions to a study fund, pension plan, disability insurance, healthcare insurance, and an annual medical checkup.

— 245 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

B. Benefits for key managers (including directors) (continued)

4. CEO's employment agreement(continued)

The CEO is entitled to be included in a professional liability insurance arrangement that the Company will purchase, and to letters of indemnity and exemption from liability under terms that are generally accepted for senior officers in the Company. As at the reporting date, in accordance with the compensation policy, the CEO is entitled to be included in a professional liability insurance arrangement that the Company will purchase for directors and officers. If there is transfer of control in the Company, the CEO will be entitled to a runoff insurance policy from the Company until the end of the period of limitation for the period he serves as an officer of the Company.

Remuneration - variable component: The employment terms do not include variable remuneration.

For further information about the Revised Employment Agreement and the process for its approval, and about the compensation policy of The Phoenix Holdings, see the Immediate Report of The Phoenix Holdings of October 2, 2014 (ref. 2014-01-169806).

5. Officer indemnity and insurance agreements

5.1 Insurance

In November 2011, the general meeting authorized the Company's CEO to enter into an agreement, from time to time, with an authorized insurer for directors and officers liability insurance, in the Company, its subsidiaries and related companies. In accordance with the resolution, the Company's CEO is authorized to extend and/or renew and/or replace the insurance policy with liability limits of up to USD 75 million per case and period, USD 15 million for legal expenses (in Israel) and an annual premium of up to USD 550 thousand and a deductible of up to USD 0.5 million, and other terms as may be acceptable and adjusted to the requirements of the Company and its officers when extending or renewing the insurance policy, provided the Company's audit committee and board of directors confirm that the policy for the subsequent period meets the terms set out above and that there is no material change in the terms of the policy compared to the existing policy at that date, and that the policy was conducted under market conditions.

In November 2014, the Company's general meeting approved the Company's compensation policy, which determines that the directors, officers, and other central functionaries will be entitled to be included in a professional liability insurance arrangement that the Company will purchase, and subject to the approvals required by law. The cover limit will not exceed USD 100 million and the annual premium will not exceed USD 750 thousand, with a deductible of up to USD 1 million.

The Company's future agreements for directors and officers liability insurance will be for a number of insurance periods, provided that the aggregate of all insurance periods does not exceed three years from the approval date of the resolution by the general meeting of the Company.

The directors and officers whose liability is covered by the policy include also directors and officers who serve as officers in the Company's controlling shareholder and/or the controlling shareholder has a personal interest in granting them insurance cover and/or they are relatives of the Company's controlling shareholders.

— 246 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

B. Benefits for key managers (including directors) (continued)

5. Officer indemnity and insurance agreements (continued)

5.2 Indemnification

On January 7, 2007, the general meeting of the Company approved a letter of undertaking to indemnify and insure directors serving in the Company and/or directors who will serve in the Company from time to time, including directors who are or were controlling shareholders, their relatives or any entity with which the controlling shareholder has a personal interest in engaging with them. The general meeting of the Company also approved a letter of undertaking to indemnify and insure directors who served in the Company in the past.

On January 29, 2007, the board of directors of the Company approved letters of undertaking to indemnify officers in the Company (who are not directors), in accordance with section 260 of the Companies Law, 1999, and in accordance with the Company's articles of association. The maximum aggregate amount of indemnity that the Company will pay any officer, in addition to any amount received from the insurance company, for the insurance policy under which Company insured its officers, is 25% of the Company's equity in the most recent financial statements published prior to actual exercise of the indemnity. It is noted that in the past, the Company's board of directors resolved to indemnify the Company's officers, other than directors, for their activities as officers in the Company ("the Old Letter of Indemnity"). Accordingly, some officers who served in the past are covered by the Old Letter of Indemnity. In accordance with the Old Letter of Indemnity, the insurance amount for the insurance policy under which the Company insured its officers is USD 50 million per indemnification event, and no more than USD 200 million as a maximum amount of indemnity. At various dates, between 2008 and 2010, the general meeting approved letters of undertaking to indemnify and insure certain directors. The letter of undertaking to indemnify and insure has the same content as the content in the letter of undertaking to indemnify and insure that was granted to the other directors.

On November 9, 2014, the Company's general meeting approved the revised employment terms of Eyal Lapidot, CEO of the Company. Under Eyal Lapidot's terms of employment, the CEO is entitled to be included in a professional liability insurance arrangement that the Company will purchase, and to letters of indemnity and exemption from liability under terms that are generally accepted for senior officers in the Company. As of the reporting date, in accordance with the compensation policy, the CEO is entitled to be included in a professional liability insurance arrangement that the Company will purchase for directors and officers. If there is transfer of control in the Company, the CEO will be entitled to a runoff insurance policy from the Company until the end of the period of limitation for the period he serves as an officer of the Company.

On November 14, 2011, the general meeting of the Company approved amended letters of indemnity (which amended the letters of indemnity of 2007) for directors in the Company, its subsidiaries and related companies, for officers serving in them on behalf of the Company or on behalf of its subsidiaries, as may be from time to time, including those who are related to the controlling shareholder. The amended letters of indemnity include adjustments to amendments to the Companies Law and advance undertaking to indemnify for payment to a victim of a breach or due to expenses incurred by the officer for an enforcement proceeding under Chapters H3 (Imposing Monetary Sanctions by the Securities Authority), H4 (Imposing Administrative Enforcement Measures by the Administrative Enforcement Committee), or J1 (Arrangement to Avoid Proceedings or Terminate Proceedings, Contingent on Terms), of the Securities Law, 1968, including reasonable litigation expenses, including attorney fees.

— 247 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

B. Benefits for key managers (including directors) (continued)

5. Officer indemnity and insurance agreements (continued)

5.2 Indemnification (continued)

In November 2014, the Company's general meeting approved the Company's compensation policy, which determines that the directors, officers, and other central functionaries will be entitled to letters of indemnity, subject to the provisions of the law, amounting to up to 25% of the Company's equity, in the format approved by the general meeting on November 14, 2011.

On January 13, 2014, the general meeting resolved to approve the grant of exemption to all the Company's directors, as were from time to time, except for the Company's directors serving as officers and/or as service providers for the controlling shareholder in the Company and/or when the controlling shareholder has a personal interest in exempting them from their liability towards the Company for damage due to duty of care towards it.

For further information, see the Company's report dated December 8, 2013, ref. 2013-01091960 and the Company's report dated January 14, 2014, ref. 2014-01-015346 on the results of the meeting.

In November 2014, the general meeting approved the Company's compensation policy, which determines that the directors, officers, and other central functionaries will be entitled to an exemption in advance in accordance with the Companies Law and subject to the format that will be approved by the general meeting.

It is clarified that the aforesaid does not derogate from the Company's ability to grant letters of indemnity and/or exemption to employees who are not central functionaries, at its discretion and subject to the Law.

For further information about the Company's compensation policy as approved by the general meeting in November 2014, see the Company's report of October 2, 2014, ref. 201401-169806.

For further information about the expenses recognized for directors and officers insurance, see section 3 above.

C. Balances with related and interested parties

Some of the Company's financial and insurance operations are carried out with related parties and interested parties in the ordinary course of business and under market conditions, and are subject to the approvals required in the Company's articles of association.

In August 2008, the Amendment to the Securities Law (Periodic and Immediate Reports), 1970 came into effect ("the Reporting Regulations"). The amendment expands, inter alia, part of the reporting obligations applicable to public companies with respect to transactions with a controlling shareholder or transactions with others person in whom the controlling shareholder has a personal interest ("Controlling Shareholder Transactions"), and also transactions which are not irregular transactions, as the term is defined in the Companies Law, other than transactions that are reported as negligible transactions in the most recent financial statements.

On November 27, 2008, the Company's board of directors resolved to adopt the negligibility limit as set out in the Reporting Regulations for Controlling Shareholder Transactions.

— 248 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

C. Balances with related and interested parties (continued)

The Company's board of directors determined that a Controlling Shareholder Transaction will be considered to be a negligible transaction if it complies with all the following conditions:

It is not an irregular transaction (as defined in the Companies Law).
The effect on the relevant parameter (as set out below) is less than one percent (1%).
For a transaction or agreement that complies with the test for negligibility, the relevant parameters will be assessed on the basis of the Company's consolidated financial statements prior to the event, as follows:
A. Asset ratio: the volume of assets attributed to the event (acquired or sold assets), divided by the total assets
B. Liabilities ratio: the liabilities attributed to the event divided by the total liabilities
C. Equity ratio: the increase or decrease in equity divided by the total equity
D. Premium ratio: the premiums attributed to the event divided by the average total annual premium for the relevant segment (life insurance and long-term savings, healthcare insurance, general insurance), based on the last 12 quarters for which reviewed or audited financial statements were published
E. Service revenue ratio: revenue attributed to the event divided by the average annual revenue for the last three years that are not from premiums, based on the last 12 quarters for which audited or reviewed financial statements were published
F. Service expense ratio: the expenses attributed to the event divided by the average annual administrative and general expenses, based on the last 12 quarters for which audited or reviewed financial statements were published
G. Profit ratio: the profits or losses attributed to the event divided by the average annual comprehensive income or loss for the period (including capital funds changes) in the last three years, based on the last 12 quarters for which reviewed or audited reports were published.

— 249 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

C. Balances with related and interested parties (continued)

Without derogating from the need to evaluate each event whose negligibility is being assessed, which of the above parameters are relevant, the following parameters will be considered as relevant to the transactions described below:
A. Acquisition of an asset: asset ratio
B. Sale of an asset: profit ratio, asset ratio
C. Acquisition or sale of insurance or reinsurance: premium ratio
D. Receipt of services (including leasing, vehicle and Dalkan automatic fueling services): expenses for services ratio
E. Services rendered (other than insurance services, and including insurance brokerage services, underwriting, transaction financing, and various financing services): service revenue ratio
The transaction is also qualitatively negligible.

When assessing the quality of the event, the following aspects will also be assessed:

Risks or material risks involved in the event. The risks involved in the event will be examined to determine whether and to what extent they are risk factors to which the Company is exposed.
The event may affect the Company's compliance with the significant regulatory or contractual requirements.

In assessing the negligibility of an event expected to occur in the future, it is necessary to assess the likelihood of the event's occurrence, and the risks entailed therein, and these should be found to not exceed the risks that the Company typically assumes in its ordinary course of business.

In December 2013, the Company's audit committee and board of directors approved the amendment to the Company's regulations for transactions with interested parties in the Company, as part of the internal compliance plan. In this context, the audit committee and board of directors confirmed that the transactions that were confirmed as negligible in respect of Regulation 41(A)(6)(a) of the Securities Regulations (Annual Financial Statements), 2010, are also negligible transactions regarding the Company in respect of section 117(2A) of the Companies Law, 1999.

Under this decision, in accordance with section 117(1A) of the Companies Law, the audit committee confirmed that the transactions listed in the appendixes to the regulation are not extraordinary transactions, on normal commercial terms (such as insurance, provident fund and/or pension fund management services), and were approved subject to their compliance with all the cumulative conditions set out in the regulation.

— 250 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

C. Balances with related and interested parties (continued)

December 31, 2014:

Financial investments for unit linked contracts Financial investments for ETFs Other financial investments Debt assets Shares Other Debtors and receivables Premiums collectible Creditors and payables Highest debt balance in the year Financial investments for unit linked contracts Financial investments for ETFs Debt assets	Remark	Delek Group	Mayer Group	Associates	Interested party and other related parties

	(2) (1-2)	275,715 388,922 48,192 36,055 69,773 - 6,840 632 188,148 104,627 50,386	- - - - - 8,838 - - - - - 198 906 289 40 - - - - - - 12,889		3,332 44,389 233 2,197 - 14,785 62 9,135 - - 257

— 251 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

C. Balances with related and interested parties (continued)

December 31, 2013

Financial investments for unit linked contracts Financial investments for holders of exchange traded funds Other financial investments Debt assets Shares Other Debtors and receivables Premiums collectible Creditors and payables Highest debt balance in the year Financial investments for unit linked contracts Financial investments for ETFs Debt assets	Remark	Delek Group	Mayer Group	Associates	Interested party and other related parties

	(2) (1-2)	326,960 421,176 44,901 18,015 62,467 - 3,306 589 173,020 87,774 102,736	- - - - - 12,736 - - - - - 188 676 374 33 - - - - - - 13,787		2,796 46,870 152 - - 31,882 70 15,867 - - 250

— 252 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

C. Balances with related and interested parties (continued)

December 31, 2012

Financial investments for unit linked contracts Financial investments for holders of exchange traded funds Other financial investments Debt assets Shares Other Debtors and receivables Premiums collectible Creditors and payables Highest debt balance in the year Financial investments for unit linked contracts Financial investments for ETFs Debt assets	Remark	Delek Group	Mayer Group Associates NIS thousands	Interested party and other related parties

	(2) (1-2)	344,138 250,278 77,409 5,117 92,251 - 3,666 - 184,804 62,355 84,411	- - - - - 6,941 - - - - - 107 564 299 73 - - - - - - 4,674	17,300 24,861 250 - - 5,073 79 5,313 - - 479

Includes loans provided to officers amounting to NIS 233 thousand, NIS 152 thousand and NIS 250 thousand as of December 31, 2014, December 31, 2013 and December 31, 2012 respectively. These loans bear fixed unlinked interest at a rate of 4.31%, 4.31% and 5.47% in 2014, 2013 and 2012, respectively.

As of December 31, 2014, December 31, 2013 and December 31 2012, the Company did not provide any loans to directors.

— 253 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

C. Balances with related and interested parties (continued)

2. Acquisition of a bank loan by the Company and Delek Belron

On July 3, 2008, an acquisition transaction was completed in which The Phoenix Insurance and Delek Belron International Ltd. (a company controlled by the Company's controlling shareholder), ("Delek Belron") acquired three portions of loans from an international bank ("the Loans" and "the Bank", respectively), in a total amount of EUR 80.07 million, which were provided to three different borrowers and backed by 30 profitable real estate properties in Germany and Switzerland. The loans were acquired through a foreign special purpose company, whose share capital and voting rights are held by The Phoenix Insurance and Delek Belron in equal parts ("the Foreign Subsidiary"). The Phoenix Insurance and Delek Belron signed a cooperation agreement that defines the rights of the parties in the Foreign Subsidiary and the cooperation between them for the loans. The Foreign Subsidiary paid a total consideration of EUR 58 million for the loan acquisition transaction. The share of The Phoenix Insurance in financing to the Foreign Subsidiary for the loan acquisition agreement amounted to EUR 29 million. As of December 31, 2014, the Company's share in the Loans, after a provision for doubtful debts, amounted to NIS 26,812 thousand (of which, NIS 17,875 thousand is recognized under unit linked liabilities).

D. Transactions with interested and related parties

Year ended December 31, 2014

Gross premiums Income from management fees from pension and provident funds Gains (losses) from debt assets and finance income Payments for insurance contracts Commission expenses General and administrative expenses	Delek Group 37,054 - 9,058 16,630 - 7,600	Mayer Group 32,452 - - 6,880 - 7,455	Associates 1,670 - 684 196 20,683 -	Interested party and other related parties
				2,617 312,414 8 75 - 37,853

— 254 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 41 - BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (CONTINUED)

D. Transactions with interested and related parties(continued)

Year ended December 31, 2013

Gross premiums Income from management fees from pension and provident funds Gains (losses) from debt assets and finance income Payments for insurance contracts Commission expenses General and administrative expenses	Delek Group 30,153 - 27,156 9,062 - 7,105	Mayer Group 31,169 - - 7,492 - 4,808	Associates 1,720 - 6,968 107 19,544 -	Interested party and other related parties
				2,236 292,897 - 533 - 42,126

Year ended December 31, 2012

Gross premiums Income from management fees from pension and provident funds Gains (losses) from debt assets and finance income Payments for insurance contracts Commission expenses General and administrative expenses	Delek Group 18,561 - 31,555 5,427 - 7,086	Mayer Group 28,879 - - 8,149 - 3,804	Associates 3,658 - 377 1,663 19,775 -	Interested party and other related parties
				2,207 305,478 - 102 - 27,939

— 255 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CONTINGENT LIABILITIES AND AGREEMENTS

A. Class actions: applications for certification of claims as class actions and claims certified as class actions

In recent years, there has been a significant increase in the scope of motions for certification of class action suits against the Company and/or its subsidiaries and the number of claims certified as class actions. This is part of the general increase in motions for certification of class action suits in general, including against companies operating in the same sector as the Company and/or its subsidiaries, mainly due to the Class Actions Law, 2006. This significantly increases the potential exposure of the Company and/or its subsidiaries to losses if the class actions against the Company and/or the subsidiaries are accepted.

Motions for certification of class actions are filed in accordance with the Class Actions Law, 2006 ("the Class Actions Law"). The procedure for motions for certification of class actions is divided into two main stages: The first stage is the hearing of the motion for certification of a class action ("the motion for certification" or the "certification stage", respectively). If the motion for certification is summarily dismissed, the hearing stage on the level of the class action is concluded. A ruling in the certification stage may be appealed at the court of appeal. In the second stage, if the motion for certification is accepted, the class action will be heard ("the certification stage of a class action"). The ruling at the certification stage of a class action can be appealed at the court of appeal. The Class Actions Law includes specific arrangements for settlements, in the approval stage and in the certification stage of a class action, and arrangements for withdrawal of the plaintiff from the motion for certification or from the class action.

In respect of the motions for certification of a class action suit (including claims that were certified as class actions and the certification is being appealed) as described in sections 1-28 below, management believes, based, inter alia, on the opinion of its legal counsel, that it is more likely than not that the statements of defense of Company and/or subsidiaries will be accepted and the motion for certification of a class action suit is more likely than not to be rejected, a provision was not included in the financial statements, except for motions for certification of class actions where the Company and / or subsidiaries are willing to settle. Provisions were included in the financial statements to cover the exposure estimated by the Company and/or the subsidiaries for motions for certification as class action lawsuits in which it is more likely than not that the statement of defense of the Company and/or its subsidiaries will be dismissed, or where there is a willingness to compromise, as the case may be.

Management believes, based, inter alia, on the opinion of its legal counsel, that the financial statements include adequate provisions to cover the exposure estimated by the Company and/or its subsidiaries, or a provision in the amount of the settlement that the Company and/or its subsidiaries is willing to reach, as the case may be.

A significant part of the motions to certify claims as class actions was filed against the subsidiaries for various matters related to insurance contracts and for the ordinary course of the subsidiaries' business. The subsidiaries have insurance reserves for these claims.

The likelihood of the motions for certification as a class action, which are described in section 29 below, cannot be assessed at this preliminary stage, therefore the financial statements do not include a provision for these claims.

— 256 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits:

On June 19, 2000, a claim was filed against Discount Mortgage Bank Ltd. ("the Bank") and against The Phoenix Israel Insurance Company Ltd. (“The Phoenix Insurance”) (together: "the Defendants"), together with a motion for certification of a class action ("the motion for certification"), at the Tel AvivJaffa District Court.

The plaintiffs obtained from the Bank loans for the purpose of purchasing residential apartments secured by a mortgage, and in the context of this loan the Bank required them to purchase homeowners insurance policies for their apartments from The Phoenix Insurance. According to the plaintiffs, the initial insurance established for their apartments was higher than the proper insurable value of the apartments, and in December 1993 and December 1994, the insurance amounts for their apartments were increased, with no justification and on no reasonable grounds. Therefore, the plaintiffs claim they have paid excessive insurance premiums over the years. The plaintiffs estimated the amount of the class action (as of June 2000) at NIS 105 million.

The remedies sought by the plaintiffs include submission of all the relevant information in order to respond to the plaintiffs' damage; compensation of the group members for the damages described in the claim; alternatively, declaratory relief that the defendants collected excessive premiums from the group members, and therefore they are entitled to reimbursement of the excessive moneys that were paid, according to the alleged principles of calculation in the claim; alternatively, declaration of the group's right to reimbursement of 20% of the insurance premium paid for the period as from December 1993, 38% for the period as from December 1994, and 15% for group members who took out a mortgage subsequent to December 1993, and prior to December 1994.

The group that plaintiffs seek to represent is any person who took and/or paid a mortgage to Discount Bank and was insured through the Phoenix Insurance, at any time, provided that the repayment period of the payments or part thereof applied in the period to which the claim relates, meaning December 1993 and up to the date that the motion for certification was filed, whether the mortgage was taken to acquire an asset that serves as an apartment or as a real estate asset that is not an apartment.

In September 2000, the bank and The Phoenix Insurance filed responses.

In December 2000, the district court decided to stay the proceedings against the Bank only, claiming that there is an earlier class action against the Bank, which refers to similar issues raised in the claim. Following this ruling, an order was granted for the stay of proceedings against Phoenix Insurance.

The claim was transferred to the Central District Court. In October 2007, the court requested that counsel for the plaintiffs review the ruling in the earlier class action against the Bank before preparing the claim for a hearing.

On May 12, 2012, the District Court in Tel Aviv approved a settlement for the class action (and for another class action), for which a stay of proceedings was given, according to which the class action was certified and the settlement was given the validity of a judgment, for all the members of the relevant group and for the issues settled in the settlement. At this stage, the plaintiffs have not made an announcement in view of the aforesaid, and discussions have not yet resumed.

— 257 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On October 19, 2004, a claim was filed against Hadar Insurance Company Ltd., whose businesses were merged with the businesses of The Phoenix Insurance ("The Phoenix Insurance"), together with a motion for certification as a class action ("the motion for certification"), at the Tel Aviv-Jaffa District Court.

The grounds for the claim refer to payment of insurance benefits in cases of total loss, in which the policyholders do not receive the full amount of insurance benefits due to them, which, they contend, correspond to the full list price of the car, but instead, The Phoenix Insurance deducts various amounts for "special variables" associated with the vehicle price list, which may have an effect on the value of the vehicle.

The plaintiffs argue that by not providing disclosure to the policyholders when quoting the price of the insurance policy or when entering into the insurance contract, the policyholders were misled and the provisions of the Commissioner of Insurance were breached, in particular those in insurance circular 2000/12 ("the Commissioner's Circular").

The plaintiffs estimate that the class action suit amounts to NIS 41.2 million.

The Phoenix Insurance filed its response to the motion for certification.

On January 14, 2010, the district court ruling accepted the motion for certification of a class action suit ("the certification ruling").

In the certification ruling, the court ordered that the class action group includes holders of private vehicle insurance policies (property damage and third-party property damage) acquired from the defendant, effective from January 1, 2001, and in the insurance period, an insurance event occurred which caused damage defined as a "total loss" to the insured vehicle, or the insurance company referred to the damage as a "total loss". The court ruled that the group will be defined at the date the motion for certification was filed, meaning October 19, 2004. The court set the identity of the representing plaintiff leading the group to be Mr. Ben Ami and ruled that the class action was certified on the grounds of misleading information or non-disclosure.

The Supreme Court denied the motion for leave to appeal filed against the Certification Ruling, and ruled that the allegations of The Phoenix Insurance will be held for appeal (to the extent filed) of the ruling in the claim.

On October 5, 2010, the parties filed a motion (with consent) with the District Court to approve the settlement. The Court dismissed this motion.

— 258 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

(continued):

On April 30, 2012, the Commissioner of Insurance published a draft decision concerning "systematic return for violation of Insurance Circular 2000/12", including in the matter of this procedure.

On February 7, 2013, the Attorney General announced that the Commissioner of Insurance had decided not to order systematic return for violation of the Commissioner's Circular.

Following this announcement, the parties consented to mediation (including the Attorney General).

On April 13, 2014 a motion was filed with the District Court for approval of the settlement between the parties, following prolonged mediation proceedings before the Honorable Former Chief Justice, M. Shemgar, in which the Attorney General took part. The highlights of the settlement agreement accepted by the Attorney General included monetary compensation for each of the members of the group, as defined in the settlement. Under the settlement, The Phoenix Insurance will pay an amount of NIS 6 million which will be shared pari-passu among the members of the group according to the specific rate of deduction made for each member of the group.

If each member of the group, whose particulars are known to the parties, respond to the inquiry addressed to them, then each member of the group will receive approximately 85% of the real value of the specific deductions from the insurance proceeds for the specific insurance event due to special variables. This rate could increase if not all the members of the group, as aforesaid, respond to the query, or decrease if it becomes apparent that there are additional members to the foregoing group.

In addition, under the settlement agreement, The Phoenix Insurance will pay compensation to the plaintiffs and will pay their attorney fees.

If any funds remain that is not shared to members of the group as defined in the settlement, the funds will be given as a donation through the Round-up Organization.

On April 29, 2014, the District Court approved the settlement agreement and ordered publication of notices and gave orders as required under the settlement agreement. The Court further ordered that if the conditions are established for handing a ruling, the parties will file appropriate application.

On April 25, 2006, a claim was filed against The Phoenix Insurance and against other insurance companies ("the defendants"), together with a motion for certification of a class action ("the motion for certification"), at the Tel Aviv-Jaffa District Court.

The plaintiffs contend that the defendants collect monthly premiums for disability insurance, including in the last three months of the insurance period, even though if there is an insurance event in this period, the policyholders will not be entitled to insurance benefits, due to the three-month waiting period, in which only if the policyholder still has work disability, the insurance company will start to pay insurance benefits from this date onwards.

Consequently, the plaintiffs contend that if the insurance period ends after the three-month waiting period (for example, if during that period the policyholder turns 65), a situation will be created where the policyholder will not be eligible for insurance benefits, even though they paid the insurance premium in the waiting period ("the non-coverage period").

The group that the plaintiffs seek to represent includes any person insured by the defendants for work disability, including the non-coverage period for which premiums are paid, which are valid or their validity ended in the seven years prior to filing the motion for certification.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

(continued):

The damage claimed by the plaintiffs is for the insurance premiums paid for the non-coverage period. According to an expert opinion obtained by the plaintiffs, the preliminary estimate of the damage for 1998-2004 for all the defendants is NIS 47.6 million, and the estimated damage attributed to The Phoenix is approximately NIS 8.1 million.

The Phoenix Insurance filed its response to the motion for certification. On February 3, 2009, the court accepted the motion for certification and certified the claim against all the defendants as a class action ("the certification ruling").

In the certification ruling, the court ordered, inter alia, that the class action group is defined as "any eligible person insured by the respondents who paid (or for the mandatory injunctions - who will pay) premiums for the non-coverage period". The grounds of the claim are violation of sections 38 and 39 of the Control of Financial Services Law (Insurance), 1981 ("the Control Law"); misleading information under section 55 in the Control; breach of contract and misleading information under contract laws; breach of statutory duty; breach of duty to act in good faith under section 39 of the Contracts Law; determination that there is a discriminatory stipulation in a standard contract; unjust enrichment and that the remedy sought is to refund all the insurance premiums that were actually collected from the group members for the non-coverage period, plus linkage differences and interest as set out in section 28(C) of the Insurance Contract Law, from the collection date through to the actual refund date, and to order the defendants to refrain from collecting insurance premiums for the non-coverage period.

On April 7, 2009, the court accepted the defendant's motion to delay the investigation of the class action until the ruling on the motion for leave to appeal the certification ruling.

On April 26, 2009, The Phoenix Insurance filed a motion for leave to appeal the certification ruling at the Supreme Court. The plaintiffs filed their response to the motion for leave to appeal.

On January 21, 2013, the Supreme Court heard the motion to appeal. On April 11, 2013, the Supreme Court handed down judgment for the motion for leave to appeal, accepting the appeal, by ordering another hearing of the motion for certification as a class action at the District Court, in order to rule on the following issues: whether payment in the last three months of the policy is for services that the policyholders will never be entitled to receive or whether this means distribution of payments based on actuarial calculations, whether the defendant insurance companies violated the duty of disclosure, and whether, in the view of the prima facie factual foundation, the statute of limitations applies in the circumstances of this case In accordance with the District Court ruling in the pre-trial hearings held in September 2013 and January 2014, The Phoenix Insurance filed an affidavit of discovery of documents and a supplementary affidavit. On August 5, 2014, the plaintiffs filed a petition with the Court for a court appointed expert and alternatively, to involve the Commissioner of Insurance in the proceedings ("Petition for Court Appointed Expert")

— 260 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

(continued):

On October 17, 2014 the plaintiffs filed a petition for further leave to file an expert opinion on their behalf (instead of an expert appointed by the Court). On February 15, 2015, the defendants filed an expert opinion on their behalf. At this stage the plaintiffs were required to file notice concerning continuation of proceedings which was filed on March 5, 2015 and included their petition to file closing statements based on the material before the Court. On March 22, 2015 the defendants gave notice that they agree to waive questioning of the parties subject to having an opportunity to question the plaintiffs' expert and to retain the right to file another expert opinion on their behalf following the foregoing questioning. On March 24, 2015 the plaintiff filed objection to the defendant's request. On March 25, 2015 the Court scheduled a pre-trial hearing for April 21, 2015 when a ruling will be handed for how the proceedings in the case will continue.

On December 19, 2006 a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the motion for certification"), at the Tel Aviv-Jaffa District Court.

The lawsuit refers to the Disability from Accidents Appendix, which is attached, at the request of the policyholder, to the life insurance policy ("the Appendix").

This appendix contains a table listing the monetary compensation to be paid out of the full insurance amount in respect of various forms of bodily damage, such as the loss of a leg or an arm. The plaintiffs claim that the insurance company pays compensation based on the percentage of the disability that was determined for the damaged organ, thus limiting its liability under the policy.

The plaintiff claims, on his behalf and on behalf of the group, that he is entitled to receive appropriate compensation out of the full insurance amount denominated in the policy, according to the disability grade set or to be set.

The group that the plaintiff wishes to represent is any person who is insured or is a beneficiary, or was insured or was a beneficiary, in policies in which The Phoenix Insurance provides coverage for disability resulting from an accident, who is entitled or was entitled to compensation for this insurance, when the policies indicate that the compensation is an appropriate percentage of the full amount of the insurance stated in the policy, according to the disability rate that was determined or that will be determined, and despite this, compensation was paid according to a disability rate that was lower than that determined, and the payment was made in the last seven years. The group will also include policyholders and beneficiaries under policies issued by insurance companies other than The Phoenix Insurance, which as a result of mergers or other transactions by The Phoenix Insurance, provided or provides insurance coverage in their respect. The remedy requested by the plaintiff is to charge The Phoenix Insurance for the difference between the amount of the compensation due under the policy, according to the plaintiff, and the actual compensation paid, for the entire group.

The plaintiff does not have information that allows calculation of the total damage for the entire group.

On January 11, 2009, subsequent to the hearing and written summations, the district court ruled to certify the claim as a class action suit.

After managing the case in the District Court, including filing of affidavits, written summaries, and completion of oral arguments, on February 27, 2014, the District Court handed down judgment on the class action, ordering restitution to the class members, as defined below, of the difference between the insurance compensation paid to them and the insurance compensation due to them, as a multiplication of the partial and permanent disability that was set for them as the maximum insurance amount in the policy.

— 261 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

4. (continued):

The court defined the class as the group of policyholders who purchased an accident disability policy from The Phoenix Insurance, and when the motion for certification was filed, three years had not passed since the occurrence of the insured event, meaning, since the accident, and who received insurance compensation that is not equivalent to the multiplication of the partial and permanent disability in the maximum insurance amount, including any policyholders with cause that was established up to the judgment, even if they received insurance benefits by virtue of the decision of the Commissioner of Insurance, and even if they signed a waiver or a settlement agreement, provided the settlement agreement does not explicitly refer to this claim, while waiving the policyholder's right to receive the insurance compensation notwithstanding the judgment, as set out above “the Class”).

However, pursuant to the judgment, policyholders whose case was resolved in a peremptory court ruling and policyholders who signed the settlement agreement or a waiver referring explicitly to this claim, without reserving the policyholder's right to receive the difference in insurance compensation in accordance with the judgment handed down for the claim, are not included in the Class.

The court further ruled that The Phoenix Insurance is entitled to offset amounts owed to each Class member, as set out above, for any undisputed debt.

The court appointed an officer to review the eligibility of the Class members and payment of the compensation due to them. The court also ordered payment of compensation to the plaintiff and legal fees to the plaintiff's counsel in amounts that are insignificant to The Phoenix Insurance.

The plaintiff's attorney filed a motion to correct alleged errors in the judgment, mainly: to charge the defendants for interest and linkage differences for their payments to the Class members, to charge the defendants for VAT on payments of attorney's fees and compensation and to charge attorney's fees at the higher rate (10%) for Class members who have not yet received insurance compensation, even if they are payable by virtue of the Commissioner of Insurance's decision.

On April 7, 2014 the court ruled that linkage and interest differentials are to be added to the payment, that the legal fees set include VAT and that there was no reason for amending the ruling in this regard, and that the policyholders eligible for relief under the ruling should be distinguished from the policyholders eligible for relief only under the ruling of the Commissioner, with regard to whom the reduced attorney's fees (3% including VAT) will apply.

On May 1, 2014, the plaintiffs filed appeal of the district court judgment with the High Court of Justice with respect to the ruling pertaining to the period of limitation, denial of special interest relief, rewarding the plaintiffs compensation and their attorneys' fees. The hearing of the appeal is set for October 26, 2015.

In addition, following negotiations with the Commissioner of Insurance, on August 29, 2013, the Commissioner of Insurance issued a draft decision on "payment of insurance compensation in accident disability insurance policies" ("the Draft Decision"), whereby the Phoenix Insurance will pay insurance compensation to the policyholders who are entitled to the difference in insurance compensation according to the calculation method of the Commissioner, pursuant to the decision of May 17, 2006, in the matter of Menora Insurance Company Ltd. The Phoenix Insurance filed and presented to the Commissioner of Insurance its response and reference to the Draft Decision. On May 1, 2014, the Commissioner of Insurance announced that, due to the ruling of the district court, he sees that there is no place for his further handling of the "cryptic coefficient" issue mentioned in the draft judgment.

— 262 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On January 3, 2008, a claim was filed against The Phoenix Insurance and four other insurance companies ("the defendants") together with a motion for certification as a class action ("the motion for certification") at the Tel Aviv-Jaffa District Court. The claim refers to the “sub-annual” payment factor, which is payment collected in life insurance policies, when the premium is fixed at an annual sum and is actually paid in a number of installments ("sub-annual payment").

The plaintiffs argue that the Defendants collect sub-annual payment at an amount exceeding the allowed rate, and this is done in several ways, as contended by the plaintiff: collection of sub-annual payments in respect of management fees, collection of Sub-Annual Payments at a rate exceeding the allowed rate in accordance with the circulars of the Commissioner of Insurance, collection of subannual payments in respect of the savings element in life insurance policies and collection of subannual payments in respect of policies that are not life-insurance policies.

The group that plaintiffs seek to represent is anyone who engaged with the defendants in an insurance contract and who was charged sub-annual payments in circumstances or in an amount that exceeds the maximum. The remedies requested by the plaintiffs include refund of all amounts that the Defendants unlawfully collected, and an injunction instructing the defendants to change the manner of their operations regarding the issues that are described in the claim.

The plaintiffs estimate that the amount claimed from all the Defendants is NIS 2.3 billion, of which the amount claimed from The Phoenix Insurance is NIS 284 million (before the amended motion for certification by the plaintiff as described below, the amount claimed from The Phoenix Insurance was NIS 384.5 million).

The Phoenix Insurance has responded to the motion. On February 1, 2010, the Court approved a settlement to strike out the claim and motion that The Phoenix Insurance collected sub-annual rates exceeding the rate set out in the Commissioner's circulars also for policies issued prior to 1992, and the plaintiffs filed an amended claim and motion, accordingly. The Phoenix Insurance responded to the motion for certification and the plaintiffs responded to the response of The Phoenix Insurance. The Phoenix Insurance has the right to respond to the plaintiff's response, and it responded accordingly.

The Commissioner of Insurance submitted his position on the case in accordance with the court order, the plaintiffs responded to this position and the defendants responded to the plaintiffs' response. In a hearing held on February 20, 2014, the Court ordered the plaintiffs to announce, within 30 days, how they intend to continue with the procedure. In a hearing held on April 8, 2014, the plaintiffs announced that they wished to continue proceedings on the motion for certification and the case was set for written summation.

The plaintiffs filed their summations. The Phoenix Insurance is required to submit its and the plaintiffs have right to submit closing statements in reply. A hearing was set for May 12, 2015 to hear complementing oral arguments.

— 263 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On July 30, 2008, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the motion for certification") at the Tel Aviv-Jaffa District Court.

The claim refers to the allegation that The Phoenix Insurance does not compensate its policyholders for protective measures installed in cars in cases of total loss, absolute total loss and partial loss.

The plaintiff estimates the damage for the group as NIS 27.8 million.

The group that the plaintiffs seek to represent is any person who, as from April 1, 2004, received compensation from The Phoenix Insurance for damage to a private or commercial vehicle up to 4 tons, including for total loss or theft, when insured by The Phoenix Insurance, with motor insurance in accordance with Part A of the Addendum to the Control of Insurance Business Regulations (Terms of an Insurance Contract for a Private Vehicle),1986, in full or in part, and did not receive all and/or partial insurance compensation for loss or damage caused to the protection measures installed in the vehicle at the demand of The Phoenix Insurance.

The Phoenix Insurance has responded to the motion.

The District Court transferred the claim to a joint hearing with seven other claims filed against other insurance companies, with a similar allegation to the allegation in the above claim.

In July 2011, the Attorney General announced his participation in the case, and explained his position regarding the application of section 1 of the standard policy for insuring a private vehicle (section 1 of the Addendum to the Control of Insurance Business Regulations (Contract Conditions for Insurance of a Private Vehicle), 1986), without stating his position on the actual proceedings.

On July 2, 2012, a settlement agreement was signed for the claim and six other claims filed on the same matter against six other insurance companies ("the settlement agreement").

In accordance with the settlement agreement, without admitting to any contention and/or liability, the Phoenix Insurance was required to pay the group defined in the settlement agreement, 50% of the price of the theft protection system that was installed and/or that is in the private vehicle of the policyholder in accordance with the Company's requirements in the policy that was in effect on the date the insurance event occurred, less annual depreciation of 33%. The Phoenix Insurance undertook to contact the policyholders in writing and to announce the settlement agreement in the newspapers. The Phoenix Insurance further undertook to pay a minimum amount of NIS 1 million, so that if the total amount paid by The Phoenix Insurance to the group members under the Settlement Agreement falls below this minimum amount, The Phoenix Insurance will make a further distribution to the group members who applied, up to a limit of 100% of the cost of the relevant protection.

If the total amount of the moneys paid by The Phoenix Insurance to the group members, subsequent to this second distribution, is less than the minimum amount, The Phoenix Insurance will donate the difference between the amount paid to the group members and the minimum amount, to the Krembo Wings Association, a national youth movement for children with special needs. In addition, The Phoenix Insurance was required to pay the plaintiff's counsel fees amounting to NIS 139 thousand (including VAT) and paid the plaintiff compensation of NIS 30 thousand.

The court appointed an auditor to review the settlement agreement. The auditor submitted his opinion on December 4, 2013. The Attorney General submitted his position and the parties submitted their responses to his position. During June and July 2014, another two insurance companies announced that they were joining the settlement agreement.

On December 22, 2014, a judgment was handed by the court according to which the settlement arrangement was approved subject to the defendants' consent to amendments required by the court in its judgment.

— 264 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

(continued):

The amendments refer, inter alia, to the calculation of the rate to be refunded, the manner by which the refund will be executed, a mechanism for informing the members of the group, a mechanism for future settlement and a mechanism for allocating the remaining funds.

The Court ordered all the defendants to respond within 30 days if they are willing to accepted the amendments set out in its judgment and ruled that if the defendants accept the amendments, and after and subject to the auditor's calculations, a judgment will be handed approving the settlement arrangement or instructions will be given regarding further proceedings on the case, and also clarified that the settlement arrangements will be approved only with respect to the defendants who accept the amendments in full.

On January 19, 2015, the parties submitted a joint motion for a hearing to be held before the court in regard to the court's ruling of December 22, 2014. On January 21, 2015, the court accepted the motion and set a hearing for February 11, 2015.

At the same time the defendants filed a request to extend the deadline for filing leave to appeal the court judgment. The request was approved in a ruling by the Registrar of the Supreme Court on January 25, 2015.

On February 11, 2015, a hearing was held at the District Court, during which the Court handed down a few clarifications concerning the settlement agreement. It was also decided that within three weeks the Attorney General will give his opinion regarding several amendments to the settlement agreement, after which the Court will hand down its ruling on how and under which terms the settlement agreement will be amended with respect to those issues that require the Attorney General's position after receiving an extension for the Attorney General to submit his position by March 25, 2015.

For the sake of caution, a joint petition was filed at the Supreme Court on March 5, 2015 forextending the deadline for submitting leave to appeal until April 21, 2015. The Supreme Court approved this petition.

— 265 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On April 5, 2009, a motion for certification as a class action suit was filed against Standard and Poor's Maalot Ltd. (“Maalot”), World Currencies Ltd. “World Currencies”), and officers in Excellence Investments Group Ltd. ("Excellence Group" or "Excellence", respectively), Bank Leumi Le Israel Trust Company Ltd. and against Excellence, in respect of the prospectus issued by World Currencies for the public placement of debentures backed by notes issued by Lehman Brothers Bankhaus AG ("Lehman").

The plaintiff claims that Excellence, World Currencies and officers in the Excellence Group breached various obligations towards the debenture holders, including by not informing them of Lehman’s link to the debentures and Excellence’s dependence and ability to repay from the notes issued by Lehman, in a way that investors relied only on the rating of the debentures by Maalot. It is further claimed that Excellence did not report that the collapse of Lehman Germany could possibly affect the repayment of the debentures and reduce the value of the debentures, that the Excellence failed to inform the investors in real time of the implications of the economic crisis on the full and timely repayment of the debentures and that Excellence was negligent when including the opinion of Maalot in the prospectus.

The plaintiff is one of the debenture holders and he is seeking to file the claim in his name and on behalf of all the debenture holders at the date Lehman collapsed. The plaintiff estimates that the class action suit amounts to NIS 84.5 million.

At this stage, the hearings of the motion for certification have been suspended until a decision is made regarding the motion for certification as a class action submitted in the matter of Keshet as set out in section 8 below.

On May 27, 2009, a motion for certification of a class action was filed against Keshet Debentures Ltd. (a subsidiary of Excellence Ltd., hereinafter: "Keshet") and its directors, against Express Finances Ltd. (which to the best of the knowledge of Excellence holds 50%) of the issued share capital of Keshet), against Excellence Nessuah Underwriting (1993) (a subsidiary, hereinafter: "Underwriting") which holds the remaining 50% of the issued capital of Keshet and against Excellence Investments Ltd. ("Excellence") (jointly: "the defendants"), with respect to the prospectus issued by Keshet for the public placement of debentures backed by notes issued by Lehman Brothers Bankhaus AG ("Lehman Germany"). The liability of Lehman Germany was guaranteed by Lehman Brothers Holdings Inc. ("Lehman USA"). Lehman Germany and Lehman USA will be referred to hereunder as “the Lehman Group”.

On June 23, 2009, another motion for certification as a class action suit was filed against Maalot, Bank Leumi Le Israel Trust Company Ltd. and against Keshet, Excellence Underwriting and officers in Excellence and Expert Finances Ltd. "the defendants"), with respect to the prospectus issued by Keshet for the public placement of debentures backed by notes issued by Lehman Brothers Bankhaus AG (“Lehman Germany”).

The plaintiffs of the two motions set out above claim that the defendants breached various obligations towards the debenture holders, including by allegedly disregarding several material events relating to the main risk for repayment of the notes, and which indicated the financial deterioration of the Lehman Group. The plaintiffs claim that the defendants should have informed the investors of the negative developments in the Lehman Group, and that the numerous dramatic events allegedly issued about the Lehman Group was not met by any response or disclosure by the defendants. The alleged failure to disclose and the false representations misled the investors in the debentures and was the cause of the damage to the members of the group in the claim.

— 266 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

(continued):

The plaintiffs contend that the behavior of the defendants was faulty and that the defendants could have prevented the damage or substantially reduced it and did not do so.

The plaintiffs further contend that in June 2008, the defendants who are the controlling shareholders in the Company, changed the service agreement with Keshet, such that the defendants were able to withdraw all the funds from Keshet, that the funds that were withdrawn from Keshet could have been used to purchase deposits insurance, that the defendants did not take steps to insure deposits in respect of the funds invested in Lehman Germany, even though, allegedly, the fiduciary duty and duty of care towards the investors requires insuring such deposits, and that the defendants did not take steps to replace the backing bank and included the opinion of Maalot in the prospectus.

The plaintiffs are debenture holders and they are seeking to file the claim in their name and on behalf of all the debenture holders at the date Lehman Bank collapsed. The first plaintiff of May 27, 2009 estimates that the class action suit amounts to NIS 286 million and the second plaintiff of June 23, 2009 estimates that the class action suit amounts to NIS 220 million.

Following the request of the defendants, these claims were combined and the amount of the claim was adjusted to NIS 286 million.

The motion for certification was scheduled for written summations. The plaintiffs filed their summations on January 22, 2014 and the defendants are required to file their summations at varying dates, and on March 11, 2015 the plaintiffs filed their closing statements.

— 267 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On July 15, 2009, a motion for certification of a class action suit was filed in the Tel Aviv district court against Excellence Nessuah Investments Management Ltd. (“Excellence Investment Management”) (a subsidiary of Excellence Investments Ltd.) and against Epsilon Investment House Ltd. (“the claim”). The plaintiffs estimate that the amount of the Claim is NIS 27 million.

The claim was filed by several plaintiffs who contend, among other things, to be the heirs of a customer whose investment portfolio was managed by Excellence Investment Management until November 2007 and/or who had power of attorney for her account during the portfolio management period.

The main allegations against Excellence Investment Management are that during the management period of the customer’s portfolio, Excellence Investment Management collected fees from the customer that exceeded those due to the bank for transactions in her account, while receiving some of these fees from the banks as “commission refunds”. The plaintiffs claim that these commission refunds were made through improper disclosure to the customer and were in violation of the provisions of various laws. On November 4, 2010, the settlement agreement between Epsilon and the plaintiffs was approved and it was given the validity of a judgment. On April 4, 2011 the Court certified the claim as a class action on the basis of two grounds: breach of statutory duty and unjust enrichment. The other allegations and grounds in the motion were dismissed.

On December 9, 2013, the District Court accepted the class action on the grounds of unjust enrichment, and dismissed the grounds for breach of statutory duty, and ordered Excellence Investment Management to reimburse all the fees that it received to all the members of the group represented in the class action. Excellence Investment Management filed an appeal by right at the Supreme Court against the judgment of the District Court, alongside a motion to postpone implementation of the judgment in all matters relating to reimbursement of funds to the group members. On February 5, 2014, the Supreme Court ordered temporary stay of the judgment, until another decision is made after receiving the plaintiffs' position. On March 13, 2014, The Phoenix Insurance informed the district court of the Supreme Court ruling.

On March 23, 2014, the Supreme Court ordered a stay of execution of the ruling until a ruling is handed on the appeal, against bank guarantee in the amount of NIS 5.8 million. Excellence Investments Management deposited the guarantee on April 8, 2014.

A hearing of the appeal and counter appeal was set for July 9, 2015. Pursuant to the ruling of May 1, 2014, Excellence Investment Management submitted a summary of its arguments on the appeal on October 20, 2014 and the representative plaintiffs submitted summaries of their arguments on the appeal and counter-appeal on February 3, 2015. Excellence Investments Management has right of leave to respond to the appeal and counter appeal arguments of the representative plaintiffs by April 19, 2015.

— 268 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On February 24, 2010, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the motion for certification") at the Central District Court.

The plaintiff contends that The Phoenix Insurance was not permitted to collect from its life assurance policyholders any amount for the premium component called the policy factor or other management fees without the explicit consent of the policyholder, according to the insurance agreement (the policy) between the policyholder and The Phoenix Insurance, even although collection of the policy factor was explicitly permitted by the circulars of the Commissioner of Insurance and the policyholder also knew that he is charged for the policy factor from the annual reports sent to him (as of 2003).

The plaintiff also claims that collecting the policy factor without his explicit consent caused him further harm in the amount of the returns that he did not receive, as The Phoenix Insurance should have invested the amount collected for the policy factor in the capital market.

The plaintiff claims that collection of the policy factor without anchoring it in the insurance agreement is grounds for a claim of breach of contract, breach of fiduciary duty of the insurer towards the policyholders, misleading of customers in the contractual and pre-contractual stage, breach of duty of good faith, unjust enrichment and breach of statutory duty (according to the Control of Financial Services Law (Insurance), 1981.

The remedies sought by the plaintiff are return of the amounts collected by The Phoenix Insurance for the policy factor and a mandatory injunction ordering The Phoenix Insurance to cease collecting the policy factor.

The group that the plaintiff seeks to represent is any person who is or was insured by The Phoenix Insurance and who was charged any amount as “other management fees and/or policy factor".

The plaintiff estimates that the general damage caused to the entire group is NIS 445 million.

The Phoenix Insurance has responded to the motion.

On April 12, 2011, the court certified the claim as a class action ("the certification ruling").

In the ruling, the Court ordered to define the group as anyone who holds or held a life insurance policy from The Phoenix Insurance from February 24, 2003 through to February 24, 2010, and who was charged any amount as "other management fees" or "a policy factor", without there being an explicit condition for this payment in the policy. The grounds for the claim are unlawful collection of "a policy factor" or "other management fees"; and the requested remedy is reimbursement and compensation.

On September 5, 2011, The Phoenix Insurance filed a motion to appeal the ruling at the Supreme Court ("the motion to appeal"). The plaintiff filed his response to the motion to appeal. On February 7, 2012, a hearing was held at the Supreme Court, with the participation of the Commissioner of Insurance, at the request of the Supreme Court.

On September 4, 2012, the Supreme Court handed down a ruling on the motion to appeal, which reversed the certification ruling.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

(continued):

Following the ruling of the Supreme Court, the hearing of the motion for certification was returned to the district court. In a pretrial hearing held on December 17, 2012, the Attorney General announced that he intends to participate in the case and to present his position and the court approved this. The Attorney General submitted his position and the plaintiff and The Phoenix Insurance submitted their responses to his position. In a preliminary hearing, on July 29, 2014, the Attorney General was given the option of announcing, within 21 days, whether the motion for certification affects the stability of the company. On October 2, 2014, the Attorney General announced that this matter does not raise concerns of stability at this time and that he does not consider his involvement in the proceedings at this stage necessary.

On January 20, 2015, the parties announced that they wished to waive investigations. The parties are waiting for an update regarding emerging settlement arrangements in corresponding cases before this court. The case has been scheduled for an internal hearing on June 11, 2015.

On April 11, 2010, a claim was filed against The Phoenix Insurance and against other insurance companies ("the defendants"), by the Israel Consumer Council ("the plaintiff") ("the motion for certification") at the Central District Court. The plaintiff contends that the defendants, inter alia, breach their duties by failing to take steps to locate persons who have rights to moneys that were deposited in insurance policies, do not inform them of this and do not take steps to return the unclaimed funds that they hold. Moreover, the Plaintiff contends that the Defendants do not apply to the Population Registry, do not submit reports to the Administrator General, do not manage these moneys separately from other moneys and do not transfer the moneys to the Administrator General when their transfer is required.

Due to these omissions, the holders of the rights do not receive their moneys and the defendants collect excessive management fees from their moneys. Moreover, the plaintiff contends that the defendants are unjustly enriching themselves from the revenues generated by the unclaimed moneys.

The group that the plaintiff seeks to represent is all the holders of rights in assets held by the defendants, or are under their responsibility or control, who the defendants allegedly did not notify that they own the assets held by the defendants, as their duties require them to do.

The plaintiff did not estimate the number of members in the group or the amount of the claim.

The remedies sought by the plaintiff include ordering the defendants to take the steps as prescribed in the directives of the Commissioner of Insurance, ordering the defendants to transfer the unclaimed funds to the Administrator General, ordering the defendants to compensate the members of the group and to return the moneys and to return the commissions and management fees collected for these moneys and to appoint a receiver or another functionary to enforce the Court’s orders, as the Court deems fit.

The Phoenix Insurance filed its response to the motion for certification. The Attorney General submitted his position following the Court's request.

The parties informed the Court that they agreed to mediation. The parties are currently conducting mediation proceedings. The case has been scheduled for an internal hearing on April 10, 2015.

— 270 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On April 14, 2010, a claim was filed against The Phoenix Insurance and other insurance companies ("the defendants") together with a motion for certification as a class action ("the motion for certification") at the Central District Court.

The motion for certification is about the conduct of the insurance companies when collecting the final premium or premiums from a policyholder at the end of the insurance term, whether the policy is canceled by the policyholder or due to an insurance event (“the termination of the insurance”).

According to the plaintiffs, insurance is usually terminated after the insurance premium has been collected for the month in which the insurance was terminated, as this premium is collected in advance at the beginning of the month. Although the policyholder is entitled to a refund for the proportionate part of the month, the defendants do not return the proportionate part of the premium to the policyholders. Moreover, the plaintiffs contend that when the premium is returned, whether by refunding money or by offsetting future premiums, it is returned in nominal values.

The plaintiffs estimate the total damage to the members of the group at NIS 225.2 million, in nominal values. This calculation relates to a period of ten years only. The remedy requested in this claim is a refund of the excess premiums collected in contravention of the law and/or returned in contravention of the law and/or the unpaid revaluation differences for each group member.

The Phoenix Insurance filed its response to the motion for certification and a preliminary hearing was held.

Evidentiary hearings were held in the case and the parties filed their summations.

On August 7, 2014, the Court ordered the statements of arguments in the case to be sent to the Commissioner of Insurance for his position, before ruling on the motion for certification. Further to the request for clarification submitted by the plaintiffs, the court clarified in its ruling of August 11, 2014, that the Commissioner's position was required for the purpose of assessing the possible implications of approval of the motion on the defendants and that, the Commissioner's position on the arguments of the defendants is also required in regard to the matter of pricing of the premium.

On November 5, 2014, the Commissioner of Insurance submitted his position to the Court. The defendants filed their response to this position, together with a complementary opinion of an actuary. The defendants requested that this opinion be removed from the court case, the respondents submitted their response to this request and on January 1, 2015 the plaintiffs filed their rebuttal to the respondents.

The parties are waiting for the court's ruling on the motion for certification.

— 271 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On June 1, 2011, a claim was filed against The Phoenix Insurance and against other insurance companies ("the defendants"), together with a motion for certification of a class action ("the motion for certification") at the Central District Court.

According to the plaintiffs, the defendants pay the insurance benefits, which are foreclosed at the request of a third party, upon expiry of the foreclosure, at nominal values and without any revaluation, or in some cases, with linkage differences only.

The plaintiffs estimate that the claim against all the defendants amounts to NIS 350 million. According to the expert opinion attached to the claim, the amount of the claim against The Phoenix Insurance is NIS 56 million.

On December 12, 2012, the District Court certified the motion for certification and approved the filing of a class action suit against The Phoenix Insurance (and against the other defendants in the motion for certification) ("the certification ruling").

According to the certification ruling, the group members are defined as any eligible person (meaning, policyholders and injured persons) who received insurance benefits from the Defendants after June 1, 2008, whose right to payment was delayed due to foreclosure of the asset, or receivership orders or any rights of third parties, provided the yields from the moneys in the delayed period for the foreclosure were not transferred in full to the eligible party. The grounds of the claim are the right of the group members to receive linkage differences and interest, which represent the benefits produced by the defendants in the delay period due to the foreclosure. The remedy claimed is payment of linkage differences and interest to the group members at a rate representing the benefit to the defendants during the delay due to the foreclosure. The plaintiffs filed a revised statement of claim. The parties are in the process of arbitration, and the arbitrator appointed a reviewer. In November 2014, the plaintiffs announced the termination of the arbitration process. Pursuant to the Court's rulings and understandings reached with the plaintiffs' counsel, the deadline for filing a statement of defense for the class action was extended to March 18, 2015, and a further agreed petition was filed to extend it until March 31, 2015. The pre-trial hearing was set for April 15, 2015�

— 272 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On May 22, 2012, a claim was filed against The Phoenix Insurance, five other insurance companies and an insurance agency ("the defendants"), together with a motion for certification of a class action ("the motion for certification") at the Jerusalem District Court.

The plaintiffs contend that the defendants refuse to insure people with disabilities (or alternatively, establish impossible terms of the policies) under individual insurances, such as healthcare, travel, pension, personal accident, life, long term care and disability insurance, and by doing so, impair the rights of the group members (as defined below) to equality and dignity. The plaintiffs further contend that when refusing to insure them, the defendants do not rely on relevant information about the insurance applicant and do not examine the facts of each applicant as an individual request. By failing to do so, the defendants withhold from the group members (defined below) due process required for any person seeking to purchase life insurance in one of the individual insurances.

The plaintiffs further contend that the respondents act towards the group members as if they were one individual and not as individuals and therefore harm their dignity and their right to equality.

The group that plaintiffs wish to represent includes all applicants for insurance with the defendants, who the defendants refused to insure under one of the individual insurances listed above, due to an illness or disability of the member (“the first group"), as well as people with disabilities who did not apply or will not apply to the defendants for insurance, knowing that the defendants will not agree to insure them due to their disability as described in the claim ("the second group"). The first group and the second group will be referred to jointly hereunder as “the group”).

The total compensation sought by the plaintiffs for the first group is estimated at NIS 934 million, based on following:

Compensation for head of damage for damage to dignity and feelings, NIS 225 million; for head of damage for damage to equality and autonomy, NIS 269 million; and for head of damage for pecuniary damages without proof of damage, NIS 440 million. Declaratory relief is also requested and an injunction as described below.

The remedies sought by the plaintiffs for the whole group (the first group and the second group) are, inter alia, to declare that the defendants violated the laws and regulations set out in the claim; to order the defendants to cease discrimination against the group and to establish clear procedures for individual, specific and equal handling, without discrimination against people with disabilities; to order the defendants to present an organized procedure for all matters relating to refusal to provide insurance to a person with disabilities; to determine compensation for members of the group; to grant retroactive coverage to group members who will be eligible to be insured after an equal underwriting procedure; to charge the defendants for expenses, compensation to the plaintiffs and legal fees for the attorneys who represent the plaintiffs.

The Phoenix Insurance filed its response to the motion for certification. Several preliminary hearings were held on the case. Following arbitration proceedings between the parties, the court scheduled a hearing to be held before it on December 31, 2014 with the presence of the arbitrator. In this hearing, it was decided that the parties will continue arbitration, with a retired judge joining as another arbitrator.

— 273 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On August 6, 2012, a claim was filed against The Phoenix Insurance and against other insurance companies ("the defendants"), together with a motion for certification of a class action ("the motion for certification") at the Central District Court.

This claim refers to management fees collected by the defendants from the premium in life insurance policies combined with savings that were issued from the beginning of 2004, for self-employed and for employees, and therefore are recognized as provident funds by law and called "insurance funds", as well as those for individuals, called "individual policies" ("the policies").

The plaintiffs contend that the collection of management fees by the defendants as a percentage of the premium paid by the policyholders ("management fees from the premium") are allegedly collected in contravention of the law and any such collection is invalid and these management fees should be returned to the policyholders. The plaintiffs further contend that the maximum management fees than can be charged are 1% of the value of the investment portfolio and that any management fees that exceed this percentage should be returned to policyholders in accordance with the Control of Financial Services Regulations (Insurance) (Terms of an Insurance Contract), 1981. The plaintiffs also contend that the Commissioner of Insurance had the authority to approve management fees of up to 2% of the value of the investment portfolio in specific cases, and that the Commissioner had exceeded his authority when permitting a sweeping charge of 2%.

Alternatively, the plaintiffs contend that in any case, even if collection of management fees from the premium is permitted and even if it is sweepingly permitted to collect the full 2% from the value of the investment portfolio, they claim that the defendants collect management fees from the premium in relation to the total premium paid by the policyholder, including the management fees themselves, and management fees are collected from the premium also in respect of payments of risk premiums that are not intended for savings, therefore the excess premium should be returned to the policyholders.

The group that the plaintiffs seek to represent is anyone who is or was insured by one or more of the defendants in a life insurance policy that is combined with savings, issued from the beginning of 2004, including a risk policy that was presented as a policy combined with savings, for active policies as well as for settled or redeemed policies.

The plaintiffs estimate that the damage amounts to a total nominal par amount of NIS 570 million (for collecting management fees from premiums) or alternatively, to NIS 65 million (for collecting management fees in respect of management fees) and alternatively, NIS 132 million (for collecting management fees with respect to risk coverage) and all in accordance with the claims of the plaintiffs.

The plaintiffs estimated that the damage is distributed among the defendants according to share in the sector, as defined in Table D7 of the report published by the Commissioner of Insurance for 2004 to 2007, which states that the share of The Phoenix Insurance is 16%. Accordingly, the amount of the claim against The Phoenix Insurance is NIS 91 million (for collection of management fees from the premium), or alternatively, NIS 10.5 million (for collection of management fees in respect of management fees), and alternatively, NIS 21 million (for collection of management fees in respect of risk cover), in accordance with the allegations of the plaintiffs.

The remedies sought in this claim include refund of the excessive management fees that were collected from each of the group members; an injunction ordering the defendants to change the manner of their actions regarding collection of management fees with the policies described above; compensation for the plaintiffs and legal fees, and to charge the defendants for court expenses.

The Phoenix Insurance filed its response to the motion for certification. In a pre-trial hearing held on May 18, 2014, the court directed the plaintiffs to examine their factual claims with the defendants and to inform the court of their position regarding continuation of the proceedings, by December 1, 2014.

— 274 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

(continued):

On December 1, 2014, the plaintiffs announced that after reviewing the information that was presented to them, they were satisfied with regard to a certain issue, however not with regard to all the issues in their claim and that under such circumstances, the plaintiffs wish to continue proceedings and a more detailed notice on this matter will be submitted later.

On December 21, 2014, the plaintiffs submitted a detailed notice and leave to file a complementary rebuttal to the responses of the defendants, with attached two expert opinions on their behalf. In their notice, the plaintiffs note that after reviewing the documents and information presented to them, they were satisfied with regard to the claim that the price for risk coverage in the policies subsequent to 2004 was not higher than the price for risk coverage in the policies marketed until 2004, and with regard to the rest of their claims, the plaintiffs announced that their position has not changed and that they wish to continue proceedings with regard to them.

In a pre-trial hearing held on February 8, 2015, the court ordered the parties to send to the Commissioner of Insurance copies of the statements of arguments, notices and minutes on the case, and the Commission of Insurance will give his position regarding the claims raised by the plaintiffs in the motion for certification by March 15, 2015.

The parties may submit their responses to this position up to two weeks after it is submitted. The Commissioner of Insurance's position was filed. A preliminary hearing was set for May 11, 2015.

On January 13, 2013, a claim was filed against The Phoenix Insurance and the Israeli Motor Vehicle Insurance Pool ("the pool") and against 13 other insurance companies (jointly below: ("the defendants") at the Central District Court, together with a motion for certification of a class action “the claim”).

The claim refers to excessive collection in compulsory motor insurance and return of an amount out of the premium collected by the pool for compulsory motor insurance, without providing any insurance cover for the amount that was collected.

The plaintiff notes that the compulsory insurance certificate issued by the pool states that "the insurance starts on the date of the bank stamp, but not before April 1, 2014..." According to the plaintiff, when the policyholder pays the full premium recorded on the compulsory insurance certificate after the date specified therein (in this case, the compulsory insurance certificate was paid on April 7, 2008 and not by April 1, 2008), the defendant charges a premium for the period between the date on the certificate (April 1, 2008) and the payment date at the bank (April 7, 2008), without providing any insurance coverage for this period. The plaintiff claims that this compulsory insurance is residual insurance organized by the pool for any user of motor vehicle insurance who could not purchase a policy directly from another insurer, and this residual insurance is provided through coinsurance of all insurance companies that provide compulsory insurance in Israel.

The group that the plaintiff seeks to represent is the group of all policyholders holding a compulsory motor insurance policy of the defendants (and alternatively only, and for due caution, as a group insured by the pool only), who paid the premium late, meaning, after the date stated in the insurance certificate that was issued to them, in the seven years prior to filing the claim (“the group”).

The plaintiff estimates the total damage to members of the group with regard to all the defendants at NIS 36.8 million, and of that amount, a total of NIS 2.7 million refers to the pool only. These amounts, plus interest and linkage differentials by law from the middle of 2008 onwards, reach NIS 45.1 million and NIS 3.3 million, respectively.

— 275 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

(continued):

According to the plaintiff, the size of the group for all the defendants could reach 430 thousand policyholders (assuming that each policyholder owns no more than one vehicle), and for the pool only, 21.1 thousand policyholders.

The remedies sought by the plaintiff are, inter alia, to determine that the date from which the pool was entitled to collect a premium from the plaintiff and/or the date from which the other defendants were entitled to collect their proportionate share in the premium, is the actual date on which the plaintiff pays the premium to the bank, and not from period stated in the compulsory insurance certificate; to order the defendants to provide all relevant information to estimate the number of members in the group and estimate the amount of the class action; to order the defendants to pay the amount of the claim and to declare that the defendants refund to all the group members the amount of the premium that was unlawfully collected, plus interest and linkage differences; to award compensation to the plaintiff and the plaintiff's counsel and to order the defendants to pay all of the plaintiff's legal expenses.

The Phoenix Insurance filed its response to the motion for certification.

The plaintiff filed a motion to amend the motion for certification, whereby a representative plaintiff was added against some of the defendants, including in relation to The Phoenix Insurance. In the motion to amend, the plaintiff estimates the total damage for members of the group with regard to all the defendants at NIS 21 million, and of that amount, a total of NIS 2.7 million refers to the Pool only. These amounts, plus interest and linkage differentials by law from the middle of 2008 onwards, reach NIS 27 million and NIS 3.4 million, respectively. The Phoenix Insurance has filed its response to this motion to amend.

On March 25, 2014, the court permitted the plaintiff to amend the motion for certification by adding representative plaintiffs who have grounds for a personal claim against the defendants including against The Phoenix Insurance.

In addition, on March 10, 2014, another claim was filed against The Phoenix Insurance and three other insurance companies (below together with The Phoenix Insurance: "the defendants") together with a motion for certification as a class action ("the motion for certification") at the Central District Court (jointly hereinafter "the claim"), which refers to similar, if not identical, issues as those in the class action noted above.

According to the plaintiffs, this claim refers to unlawful overcharging of the premium for compulsory motor insurance when paying the premium for compulsory insurance after the date stated on the insurance certificate as the date on which the insurance begins. The plaintiffs contend that when, for any reason, policyholders postpone payment of the premium (even by one day), they pay the full insurance premium for the period purchased, while they do not receive insurance cover for the days between the date stated on the certificate as the date insurance begins and the date of actual payment.

The group that the plaintiffs seek to represent in this claim is customers of the defendants that purchased compulsory insurance as from January 13, 2006 and paid the amount stated on the insurance certificate after the date stated on the certificate as the date insurance begins ( “the Class”).

The plaintiffs in this claim estimate that the total cumulative damage with regard to all the plaintiffs together amounts to NIS 20 million in terms of the principal (with the addition of interest and linkage differences from the middle of the period up to February 2014, this amounts to NIS 24 million). Of this amount, estimated damage of NIS 6.6 million is attributable to The Phoenix Insurance.

— 276 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

(continued):

The main remedies sought by the plaintiffs in this claim are to order the defendants to refund the amounts allegedly collected from the Group members in contravention of the law; to issue a forward looking permanent injunction ordering the defendants to act in one of the following manners: to add the following text to all insurance certificates issued by the defendants: "this insurance expires on the date specified in this certificate at midnight or X days after the date this certificate was stamped by the bank at midnight, whichever is later", or, alternatively, when compulsory insurance is paid after the date specified on the certificate as the date insurance begins, the expiration date of the insurance will be moved forward or alternatively, when compulsory insurance is paid after the date specified in the certificate as the date insurance begins, the policyholder will be automatically refunded the proportionate financial value for the days when there was no insurance cover; to determine compensation for the representative plaintiffs and legal fees for their counsel.

The court approved the plaintiffs' motion to transfer this case to be heard before the Honorable Judge Grosskopf, who heard the earlier class action suit on the foregoing date.

In a hearing held on April 30, 2014, the court joined the two claims and ordered, inter alia, that the plaintiffs will be the plaintiffs that appear in both claims and that at the present time, the revised motion for certification filed on February 16, 2014 in the earlier claim will be the motion heard in the joint proceedings and the dates will be as scheduled in the hearing on the earlier claim.

Consequently, the Phoenix Insurance's revised statement of response and the response of the plaintiffs to this statement of response were filed with the court and on November 16, 2014, a further pre-trial hearing was held. On February 8, 2015, a pre-trial hearing was held with the participation of representatives from the office of the Commissioner of Insurance and their counsel from the Tel Aviv District Attorney's office, pursuant to the rulings of the court of November 16, 2014 and January 29, 2015. On February 15, 2015 the defendants announced, without prejudice to their arguments, that they do not intend holding an evidentiary hearing on the case. The case was scheduled for filing of summations, including the Commissioner of Insurance's reference to the summations of the parties and the responses of the parties to the Commissioner's reference. The case was scheduled for internal reminder for July 15, 2015.

— 277 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On October 24, 2012, a claim was filed against The Phoenix Insurance and Femi Premium Ltd. ("Femi Premium") (jointly hereinafter: "the defendants"), together with a motion for certification of a class action "the motion for certification") at the Tel Aviv-Jaffa District Court.

The plaintiff contends that the defendants indemnify holders of their healthcare insurance policies at their historical nominal value, without linking these amounts to the CPI.

According to the plaintiff, this refers to two different linkage periods: one until the occurrence of the insurance event and the second from the occurrence of the insurance event until actual payment to the policyholder, and the defendants allegedly do not link the insurance amounts in both periods.

The group that the plaintiff seeks to represent is anyone who received insurance compensation in healthcare insurance in one or both of the following cases: (A) The amount of insurance was not linked to the base CPI; (B) The insurance compensation was not linked to the CPI from the date of the insurance event, and the policyholder holds healthcare insurance issued by The Phoenix Insurance and/or his matters were handled by Femi Premium.

The plaintiff's rough and preliminary estimate of the amount of the class action, for The Phoenix Insurance is NIS 4.3 million, nominal per year, or NIS 30.1 million for seven years, and for Femi Premium, NIS 43 million.

The remedies sought by the plaintiff include, inter alia, refund of linkage differences and/or individual compensation to the group members or any other way the court deems appropriate to compensate the public and members of the group; declaratory relief that the defendants acted in contravention of the law; and an injunction ordering the defendants to comply with the provisions of the law from now onwards; and to order the defendants to pay the plaintiff's expenses, including legal fees plus VAT.

The Phoenix Insurance has yet to file its response to the motion for certification. The parties held negotiations and on January 1, 2015 a motion for approval of a settlement and a settlement agreement signed by the parties were filed with the court.

Under the settlement arrangement, anyone who received insurance compensation/refunds from The Phoenix Insurance for healthcare insurance in one or both of the following cases, will be entitled to compensation: (a) if the amount of the insurance was not linked to the CPI; (b) if the insurance compensation was not linked to the CPI, and that person holds a healthcare insurance policy and/or rider issued by The Phoenix Insurance, in the three years preceding the filing of the claim and through to approval of the claim by the court ("Eligible Group").

The Phoenix Insurance will pay personal compensation to the Eligible Group in a total amount of NIS 1.4 million by way of a public announcement, within 60 days from the date the announcement of the approval of the settlement arrangement was published. The balance of the funds not paid as personal compensation will be donated to various charities, as set out in the settlement agreement. The Phoenix Insurance will also bear the costs of compensation to the plaintiff and legal fees to the plaintiff's counsel. The validity of the settlement is contingent on receiving the approval of the court.

On January 5, 2015, the court handed a ruling ordering, inter alia, publication of the motion for approval of the settlement for objections and ordering that the announcement together with a copy of the motion for approval of the settlement and the motion for certification be sent to the Attorney General, supervisor for consumer protection, Commissioner of Insurance and the Courts Administration. An announcement was issued in the press as required. An internal hearing was scheduled for April 1, 2015.

— 278 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On December 6, 2012, a claim was filed against The Phoenix Insurance and six other insurance companies ("the defendants"), together with a motion for certification of a class action ("the motion for certification") at the Central District Court.

According to the claim, the reform in the vehicle licensing branch, which came into effect in 2007, amended the Transportation Regulations, 1961, and the classification of recreational vehicles - jeeps and minivans ("the vehicles") was changed from a commercial vehicle to a private vehicle. According to the plaintiffs, notwithstanding the above amendment, for the purpose of comprehensive, third party and compulsory insurance, the defendants chose to continue to define the vehicles as commercial vehicles, contrary to the regulations that require the same classification of a vehicle for insurance purposes as in the transportation regulations. The plaintiffs further claim that vehicles manufactured after the reform came into effect, meaning from 2008, are insured as private vehicles, creating a baseless and discriminatory distinction.

According to the plaintiffs, since defendants classify the Vehicles as commercial vehicles, even though the Ministry of Transportation classified the vehicles as private vehicles, the defendants allegedly charge premiums that are higher than the premiums for private vehicles.

The group that plaintiffs seek to represent includes all customers of the defendants who entered into an insurance contract with the defendants for compulsory and/or property insurance, as from January 9, 2007, who hold and/or held a vehicle license at the relevant dates for the claim, which states the classification M-1, and who were charged an insurance premium based on the assumption that the vehicle is a commercial vehicle and not a private vehicle (“the group”).

The plaintiffs estimate the total damage to the group members in respect of all the defendants, for compulsory insurance and property insurance, at NIS 550 million. The plaintiffs estimate the total damage to the group members in respect of the Phoenix Insurance, for compulsory insurance, at NIS 52 million.

The remedies sought by the plaintiffs include, inter alia, to order each of the defendants to provide complete and accurate information as from January 9, 2007 for insurance premiums paid by owners of vehicles classified as M-1 in the license, including the cost of insurance, classification of vehicle by the defendants when providing the insurance and the effect of this classification on the premium that was paid for the insurance policy; to declare that all amounts collected by the defendants for insurance policies which classify private vehicles as commercial vehicles were collected unlawfully; to order the defendants refund the excessive amounts that were collected, plus interest and linkage differences by law; and to award compensation to the plaintiffs and the attorney's fees to the plaintiffs' counsel.

It is noted that the plaintiffs themselves claim that the defendants act in accordance with the directives of the Commissioner of Insurance, however they believe that the Commissioner should have ordered the insurance companies to act in accordance with the definitions established by the Ministry of Transport in the Transportation Regulations.

The Phoenix Insurance filed its response to the motion for certification. In February and March 2014, evidentiary hearings were held, and the court ordered to plaintiffs to announce whether they plan to continue the proceedings. On July 8, 2014, the plaintiffs announced their intention to continue proceedings. Pursuant to the announcement of the plaintiffs, the case was scheduled for filing of summations. The Phoenix Insurance is required to file its summations by May 8, 2015.

— 279 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On March 24, 2013, a claim and motion for certification as a class action was filed against The Employee Benefit Experts, Benefit Ltd. ("Benefit", or "the defendant"), a subsidiary of the Phoenix Insurance Agencies 1989 Ltd., a subsidiary of The Phoenix Insurance ("the motion for certification") at the Tel Aviv District Labor Court.

The claim was also filed against Israel Discount Bank Ltd., Mercantile Discount Bank Ltd. and Discount Mortgage Bank Ltd. ("Discount Bank").

The plaintiff contends that the defendant provides professional consultation and services to groups of retirees from different places of work in Israel, in accordance with voluntary retirement plans, while participating in construction of the plans with the employer, while undertaking towards the employer to persuade the employees to accept the employer's proposal and retire according to them. According to the plaintiff, the defendant's services are aimed to "numb" the retiring employees and to influence them to accept the severance pay and retirement compensation as calculated by Discount Bank.

The group that the plaintiff seeks to represent includes permanent employees of Discount Bank, who retired under the terms of voluntary retirement and whose salaries included the following salary components: health insurance, refund of medical expenses, Odef Hayav study fund and a compensation limit, in full or in part, which are fixed components for payment of severance under section 13 of the Severance Pay Law, 1963, and voluntary retirement compensation at a rate of 175% of the severance pay, including the heirs of retiring employees (“the group”).

The defendant also requested that the group members include employees who retired in the period prior to the seven years before certification as a class action.

The plaintiff believes that the financial scope of this claim for the entire group is NIS 40 million.

The remedy requested by the plaintiff from the defendant includes compensation for all group members who received advice from the defendant regarding exercise of the retirement terms offered to them by Discount Bank, for the damage they incurred due to their reliance on the advice given to them by the defendant, which allegedly was negligent and/or misleading advice, being one-sided in favor of Discount Bank and contrary to their rights, and payment of fees and court costs.

The plaintiff also requests that the defendant bears any charges imposed on Discount Bank jointly and severally and bears the full responsibility, as imposed on any member of the group for participating in causing the damage.

Benefit has filed its response to the motion for certification. On October 27, 2013, a pretrial hearing of the motion for certification was held for the threshold claims of the defendants, and the plaintiff was granted an extension to complete his pleadings, to which the defendants shall have a right to respond. The plaintiff filed a motion to amend the claim and the defendants filed their response to this motion. On July 15, 2014, the court ruled that the plaintiff's motion to revise the statement of claim is denied, while adopting the defendants' claims and ordered that the plaintiff to complement his arguments in writing to include reference to the threshold claims raised by the defendants, by August 31, 2014, and that the defendants will have the right to respond to such complementary argument. The court further ordered that after receiving the arguments of the parties, a ruling will be handed on the motion for certification of the claim as a class action. The parties completed their arguments and at the present are waiting for the court's ruling.

— 280 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On May 12, 2013, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the motion for certification") at the Tel Aviv-Jaffa District Court.

The claim refers to non-payment of interest and linkage differences by law for payment of insurance compensation. The plaintiff claims that the insurance company is required to pay interest and linkage for insurance compensation as from the date of the insurance event until actual payment. Alternatively, the plaintiff claims, the insurance company is required to pay interest as from 30 days after the filing date of the claim until the date of actual payment of insurance compensation to the policyholder.

According to the plaintiff, the Phoenix Insurance does not pay interest at all, not from the date of the insurance event nor as from 30 days after the filing date of the claim, and does not pay statutory linkage differences.

The group that the plaintiff seeks to represent is anyone who received, during the seven years prior to filing this claim and/or who will receive, up to the judgment in this claim, insurance compensation from The Phoenix Insurance, insurance, without the addition of statutory interest for the insurance compensation ("the first group"), and anyone who received, during the seven years prior to filing this claim and/or who will receive, up to the judgment in this claim, insurance compensation from The Phoenix Insurance, insurance, without the addition of statutory linkage differences for the insurance compensation (“the second group”).

The damage estimated by the plaintiff in respect of the members of the first group for the unpaid interest, at a conservative calculation based on ordinary, unlinked interest, amounts to NIS 44 million per year and NIS 308 million cumulatively over 7 years (if the court rules that the interest should be calculated from the date of the insurance event) and the NIS18 million per year and NIS 126 million over seven years (if the Court rules that the interest should be calculated as from 30 days after filing the claim against the insurance company). Interest and linkage differences for the unpaid interest debt of The Phoenix Insurance should be added to these amounts, from the date of actual payment of the insurance compensation and until the date that The Phoenix Insurance pays the interest and linkage differences as required by law. The damage estimated by the plaintiff in respect of the members of the second group, is NIS 42 million per year and NIS 294 million over seven years.

Interest and linkage differences for the unpaid linkage difference debt of The Phoenix Insurance should be added to these amounts, from the date of actual payment of the insurance compensation and until the date that The Phoenix Insurance pays the interest and linkage differences as required by law.

The remedies sought by the plaintiffs include an injunction requiring The Phoenix Insurance to stop collecting insurance premiums for the non-coverage period; to require the Phoenix Insurance to return to the group the entire insurance fees actually collected for the non-coverage period plus linkage differences and interest, as set out in section 1 of the Interest and Linkage Law, 1961 ("the Interest and Linkage Law") and based on the interest rate in accordance with the Interest and Linkage Law or in accordance with the interest rate established in the policy (whichever is higher), for the period commencing from the date of the insurance event until the date of actual payment of the insurance compensation or alternatively, for the period commencing 30 days from filing of the insurance claim and until the actual payment date of the insurance compensation; to require The Phoenix Insurance to pay interest and linkage differences in accordance with the provisions of sections 28 and 56 of the Insurance Contract Law; to require The Phoenix Insurance to pay interest and linkage differences for the deficient payment to members of both groups, as from the payment date of deficient insurance compensation to a policyholder and until the date that The Phoenix pays interest and linkage differences as required by law.

Alternatively, if it is determined that the compensation to the group members is not practical, it is requested that the court orders compensation to the public as it deems fit; to award special compensation to the plaintiff and attorney's fees to the plaintiff's counsel fees.

— 281 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

The Phoenix Insurance filed its response to the motion for certification. On February, 22, 2015, a pretrial hearing was held for the case. The case was set for written summations. The Phoenix Insurance is required to file its summations by June 1, 2015.

The plaintiff filed a motion to join the hearing with three motions for certification that were filed against three other insurance companies regarding the same matter. In the Court's ruling of February 22, 2015, the motion was approved and hearing of the three proceedings was consolidated.

On October 15, 2013, a claim was filed against The Phoenix Insurance and three other insurance companies (below together with the Phoenix Insurance: "the defendants"), together with a motion for certification of a class action ("the motion for certification"), at the Central-Lod District Court (jointly hereinafter: “the claim”). The claim refers to the defendants' conduct regarding premium adjustments during the term of the policy. The defendants determine the dates of premium adjustments due to the change in the policyholder's age earlier than when the insurance premium should have been adjusted and determine a base index for the policy which is not the index of the correct month, but rather the index of an earlier month (often several months earlier).

The plaintiffs contend that the defendants adjust, in contravention of the law, the insurance premium due to change of the policyholders' age on the first day of the month and not on the exact date of the month in which the insurance plan was scheduled to begin.

The plaintiffs further contend that the defendants determine, in contravention of the law, the base index for the policy as the first day of the month in which the policyholder applied for the insurance policy and not when the insurance plan was actually received, so that the premium is linked to a lower base index than required.

The group that the plaintiffs seek to represent is anyone who joined an insurance policy of one or more of the defendants, with a premium adjustment date that was earlier than the date the premium should have been adjusted and/or with a base index that was lower than it should have been (mainly life and healthcare insurance, including annuity for payment, disability and long-term care) (“the group”).

The plaintiffs estimate that the damage to the entire Group amounts to NIS 399 million (comprising of NIS 147 million in damages for early premium adjustment and NIS 252 million in damages for attribution of an incorrect index).

According to the plaintiffs, the damage is distributed among the defendants pro rata to their share in the branch, as defined in Table D-7 of the report published by the Commissioner of Insurance for 2004 to 2007, meaning that the plaintiffs estimate the damage of The Phoenix Insurance as NIS 64 million (16%).

The main remedies requested by the plaintiffs include refund by the defendants of the surplus premiums that were unlawfully collected to each Group member and an injunction ordering the defendants to change the manner of their operations.

The Phoenix Insurance filed its response to the motion for certification. The pretrial hearing was set for April 1, 2015.

— 282 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On January 8, 2014, a claim was filed against The Phoenix Insurance and two other insurance companies (hereinafter jointly with The Phoenix Insurance: "the defendants"), together with a motion for certification of a class action ("the motion for certification") at the Tel Aviv-Jaffa District Court (“the claim”).

According to the plaintiffs, the defendants overcharge for comprehensive car insurance.

The plaintiffs allege that the defendants sell insurance according to a higher value than the actual value of a car, as weighted by them in an insurance event, meaning total loss, in different situations, including when the vehicle was purchased by the policyholder from a rental or leasing company.

According to the plaintiffs, when selling a comprehensive insurance policy, the defendants charge the policyholders excessive amounts due to calculation of a higher value for the vehicle, even though they know in advance that in an insurance event, the value of the vehicle will be reduced for "special variables" or "special components" whereby the "real value" of the insured car is significantly lower.

The group that the plaintiffs seek to represent is any policyholder who purchased comprehensive insurance from the Defendants for vehicles with special variables according to the policy, and the insurance policy states that in a total loss insurance event, a certain percentage will be deducted from the value of the vehicle, without reducing the insurance premium accordingly, in the last seven years (“the group”).

To estimate the general damage and based on the information available to the plaintiffs, the plaintiffs estimate the damage to the entire group at NIS 200 million, according to the size of the defendants and the number of policyholders based on information on the defendants' websites. The damage claimed is since 2006, seven years back.

The main remedies sought by the plaintiffs are to refund all the excess premiums collected from policyholders in contravention of the law, together with statutory interest, to provide declaratory relief whereby the defendants are not permitted to charge a premium according to the value of a vehicle that does not include the deduction of the "special component" from the value of the vehicle, and an injunction prohibiting the defendants from continuing to charge excessive premiums.

The Phoenix Insurance filed its response to the motion for certification. The plaintiffs filed their rebuttal to the responses to the motion for certification on December 2, 2014. The pretrial hearing was set for April 21, 2015.

On June 23, 2014, a claim was filed against The Phoenix Insurance and two other insurance companies (hereinafter jointly with the Phoenix Insurance: "the defendants"), together with a motion for certification of a class action ("the motion for certification") at the Jerusalem District Court (jointly hereinafter: “the claim”).

According to the plaintiffs, the grounds for the claim are the defendants alleged collection of higher premiums in life insurance policies they issue with respect to mortgage insurance purchased by policyholders from them.

— 283 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

The plaintiffs contend that the surplus premiums are due to mismatch of amount insured to the amount of loan balance decreasing every month and as a result, the plaintiffs and members of the group, as defined below, are forced to pay the defendants higher monthly premiums than those they would have to pay if the insurance amount was equivalent to the amount of the mortgage recorded at that time in the books of the lending bank.

The group that the plaintiffs seek to represent is "all the customers of the defendants who were insured by one or more defendant in seven years for filing of the claim, and who purchased from them a life insurance policy for the purpose of insuring a mortgage loan taken from one of the mortgage banks in Israel, and as a result of the decision and considerations of the defendant, the insurance amount they were required to pay, was higher than the balance of the loan to the bank and therefore, the policyholders overpaid for the life insurance on the mortgage that they took (“the group”).

The plaintiffs estimate the total damages for all the members of the group, to be NIS 1.18 billion, and of this amount, the damages attributed to policyholders of the Phoenix Insurance are NIS 339.5 million.

The main remedies that the plaintiffs seek are, inter alia, refund to the members of the group of the premium differences between the premium that they should have paid according to the correct balances of the loan to the lending banks and the actual premium that they paid according to the insurance amount with the defendants, with the addition of compensation for distress caused to them; to change the way the defendants work so that the defendants will proactively calculate the insurance amount and the premiums arising from it, based on the accurate figures of the mortgage loan every month and no less than once every six months, and particularly in accordance with the interest rates, linkage terms and relative track breakdown of the loan per policyholder; to provide the policyholders with detailed information regarding the method for calculating the insurance amount and premium, and to explain to the policyholder the option of informing the defendants every month or at least once every six months regarding the balance of the loan to the banks, in cases where accurate figures cannot be used and as a result forcing the defendants to use various estimates; to charge the defendants for expenses, compensation to the plaintiffs and legal fees for their attorneys.

On January 6, 2015, the defendants filed their responses to the motion for certification. The plaintiffs are required to file their rebuttal to the defendants' responses to the motion for certification by April 1, 2015. A preliminary hearing was set for April 22, 2015.

On July 8, 2014, a claim was filed against The Phoenix Insurance and the St. George's Orthodox Council and the Municipality of Ramla (hereunder, jointly with the Phoenix Insurance: "the defendants"), together with a motion for certification of a class action ("the motion for certification") at the Central District Court (jointly hereinafter" “the claim”).

According to the plaintiff, this claim refers to alleged discrimination against many school pupils in Israel in general and of the plaintiff in particular, as the defendants, either jointly or severally, acted contrary to the directives of the Director General of Ministry of Education when instead of insuring them under a under a minimum binding policy of the Company for maintenance support, they insured the pupils under a general personal accidents policy that does not provide cover for a pupil's confinement at home and/or hospital.

The plaintiff argues that the defendants, whether jointly and severally, collected the full premium due to them by law, and in the occurrence of the insurance event the Phoenix Insurance deprived and deprives all its policyholders of their rights by not paying them the full compensation they are entitled to.

— 284 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

The group that the plaintiff seeks to represent consists of any pupil who learned at St. George's Orthodox Council, every eligible pupil who learned at a school within the Ramla municipal area and every pupil who learned and has not yet reached the age of 21 and/or three years have not passed since the entitling event and who was insured with The Phoenix Insurance under a personal accident policy and who suffered temporary disability resulting in absence from the school for a minimum of 21 days, and who did not receive any compensation for those days (“the group”).

The plaintiff estimates the total damage for all the members of the group, at minimal assessment, to be approximately NIS 60 million.

On February 23, 2015 The Phoenix Insurance and the Council filed their responses to the motion for certification. The Municipality of Ramla notified the Court that it is holding negotiations with the defendant and consequently received a deferral for filing its response until the end of March 2015. The pretrial hearing was set for May 25, 2015.

On July 13, 2014, a claim was filed against The Phoenix Pension and Gemel Ltd. ("the Phoenix Pension") and four other pension fund management companies (hereinafter together with Phoenix Pension: "the defendants"), together with a motion for certification of a class action ("the Motion for Certification"), at the Central-Lod District Court (jointly hereinafter: “the claim”).

Plaintiff 1 is an association that serves as an umbrella organization for all associations for the elderly in Israel and Plaintiff 2 is an association that acts on behalf of the elderly within the Kiryat Malachi municipal area and throughout Israel.

According to the plaintiffs, the claim refers to the defendants raising management fees payable by pensioners on the accrued balance to the maximum permitted management fees, from the date on which they become pensioners, while these pensioners are unable to transfer their accrued balance to other pension funds. Consequently, the claim argues, the defendants are using their contractual right under the provisions of pension fund articles of association, contrary (allegedly) to the essence of the agreement between the parties while exploiting (allegedly) the plight of the pensioners.

The group that the plaintiffs seek to represent is anyone who is insured under a new comprehensive pension fund belonging to one of the defendants and is eligible to receive a pension and/or will be eligible for a pension in the future (“the group”). The plaintiffs estimated the number of members of the group who have reached pension age of all the defendants together to be approximately 17,000. The claim does not include an estimate of the number of group members who will reach pension age in the future.

The plaintiffs estimate, based on an actuarial opinion attached to the claim, the damages claimed for the members of the group for the management fees collected unlawfully from the current pensioners to be NIS 48 million with regard to all the defendants (at the very least and without quantifying, at this stage, all remedies).

— 285 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

The main remedies sought by the plaintiffs are, among other things (1) to refund to the current pensioners the excess management fees collected and/or that will be collected from them so that the amount refunded to each pensioner will be the equivalent and cumulative amount collected and/or that will be collected from their accounts, in excess of the rate paid by the pensioner prior to retirement; and alternatively, to refund to the pension fund account all the management fees collected from the pensioners and to distribute the funds unlawfully collected from the pensioners, in a just and fair manner, among all the members of the pension; (2) to prohibit the defendants from raising the management fees with regard to each policyholder shortly before their retirement; (3) to order that the current terms set out in the bylaws of the defendants, permitting them to raise management fees from time to time, is (allegedly) a discriminatory term in a uniform contract, and to order it to be rescinded or revised to remove the alleged discrimination; (4) to order the defendants to provide the plaintiffs various documents, as set out in the actual motion; (5) to order special compensation for the plaintiffs and payment of the representatives' attorney fees.

The Phoenix Pension filed its response to the motion for certification on January 4, 2015. The defendants may submit a rebuttal to the response by May 15, 2015. The pre-trial hearing was set for June 30, 2015.

On September 2, 2014 a claim was filed against The Phoenix Insurance and Super-Pharm Israel Ltd., Pelephone Communications Ltd. and Mekdan Management and Maintenance (hereunder jointly with the Phoenix Insurance "the defendants"), together with a motion for certification of a class action ("the motion for certification") at the Tel Aviv-Jaffa District Court (“the claim”).

According to the plaintiff, the claim refers to payment charged for parking in the "Phoenix House Parking Lot" known as "the Rose Parking Lot" in contravention to the provisions of section 4(B) of the Disabled Parking Law, 1993 ("the Disabled Parking Law") that stipulates that at a place where there is no other accessible entry, disabled persons may not be charged for parking.

The group that the plaintiff seeks to represent is any disabled persons as defined in section 5 of the Equal Opportunities for People with Disabilities Law, 1998 namely, persons with permanent or temporary physical, emotional of mental, including cognitive, disability and who has limited functional ability and/or any holder of a disability card and/or disabled parking tag, whether a round or triangular tag, and who makes use of the parking services at the Phoenix House parking lot in Givatayim, and who has been required to pay for the parking, as of the date section 4 of the Disabled Parking Law was legislated until a ruling is handed in the claim in question (“the group”).

The plaintiffs estimate that the total damages for all the group members is NIS 57 million, for a period of seven years.

The main remedies sought by the plaintiffs are, among other things, to declare that in the foregoing case the behavior of Mekdan Management and Maintenance by unlawfully charging payment is in violation of its duty under the law towards the plaintiff and/or members of the Class and/or is unlawful enrichment at their expense and/or negligence and/or severe damage to their autonomy causing them non-monetary damages; to order Mekdan Management and Maintenance to announce and display the announcement visibly and clearly at the entrance to and at the exit from the parking lot, stating that members of the group and any other disabled person may park there free of charge; to order the defendants to pay the plaintiff and other members of the group compensation with respect to their conduct and/or their oversight in the amount of the damages; to order the defendants to pay the plaintiff compensation and the plaintiff's attorney's fees.

The Phoenix Insurance is required to file its response to the motion for certification by February 17, 2015. The pretrial hearing was set for April 13, 2015.

— 286 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

On September 08, 2014, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the motion for certification") at the Tel Aviv-Jaffa District Court (“the claim”).

According to the plaintiffs, the issue of this claim is that where the amount of dental treatment does not reach the maximum amount set in its collective policy for dental insurance, The Phoenix Insurance rounds the amount downwards, allegedly indemnifying its policyholders in amounts rounded down only. Thus, The Phoenix Insurance avoids paying its policyholders these tens of agurot when the amounts are always rounded down.

The group that the plaintiffs seek to represent is, all holders of The Phoenix Insurance collective dental care policy who was underpaid for the insurance compensation due to them because The Phoenix Insurance chose to deduct tens of agurot from the amount it was supposed to refund them, according to the provisions of the policy (“the group”).

The plaintiffs estimate the total damages for all the members of the group, to be NIS 2.6 million, and with the addition of linkage differentials and interest (for half the period) is NIS 2.9 million.

The remedies sought by the plaintiffs are, inter alia, to order The Phoenix Insurance to refund to the members of the group in full the amounts that have not yet been refunded to them and all with the addition of due interest and linkage; to order The Phoenix Insurance to cease its unlawful practice; to prescribe a control mechanism for monitoring actual refunds and that will ensure that the compensation paid by The Phoenix Insurance is the amount actually paid by the policyholder; to order The Phoenix Insurance to compensate the plaintiffs and to pay their attorney fees.

The Phoenix Insurance is required to file its response to the motion for certification by April 15, 2015. A hearing has not yet been scheduled.

In February 2014, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the motion for certification") at the Haifa District Court (“the claim”).

According to the plaintiff, the claim refers to The Phoenix Insurance providing in its officers insurance policies that the pension coefficient (monthly pension amount per NIS 10,000 accrued in the policy over the years), according to which, when female policyholders reach retirement age, they would receive lower annuities than male policyholders due to the longer life expectancy of women and yet on the other hand, The Phoenix Insurance collected and continues to collect from insured women risk premiums identical to those it charges men, notwithstanding the fact that the women's mortality rates are much lower than those of men.

The plaintiffs estimate that the total damages for all the group members is NIS 44.5 million with respect to over collecting from active female policyholders (over seven years), and with addition of 25% with respect to policyholders who have already cashed in or deceased policyholders, the total damages of the group is estimated by the plaintiff as NIS 55 million (over seven years).

The remedies sought by the plaintiff are, inter alia to order the discrimination revoked, to order The Phoenix Insurance to refund to the members of the group, all the rights they are entitled to due to the discrimination; to order The Phoenix Insurance to compensate the plaintiff and to pay her attorney fees.

— 287 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A. Class actions: applications for certification of claims as class actions and claims certified as class actions (continued)

Motions for certification as class action suits (continued):

Together with filing of the motion for certification, the plaintiff filed a motion to transfer hearing of the claim to the Jerusalem District Court. The Phoenix Insurance filed its response to this motion and on November 5, 2014, the President of the National Court rejected the motion to transfer the hearing.

The Phoenix Insurance submitted its response to the motion for certification by April 22, 2015. No date has been set for the hearing.

On December 31, 2014 a claim was filed against Excellence Mutual Funds Ltd. and Excellence Nessuah Mutual Fund Management Ltd. (hereunder jointly "Excellence"), wholly owned subsidiaries of Excellence Investments Ltd., and against 13 other bodies, including 7 bodies that serve as trust fund managers and 6 that serve as trustees for trust funds (hereunder jointly ("the defendants"), together with a motion to certify as a class action, with the Tel Aviv District Court (Department of Economic Affairs).

According to the plaintiff , the claim deals with violation of fiduciary duty, duty of care and other duties prescribed by law with respect to billing and collecting allegedly high brokerage commissions in the mutual funds managed and/or supervised by the defendants until December 27, 2011.

The total amount of the claim is NIS 220 million, of which an amount of NIS 32.51 million is attributed to Excellence.

B. Closed claims

On February 25, 2013, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the motion for certification") at the Kfar Saba Magistrates Court.

The plaintiffs claim that The Phoenix Insurance did not pay them the cost of the cognitive rights (which constitute compulsory payments under the law, such as convalescence pay, annual leave pay, pension contributions, annual visa fee and annual corporation fee) of the foreign caregiver under the service track in Meuhedet Zahav collective long-term care policies.

The group that the plaintiffs seek to represent are all holders of The Phoenix Insurance long-term care policies, over the three years prior to the claim, and up to the end of the omissions and/or acts of The Phoenix Insurance “the Class”).

The plaintiffs estimate that the total damage to the group members is NIS 2.1 million (the plaintiffs claim that there are at least 250 members in the group and that the damage to each member of the group amounts to NIS 8,539).

The remedies sought by the plaintiff include, inter alia, to order compensation for each group member; to order the defendant to provide the plaintiffs with information for accurate examination and identification of the scope of the group and a more accurate evaluation of the total compensation claimed; and to rule compensation for the plaintiffs and payment of their legal fees.

On January 9, 2014, the court approved the withdrawal of the plaintiffs from the motion for certification as a class action, dismissed the plaintiffs' personal claim, and struck out the motion for approval.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

B. Closed claims (continued)

On February 14, 2013, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the motion for certification") at the Tel Aviv-Jaffa District Labor Court.

According to the plaintiff, The Phoenix Insurance acts in contravention of the law regarding the release of compensation funds (annuity) by the employer, in cases of severance other than by dismissal.

The plaintiff filed the claim on behalf of all policyholders of The Phoenix Insurance, who left or will leave their place of employment other than by dismissal, and who were entitled (in the seven years prior to the date the claim was filed and up to the ruling on this case) or will be entitled to severance pay as set out in section 26 of the Severance Pay Law, 1963, which The Phoenix Insurance transferred or will transfer to the employer in contravention of the law and the directives of the Commissioner (“the group”).

The plaintiff estimated the total damage of the group members at NIS 70 million (NIS 4,000 multiplied by 17,588 members).

The remedies sought by the plaintiffs include, inter alia, declaratory relief in respect of the conduct of The Phoenix Insurance; an injunction, including an injunction ordering The Phoenix Insurance to return to the compensation fund of the plaintiff and the group members all payments transferred to the employer, together with the total deduction at source, and plus interest and linkage differences from the release date, and the yields that the compensation moneys would have produced in an actuarial calculation; to order payment of compensation to all the group members; and to order special compensation to the plaintiff and fees to the plaintiff's attorney.

The Phoenix Insurance filed its response to the motion for certification.

On February 4, 2014 the Court approved the withdrawal arrangement between the parties, whereby the plaintiff will withdraw from the motion for certification and The Phoenix Insurance will implement adjustments and clarifications in its regulations.

The plaintiff's attorney filed an appeal with the National Labor Court with regard to the matter of his fees only. The Phoenix Insurance has left the matter to the Court's discretion. A hearing on the appeal was held on July 15, 2014, after which the parties filed summations. On September 1, 2014, a ruling has handed rejecting the appeal, leaving the ruling of the District Court in place.

On April 07, 2011, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the motion for certification"), at the Tel Aviv-Jaffa District Court.

The plaintiff contends that The Phoenix Insurance prevents and/or delays transfer of moneys under insurance policies to policyholders and/or beneficiaries and/or third parties in liability insurance, and to members of the provident funds, pension funds and savings plans offered by the defendant, by directing its customers and/or third parties to lift invalid attachments that remained registered in the defendant's register in contravention of the law.

The group that the plaintiff seeks to represent is any person who was entitled, over the seven years preceding the date the claim was filed, to insurance compensation and/or moneys that were set aside for or related to any type of insurance policy from The Phoenix Insurance and for which The Phoenix Insurance delays and/or delayed their payment, claiming that it has an attachment order as a third party in the name of that person, while that person had no insurance contract with The Phoenix Insurance or any legally attachable property that is held by The Phoenix Insurance, at the date the attachment orders are listed in the register of The Phoenix Insurance and/or within three months after this date or at another date set in the attachment order and/or when the attachment is invalid for any reason.

— 289 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

B. Closed claims (continued)

The plaintiff estimates that the general damage caused to the entire group is NIS 5.8 billion.

The remedies sought by the plaintiff include to order The Phoenix Insurance to refrain from delaying the transfer of funds to the group members, for attachments that are not legally valid, which are still registered in the defendant's registers; to order The Phoenix Insurance to inform those that are about to enter into an agreement with it in an insurance contract and/or third parties that submit claims by virtue of liability insurance, that it was sent attachment orders in their name and that by virtue of these orders, it cannot fulfill its liabilities under the law and/or the agreement and to pay them the moneys, and to order The Phoenix Insurance to compensate the group members, and to refund their moneys that are delayed in contravention of the law, plus linkage differences and interest by law, and special interest, in accordance with section 28(A) of the Insurance Contract Law, 1981 and to return the gains that The Phoenix Insurance produced and/or the commission and management fees that it collected for these moneys. The Phoenix Insurance filed its response to the motion for certification. The plaintiff has filed its rebuttal to this response.

At the recommendation of the Court, the parties conducted mediation proceedings.

On July 24, the Court approved the settlement arrangement reached by the parties that includes, among other things, an outline for handling the expired foreclosures and the plaintiff's motion to withdraw the motion for certification. The Court also ordered the dismissal of the Motion for Certification and rejection of the personal claim, without requiring publication or attempt to locate alternative applicants. In addition, the Court held that The Phoenix Insurance will pay compensation and legal fees to the plaintiff and its attorneys.

On August 31, 2009, a motion for certification of a class action suit in the amount of NIS 82 million was filed in the Tel Aviv District Court against Excellence Nessuah Provident and Pension Ltd. ("Excellence Provident”).

The plaintiff (a member of a provident fund managed by Excellence Provident) contends that Excellence Provident was negligent and/or acted in bad faith when setting the investment in shares at more than 50% in five share-based provident funds that it manages. The plaintiff further contends that Excellence Provident was negligent in its selection of the shares for investing the provident funds.

The plaintiff further claims that management fees should not have been collected from members of the funds that year.

On April 29, 2012, the court ruled to dismiss the motion for certification of the class action. The court also ordered the plaintiff to pay Excellence Provident court expenses amounting to NIS 15 thousand and attorney's fees amounting to NIS 90 thousand.

On June 13, 2013, the plaintiff appealed the judgment of the Tel Aviv District Court at the Supreme Court, separately and for the amount of the expenses ruled against the appellant. The parties filed summations. In an appeal hearing held on July 2, 2014, the appellant agreed to dismissal of the appeal without expenses. Excellence Provident agreed, ex gratia, to refund to the appellant an amount of NIS 15 thousand for the expenses awarded to it by the District Court, and the judgment provided for this.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

B. Closed claims (continued)

On July 05, 2011, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the motion for certification") at the Central District Court.

Claims and motions for certification as class actions were also filed for the same matter in separate proceedings against other insurance companies.

The claim refers to alleged overcharging, in contravention of the law, of credit fees by The Phoenix Insurance from its policyholders, while breaching the provisions of the law and misleading the policyholders.

The group that the plaintiffs sought to represent is all the policyholders and/or beneficiaries insured by The Phoenix Insurance in general insurance policies, and who paid The Phoenix Insurance excess credit fees and/or collection fees and/or arrangement fees, in contravention of the law and/or with deviation from the interest rates presented to the policyholders, as from May 1, 1984

The plaintiffs estimated that the class action suit amounts to NIS 393 million.

The remedies sought by the plaintiffs are, inter alia, to order The Phoenix Insurance to return to the plaintiffs, and to any plaintiff included in the class action group, the moneys that were allegedly collected in contravention of the law, plus linkage differences and interest by law, and plus special interest as set out in the Insurance Contract Law, from the date of each payment through to the date the amounts were actually returned; to award compensation for the group or the public, for the yields on the surplus moneys allegedly collected; to order The Phoenix Insurance to immediately stop overcharging the policyholders for credit fees and/or arrangement fees and/or addition to the policy issued from the date of the petition onwards, and to stop collecting credit fees and/or arrangement fees and/or collection fees for any existing policy or addition to an existing policy for which the excess credit fees were calculated.

The Phoenix Insurance filed its response to the motion for certification. The parties held arbitration proceedings which resulted in a settlement agreement.

On March 5, 2014, a motion was filed with the court to approve the settlement agreement between the parties, whereby The Phoenix Insurance will grant members of the public eligible for "direct insurance" and "other insurance", as defined in the settlement agreement, a financial benefit totaling NIS 5.8 million (the total amount of the benefit), by way of a special discount at an agreed percentage of the credit fees payable by each eligible member under the settlement agreement, for a policy from The Phoenix Insurance, a percentage of 48% of the credit fees for "personal insurance", and 10% for "other insurance."

In addition, in accordance with the settlement agreement, The Phoenix undertakes that the credit fees will be collected from the policyholders in personal insurance branches and will be calculated in a way that will ensure that the credit fees will not exceed the permitted rate under the Supervision Regulations or exceed the rate set out in the policy, whichever is lower. In addition, under the settlement agreement, The Phoenix Insurance will pay compensation to the plaintiffs and will pay their attorney fees. On July 24, 2014, the Central-Lod District Court approved the settlement agreement signed between the parties and prescribed provisions for its execution.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

B. Closed claims (continued)

On July 25, 2012, Excellence Investments Ltd. ("Excellence") received a claim and motion for certification as a class action filed at the district court against Excellence Nessuah Provident and Pension Fund Ltd. ("Excellence Provident") and against the Management Company of Technical and Engineers Professional Study Fund Ltd.

The applicants claim that Excellence Provident and the other defendants charged the members of certain provident funds managed by Excellence Provident, for collective life insurance, without their written consent, and charged the members a premium. The amount of the claim is estimated at NIS 20 million for both defendants.

It is noted that on March 3, 2010, the applicants filed a claim and motion for certification as a class action on the same grounds as the grounds in an earlier motion ("the Earlier Motion"), requesting the following remedies: (A) To require the defendants to refrain from providing life insurance to members who did not provide written consent (B) To require the defendants to contact the relevant members and receive their written consent for life insurance

The Earlier Motion and claim were dismissed by the court on December 2, 2010 following a motion by the parties and after a notice of withdrawal by the applicants.

Part of the claim period refers to a date when the relevant provident funds were owned by Mizrahi Bank Ltd. Excellence and Mizrahi Bank have an indemnification arrangement in respect of the claim relating to the period.

Following negotiations between the parties, a motion was filed on March 24, 2014 to approve a settlement arrangement and in accordance with the provisions of the Regulations, announcements were published on March 30, 2014 in Haaretz and Calcalist newspapers with regard to the filing of the motion to approve the settlement arrangement. At the order of the Court and pursuant to the Regulations, on March 26, 2014 documents relating to the motion to approve the settlement were sent to the Attorney General, Courts Administration and the Commissioner of Insurance The Attorney General submitted his position on June 23, 2014, according to which he does not find it necessary to oppose the approval of the settlement arrangement and leaves the decision to the discretion of the Court. On July 1, 2014, the parties filed application for a ruling of approval of the settlement arrangement.

On August 26, 2014, a ruling was handed approving the settlement arrangement, with regard to the Company, as is, with the Court ordering that the applicant's attorney fees will be paid in two stages, whereby the second half of the attorney's fees will only be paid subject to the approval of the Court and after filing with the Court an affidavit of a competent person in the Company, confirming that the full settled amount has been paid to the relevant members. Such affidavit is yet to be filed with the Court. Under the provisions of the ruling, in accordance with the provisions of the Regulations, on September 8, 2014, announcements were published in Haaretz and Calcalist newspapers with regard to the approval of the settlement.

In December 2014, the Company paid the settlement amount in full, by way of granting pro rata exemption of management fees collected from the relevant members of the fund in question. In addition, pursuant to the provisions of the ruling, on January 22, 2015, the Company filed an affidavit regarding the full payment of the settlement amount to the foregoing relevant members and in a ruling held on the same date, namely January 22, 2015, the Court approved the payment of the balance of the applicant's attorney fees. Shortly thereafter, the subsidiary paid the additional amount to the applicant's counsel, and the case was closed.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

B. Closed claims (continued)

On January 03, 2008, a claim was filed against The Phoenix Insurance and against other insurance companies ("the defendants") together with a motion for certification as a class action ("the motion for certification") at the Tel Aviv-Jaffa District Court.

The plaintiffs contend that the Defendants collected management fees in profit-participating life insurance policies in contravention of the provisions of Regulation 6A to the Insurance Businesses Control Regulations (Terms in Insurance Contracts), 1981 (“The Control Regulations”) and contrary to the instructions of the Insurance Commissioner.

As contended, the defendants acted in contravention of the law in two aspects (or at least in one of them):

A. They collected regular monthly management fees exceeding 0.05% until 2004 (inclusive), apart from 2002.
B. They collected the variable fees monthly and not at the end of the year, thus allegedly depriving the policyholders of the proceeds for the variable management fees, collected throughout the year.

The lawsuit against Phoenix Insurance refers only to the second argument set out above.

The group that the plaintiffs seek to represent any person who is or was insured by one or more of the defendants, under a combined profit-participating life assurance policy type, issued between 1992 and 2003 (inclusive).

The remedies sought by the plaintiffs include ordering the reimbursement of the excess management fees that were allegedly collected unlawfully, or the reimbursement of the monthly proceeds allegedly lost by each member of the group. The plaintiffs also move for a mandatory injunction that will instruct the plaintiffs to change their mode of operation.

The Phoenix Insurance filed its response to the motion for certification.

In a pre-trial hearing held on September 18, 2011, the court recommended that the parties reach a settlement to close the case.

On June 30, 2013, a motion to approve the settlement agreement and the settlement agreement in the class action was filed at the Court. The settlement agreement establishes a mechanism for reimbursing class members holding the policies of The Phoenix Insurance listed in the settlement, and for which The Phoenix Insurance collected variable management fees, in the relevant period beginning on January 3, 2001 and ending on January 1, 2006 (when The Phoenix Insurance, at its own initiative, changed the mechanism for collecting variable management fees).

In accordance with the settlement, reimbursement will be 53% of the difference between the calculation method claimed by the plaintiffs in the motion for certification and the method used by The Phoenix Insurance until it changed the collection mechanism.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

B. Closed claims (continued)

On August 12, 2013, the parties submitted a revised settlement agreement for the approval of the Court, in view of the comments regarding the settlement agreement and its wording in a hearing held on July 15, 2013. On September 1, 2013, the Court ordered publication of the settlement agreement and appointed an officer to review the settlement.

On August 3, 2014, the auditor filed his opinion with the court.

On October 20, 2014, the Attorney General filed an objection to the settlement agreement. On November 9, 2014, The Phoenix Insurance submitted its response to the position of the Attorney General.

In the hearing held on November 23, 2014, several aspects of the settlement were heard. At the end of the hearing, it was agreed that a revised settlement arrangement would be submitted together with a motion to approve the revised settlement based on the revisions and changes agreed upon in the hearing. On December 8, 2014, the revised settlement agreement was filed together with foregoing motion to approve the revised settlement.

In accordance with the settlement arrangement, the reimbursed amount of The Phoenix Insurance to the class members (as defined in the settlement) is NIS 7.8 million (this amount was assessed by an assessor appointed by the Court, and it includes linkage and interest differences as of May 1, 2013, in accordance with the settlement, and linkage and interest differences will be added to this amount from that date until the actual payment date). In addition, The Phoenix Insurance will cover legal fees and compensation for the applicant of the motion for certification as a class action.

C. Legal proceedings

Below is a description of legal and other proceedings against the Company and/or the subsidiaries. A provision was not included in the financial statements for proceedings that management believes, based in part on legal opinion, are more likely than not that the Company's statement of defense will be accepted and the proceeding will be dismissed. In cases where it is more likely than not that all or part of the Company's defense will be dismissed, a provision was included in the financial statements to cover the exposure estimated by the Company and/or by the subsidiaries. Management believes that, based, inter alia, on the opinion of its legal counsel, the provisions made in the financial statements to cover the exposure estimated by the Company and/or its subsidiaries are appropriate.

The Phoenix Insurance and Carmel Insurance Agency ("the Agency") are in arbitration based on four issues, the main one being payment of fees and compensation for sales of insurance policies in the past. At the same time, there is a debt of the Agency to The Phoenix Insurance, for an unpaid loan. The Phoenix Insurance intends to offset this debt from any amount that may be ruled in favor of the Agency.

The proceedings for all the issues amount to NIS 41.3 million. The parties delayed the arbitration proceedings and referred the dispute to mediation. The mediation is currently underway.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

C. Legal proceedings (continued)

On August 31, 2010, a claim was filed against Excellence Tzmicha Securities and Investments Ltd. (a subsidiary of Excellence Investments Ltd.), Gil Zvi Deutsch, Aaron Biram, and Excellence Nessuah Financial Products Ltd. ("Excellence Products"), in the amount of NIS 15 million at the Tel Aviv District Court, by Jacob Harpaz and Alpha Bull Ltd.

Until 2008, the plaintiff served as CEO of Excellence Products, and until 2007, he was a shareholder of Excellence Products, a subsidiary of Excellence.

In his claim, the plaintiff contends that the defendants "persuaded" him to sell his shares in Excellence Products for an amount that was lower than their value. The claim alleges, inter alia, breach of contract, and lack of good faith in negotiations and in fulfilling a contract. On October 15, 2013, the plaintiffs filed their affidavits of evidence in chief and an expert opinion. On May 26, 2014 the defendants filed their affidavits of evidence in chief and on June 9, 2014 they filed an expert opinion. Furthermore, three dates were set for the parties' evidentiary hearings in March and April 2015. The parties filed a motion for two additional dates to be scheduled for evidentiary hearings of the parties, but a ruling on this motion is yet to be handed.

The Court did permit the plaintiffs to revise their statement of claim by reducing the amount of the claim and accordingly the defendants filed a motion to revise their statement of claim by reducing the amount of the claim to an amount of NIS 10 million. The defendants announced that they retain all their arguments on the matter.

On March 31, 2011, Excellence Zmicha Securities and Investments Ltd. and Excellence Nessuah Financial Products Ltd. were served with a summary judgment in the amount of NIS 3.1 million plus interest and linkage differences, filed by Alpha Bull Ltd. (the plaintiff in section 2 above). The plaintiff claims that the defendants should pay the amount of the claim , which constitutes one third of the amount set aside by the parties in accordance with the share sale agreement between the parties . On July 23, 2011 leave to file a defense was filed on behalf of the defendants.

On April 3, 2013, these cases were heard and the court ruled to combine both cases and continue joint proceedings.

On January 15, 2013, the plaintiffs filed their affidavits of evidence in chief and an expert opinion. On May 26, 2014 the defendants filed their affidavits of evidence in chief and on June 9, 2014 they filed an expert opinion. Furthermore, three dates were set for the parties' evidentiary hearings in March and April 2015. The parties filed a motion for two additional dates to be scheduled for evidentiary hearings of the parties, but a ruling on this motion is yet to be handed.

The shareholders of Reit Management, who also serve as officers in Reit 1 Ltd., filed a claim with Excellence Investments Ltd. ("Excellence") for retroactive payment from Reit Management, amounting to NIS 18 million for salary differences, management fees and other costs that they contend are due to them.

Excellence believes that these demands have no basis in the agreements between the parties, and the method of their calculation and amounts is unclear. Accordingly, Excellence notified them that it informed them that it dismisses their claims in full. During the fourth quarter of 2014, the parties transferred their dispute for arbitration before an agreed arbitrator. The plaintiffs filed their statement of claim in the arbitration proceeding. The statement of defense in the arbitration proceedings was filed on April 9, 2014.

The parties filed affidavits of evidence in chief and on July 27, 2014 a mediation hearing was held to hear the plaintiffs' evidence. Evidentiary hearings for hearing the defendants' evidence were held on October 30, 2014 and November 3, 2014, and on February 1, 2015 the plaintiffs filed their summations. The defendants are yet to file their summations.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

C. Legal proceedings (continued)

On February 5, 2014, a derivative claim was filed at the Tel Aviv District Court (Economic Division) against the Phoenix Insurance (“the defendant” and “the claim”).

The claim was also filed against Clalit Health Services (Ottoman Society) ("Clalit") and against four other insurance companies (together with the defendant: (“the defendants”). Together with the Claim, the plaintiff filed a motion for certification of a derivative claim against the defendants ("the Motion for Certification on the matter of Clalit").

On March 24, 2014, a derivative claim was filed with the Tel Aviv District Court Economic Division against the Phoenix Insurance and against Maccabi Healthcare Services (Ottoman Society) ("Maccabi") Together with the claim, the plaintiff filed a motion for certification of a derivative claim against the Defendants ("motion for certification on the matter of Maccabi"; hereunder jointly "the motions for certification").

The claims refer to the failure of Clalit and Maccabi ("the HMOs") to exhaust and exercise their right of participation by law towards the insurance companies for expenses incurred as part of the additional healthcare service plans (the healthcare basket).

According to the plaintiff, right of the HMOs to participate against the insurance companies is due to overlapping liabilities between the healthcare basket and commercial healthcare insurance policies sold by insurance companies, and arises from a general principle with wide application of the law, common to all branches of liability laws, and by virtue of the provisions of section 56 of the Contracts Law (General Part), 1973, section 59 of the Insurance Contract Law, 1981 and enrichment laws. The plaintiffs contend that a member of an Ottoman Society is entitled to file derivative action in its name, as a shareholder is entitled to file derivative action in the name of the company. The plaintiffs further claim that they first applied to the HMOs, but that their applications were denied and that their claims and proceedings are to the benefit of the HMOs.

The remedy claimed is to order each of the defendants to pay the HMOs at least half of the payments they incurred to cover their expenses in the healthcare basket plans, both for the surgery and selection of the surgeon in Israel, and for medical consultation, in the seven years before the claim was filed, in cases when the policyholders of the HMOs have commercial healthcare insurance for these components.

Under the motion for certification in the matter of Clalit, the damage claimed against all the insurance companies is estimated at USD 1 billion plus interest and linkage differences. Under the motion for certification in the matter of Maccabi, the damage claimed against all the insurance companies is estimated at USD 800 million plus interest and linkage differences.

On April 1, 2014, the plaintiff filed a petition to consolidate the claims under the motion for certification in the matter of Maccabi with the motion for certification in the matter of Clalit. On April 9, 2014, pursuant to the court's ruling, the defendants filed their responses to the petition to consolidate, according to which they have no objection to the requested consolidation of claims. On April 29, 2014, a ruling was handed ordering the consolidation of the cases before the Honorable Judge Kabub.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

C. Legal proceedings (continued)

On August 17, 2014, the plaintiffs filed for leave to revise the motion for certification as a class action and the defendants filed their responses to this motion. On October 28, 2014 the Court permitted the leave to revise ("Ruling on Leave to Revise"). Pursuant to the leave to revise and the ruling therein, the motions for certification in the matter of Clalit and of Maccabi were consolidated and filed as one consolidated document, new grounds were added to the motion for certification with regard to the right of participation available to the HMOs for surgeries carried out by them as part of the basic basket, due to overlapping liabilities in the policies of the defendant insurance companies, and an expert opinion was attached to the motion for certification that refers to the appropriate participation rate of the defendant insurance companies in the expenses of the HMOs in the healthcare basket plans. The amounts claimed were also updated with respect to surgeries carried out as part of the basic basket and with respect to the overlapping items in the healthcare basket plans and the commercial insurances (surgeries and medical consultation). With respect to Clalit, the defendants estimate that the damages claimed against all the defendant insurance companies amount to NIS 3.5 billion; and with respect to Maccabi, the defendants estimate that the damages claimed against all the defendant insurance companies amount to NIS 1.7 billion.

Pursuant to the ruling in the leave to revise, it was decided that each of the defendants would bear plaintiff expenses of NIS 5,000 (and jointly NIS 10,000) to be divided equally among the defendants.

On November 24, 2014 the plaintiffs filed the revised motion that includes the amendments requested in the leave to revise and which were approved, as aforesaid. The Company is required to file its response to the motion for certification of the claim as a class action by February 19, 2015. The claim was scheduled for a pre-trial hearing on April 30, 2015 and for evidentiary hearing on July 14, 2015.

On September 29, 2014 originating motion proceedings were opened with the Tel Aviv District Court (Economic Department) against Excellence Mutual Funds Ltd. ("Excellence") and others, under which A.Y Spector Ltd. ("Spector") petitioned the Court to order that Excellence's vote, by virtue of its holdings in its managed funds, against approval of a bonus earmarked for Spector, which is controlled by Mr. Yehiel Spector, the indirect controlling shareholder of Spectronix Ltd., be counted in the general meeting of the shareholders of Spectronix on July 22, 2014. It claims, against Excellence, among other things, that arbitrary voting against approval of the bonus constitutes an act contrary to the duty of justice prescribed in section 193(A)(2) of the Companies Law. The originating motion is for declaratory relief and does not include monetary relief. On January 14, 2015 the Securities Authority filed a response in the proceedings under which it notes that, after reviewing the originating motion and the responses of the respondents to the originating motion, it does not deem fit to file a response on its behalf in the proceeding. On January 21, 2015, the applicant in the proceeding filed a rebuttal to the responses of the respondents, under which it reiterated its position as presented in the primary proceedings and the it rejects the respondents' arguments in their responses. A pre-trial hearing was held on February 17, 2015 and an evidentiary was scheduled for July 13, 2015.
The Company and/or its subsidiaries are party to other legal proceedings and non-insurance claims, filed by customers, former customers, agents and various third parties, in amounts that are not material, in a total aggregate amount of NIS 45.8 million. The grounds for the claim against the Company and/or the subsidiaries in the proceedings are different.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

D. Other proceedings

In August 2013, a ruling in principle was issued ("the ruling") regarding the increase of management fees without notice. In accordance with the Ruling, a number of management companies did not inform their members of their intent to increase management fees as required in legislation. In the Ruling, the Commissioner ordered the provident fund management companies to refund to the members who were not informed of the increase in management fees in accordance with the statutory arrangement, the management fees that were overcharged for the period starting on January 1, 2006 and ending on December 31, 2009 ("the refund period").

The Ruling includes specific provisions regarding the conduct and management of the management companies with regard to the implementation of this Ruling, including the dates and manner for executing the refund and the preparation of a working schedule for executing the refund provisions In December 2014, an amendment to the Ruling was issued, postponing the date for execution of the refund by 8 months.

The effect of the Ruling will apply to the pension and provident sectors (excluding pension funds and centralized portfolios and provident funds). The institutional organizations in the group have prepared a working schedule in accordance with the provisions of the Ruling and at this time they are acting to execute the refund to all the relevant members, where some of the relevant members have already received the refunded moneys.

The financial statements of the managed companies include provision with regard to the Ruling, based on the information known to the Company as of the date of this report.

The Phoenix Insurance and the Commissioner are discussing a draft ruling that refers to, one-time deposits by policyholders received subsequent to 1991, in yield-guaranteed policies ("the policies"). In accordance with the draft, The Phoenix Insurance is required to take certain steps in relation to policyholders whose actual yield on one-time deposits, which carried the yields of the profit-sharing portfolio, was equal to or exceeded the guaranteed yield in the policies, and certain steps in relation to policyholders whose actual yield on one-time deposits was lower than the guaranteed yield. Accordingly, at this stage, in view of the discussions with the Commissioner regarding the wording of the draft and since the final wording is unknown, The Phoenix Insurance is unable to assess the implications and extent of its effect on The Phoenix Insurance, if it is published.
In November 2013, the Tel Aviv District Attorney (Taxation and Economics) ("the District Attorney") filed an indictment against two insurance agents, who had a business relationship with The Phoenix Insurance, and against The Phoenix Insurance, the former CFO, the legal counsel, and a division manager in the Phoenix Insurance for various offenses under the Penal Law, 1977. The indictment refers to the period between five to eight years ago, and is mainly about the tax liability of insurance agents: the District Attorney claims that The Phoenix Insurance should have deducted tax at source for this liability.

The Company and its organs deny the offenses attributed to them and believe that they will be acquitted of the charges against them. On September 17, 2014, the prosecution stage in the case opened and evidentiary hearings were tentatively scheduled until the end of September 2015.

For further information see the Company's report of November 25, 2013, ref. 2013-01-202041, the Company's report of March 27, 2014 ref. 2014-01-027861 and Note 22C(2) to the 2014 annual financial statements with regard to the disputed tax assessments for 2007-2009 against The Phoenix Insurance.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

D. Other proceedings (continued)

From time to time, complaints are filed against the Group, including complaints to the Commissioner of the Capital Market, Insurance and Savings Division of the Ministry of Finance ("the Commissioner"), for rights of policyholders according to insurance policies and/or the law.

These complaints are handled routinely by the Group's public complaints department. The Commissioner's decisions on such complaints are sometimes given as across the board decisions relating to a group of policyholders.

In the context of the Commissioner's applications to the Group following complaints, requests are made from time to time for information about the Group's handling of the insurance policies in the past and/or a request to refund moneys to groups of policyholders and/or other instructions. The Commissioner also has the authority to impose financial sanctions, based on the information that was submitted or that will be submitted to him following his application.

This exposure is reflected in the Group's pension savings and long-term insurance operations. In these areas, the policies are managed over the years in which there are changes in policies, regulations and legal trends, including court rulings. These changes are made by EDP systems that undergo frequent changes and adaptations. The complexity of these changes and application of change with respect to many years, creates increased operating exposure.

In addition, receipt of a new interpretation to insurance policies and long term pension products may, at times, affect the Group's future profitability with respect to the existing portfolio, in addition to the exposure involved in the demands to compensate customers for past activities. It is impossible to anticipate the types of claims that will arise in this area, and the exposure arising from these and other claims in respect of the insurance contracts, through the procedural mechanism set out in the Class Actions Law.

In addition, the Commissioner of Insurance is taking steps to outline principles for insurance plans, and in this context, on July 10, 2013, a document was posed with a list of guidelines for insurance plans, whose aim was to direct the insurer while preparing an insurance plan which will not include any depriving conditions and will be clear and simple, including a list of unacceptable practices that are presumed to be discriminatory and should not be included in an insurance plan and acceptable practices that should be included in insurance plans. It is not possible to foresee whether and to what extent the insurers are exposed to claims regarding the interpretation in insurance plans, and the appropriate application of the principles and practices, which might arise, inter alia, through hearing mechanisms set out in the Class Actions Law.

In addition, long-term savings products are characterized by a long life span and high complexity, especially in view of the various legislative arrangements for product management and taxation, attribution of deposits, investment management, the policyholder's employment status, and deposit payments. As part of regulatory changes and legal directions, in December 2011, Circular 2011-9-10 was issued for institutional entities referring to improvement of information about members rights in institutional entities. This circular was replaced with Circular 2012-9-16.

The circular sets out the measures required by the financial institution regarding the information listed in the holdings interface as part of a uniform structure for transferring information in the savings and pension market, and requires the institutional entity to improve the holdings interface so that the information included in the holdings interface will be complete and continuous, to the extent that there is any such information throughout the savings period.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

D. Other proceedings(continued)

For members who joined prior to 1997, information should be improved at least as from 1997, when for provident funds that are not insurance funds or pension paying annuity funds, information about deposits, transfers and withdrawals that were carried out at least as from January 1, 2005 onwards, will be improved. The circular includes graded provisions for implementation in the period from December 31, 2012 to June 30, 2016.

The Group's financial institutions regularly addresses improvement of policyholder rights, in accordance with gaps that arise from time to time, has completed the gap survey required by the circular, and the execution of actual improvement has started, in accordance with an organized complementary work plan according to the schedule set out in the circular.

At this stage, the financial institutions are unable to assess and quantify the extent and costs of all the improvement procedures and their implications.

The financial institutions have made certain provisions as necessary after completion of the gap analysis, however at this stage, it is unable to fully assess whether further provisions are required in respect of the processes for improving information about members’ rights that are required in the circular.

Summary table

The table below presents a summary of the amounts claimed in contingent motions for certification as class actions, claims approved as class actions and other material claims against the Company and/or subsidiaries, as noted by the plaintiffs in the statements of claim they filed. It is clarified that the amount claimed is not necessarily quantification of the estimated amount of exposure by the Company and/or subsidiaries, as these are estimates by the plaintiffs whose cases will be deliberated in the legal proceedings. It is further clarified that the table below does not included proceedings that have been concluded, including proceedings which have been concluded after approval of a settlement.

	Number of	Amount claimed
Class	claims	(NIS thousands)
Claims certified as class actions:
Amount attributable to the Company	4	132,772
Claims attributable to several companies without attribution of a
specific amount to the Company	-	-
The amount of the claim was not noted	1	-
Contingent motions for certification of class actions:
Amount attributable to the Company	12	2,025,249
Claims attributable to several companies without attribution of a specific amount to the Company	11	2,066,765
The amount of the claim was not noted	1	-
Other material claims
Amount attributable to the Company	4	72,441
Claims attributable to several companies without attribution of a specific amount to the Company	1	5,232,000
The amount of the claim was not noted	-	-
Other claims	17	45,839

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

D. Other proceedings (continued)

The amount of the total provision of class actions, legal proceedings and others, filed against the Company and /or its subsidiaries, as described above, amounts to NIS 98,041 thousand (December 31, 2013, NIS 92,966 thousand).

E. Guarantees and liens provided

The Phoenix Insurance provided a guarantee to members of The Phoenix Pitzuim Merkazit and members of The Phoenix Tagmulim and Pitzuim, such that the amounts that will be refunded to them will not fall below the amounts deposited by them in the funds. The value of the assets of these funds as of the reporting date greatly exceeds the amounts guaranteed by The Phoenix Insurance.
As collateral for repayment of the consideration that the SPCs issuing Excellence's ETFs and deposit certificates undertook to pay the certificate holders, these companies placed a current first lien on all the bank accounts in which the net consideration of the issuance was deposited and/or in which the base asset and financial instruments were deposited as collateral for holders of the ETFs. The deposits that will be used to cover the companies' activities in options and/or financial instruments were pledged in favor of the trustee in a second lien.
As collateral for repayment of the principal, interest and linkage differences that the SPCs issuing Excellence's structured instruments undertook to pay to the debenture holders, and to secure full and accurate fulfillment of all its other obligations under the terms of the debenture and deed of trust, these companies placed a fixed first lien on all its rights in the non-marketable debentures that were issued for them and a first floating lien on their rights in the bank accounts in which the consideration of the issuance and proceeds received from the non-marketable debentures were deposited. The pledged non-marketable debentures were deposited with a trustee.

F. Agreements

The Phoenix Insurance has agreements for the acquisition of investment property as of December 31, 2014 amounting to NIS 32 million, of which NIS 21 million is for unit linked contracts (as at December 31, 2013 the Company's foregoing agreements amounted to NIS 10 million, of which NIS 7 million is for unit linked contracts).
The Group has agreements for payment of rent and maintenance fees for offices (not including VAT) as follows:

Year 2015 2016 2017 2018 2019 onwards	NIS thousands
	20,212 16,618 14,840 13,372 52,547
	117,589

(*) Part of the rent is linked to the dollar rate and part is linked to the CPI. The above amounts do not include future changes in the CPI and/or foreign currency on the amount of the agreements.
The Phoenix Insurance has obligations for future investments in venture capital and investment funds amounting to NIS 618 million at December 31, 2014, of which NIS 497 million is for unit linked contracts (as of December 31, 2013, NIS 445 million, of which NIS 375 million is for unit linked contracts).

— 301 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

In December 2012, an operating agreement was signed between Leumi Capital Market Services Ltd. ("Leumi") and The Phoenix Pension and Provident Fund Ltd., a subsidiary, signed an operating agreement. In accordance with the agreement, Leumi will provide The Phoenix Pension and Provident Fund operating services for the members' accounts in pension funds that it manages (other than for the pension fund and study fund under personal management), in return for monthly operating fees (“the operating agreement").

The Operating Agreement with the Leumi replaced the operating agreement with Mizrahi Bank Ltd., which ended at the end of 2012.

In March 2012, The Phoenix Pension and Provident Funds Ltd., a subsidiary, signed an operating agreement with Citibank NA (Citibank N.A.) (hereinafter: "Citibank"), according to which, Citibank will provide The Phoenix Pension and Provident operating services for the members' accounts in the pension fund and study fund under personal management that it manages in consideration for monthly operating fees at a graded rate based on the scope of the members' assets.

In September 2014, Phoenix Pension and Provident Ltd. signed an endorsement of rights and obligations agreement with Citibank, under which all Citibank's rights and obligations under the foregoing operating agreement were transferred and endorsed to DSS Consulting and Services Ltd. It is noted that since the provident funds managed by The Phoenix Pension and Provident Ltd. began personal management activities, DSS Consulting and Services Ltd. acts as a subcontractor of Citibank regarding everything connected to providing operating services to the Company and consequently, endorsement of the agreement as aforesaid, has had no effect of the operating services provided under the agreement.

On June 27, 2013, a secondary insurance agreement was signed between The Phoenix Insurance Company Ltd. ("The Phoenix Insurance"), a subsidiary and The Phoenix Pension and Provident Ltd. ("The Phoenix Pension and Provident"), a subsidiary of The Phoenix Insurance, as part of adding and operating the insurance tracks in the complementary pension fund, due to the amendment in the fund bylaws. The agreement was approved by the Capital Market, Insurance and Savings division on December 31, 2013. Under the foregoing agreement, The Phoenix Insurance provides The Phoenix Pension and Provident insurance for the general pension fund under its management. The insurance cover provided is for survivors insurance and work disability insurance.
A subsidiary that is a member of the TASE clearing house (“the clearing house”) is responsible, together with the other clearing house members for any loss caused due to non-payment of any amount that the clearing house member owes and has not paid, or securities that a clearing house member should have transferred and did not transfer. The responsibility of each clearing house member is at the rate of the financial turnover of that TASE member compared to the financial turnover of the operations of all clearing house members on the TASE in the twelve months preceding the month in which the event occurred.

In 2002, the board of directors of the TASE resolved to establish a clearing house risk fund to secure the Company’s liabilities to the clearing house. The share of each fund member will be determined according to its proportionate share on the TASE based on the average daily clearing house turnover. Accordingly, the subsidiary deposited its share, amounting to NIS 8 million as of December 31, 2014 and NIS 6 million as of December 31, 2013, in the TASE risk account.

A subsidiary of Excellence signed a number of agreements to manage member accounts in provident funds with a number of banks ("Operators"). The agreements were signed for varying periods and for varying management fees. As part of the merging of funds and consolidation of the Operators in the provident funds as set out in the regulatory provisions, as of January 1, 2014 all operating services are received from a single operator.

— 302 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

A subsidiary of Excellence has an agreement with FMR Computers and Software Ltd., whereby the subsidiary receives software development services, computer-assisted data processing, including generation of reports, and computer processing based on information received directly from the TASE. The validity of the agreement is extended from time to time. As of the date of the report, the subsidiary has an agreement with FMR in effect until June 2015. In January 2015, the agreement was extended until June 2017.
For information about agreements for investments in investees and agreements of investees with others, see Note 7.

— 303 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 42 – CHANGES IN CONTINGENT LIABILITIES AND AGREEMENTS (CONTINUED)

G. Leases

1. Leases for which the Group is a lessee in an operating leases

The Group has lease agreements for vehicles. The leases are for an average of three years, without an option to extend the contract. Minimum lease fees that are payable for operating lease contracts that cannot be canceled as of December 31 are as follows:

Year ended December 31	Year ended December 31
2014	2013	2012
	NIS thousands
7,964 8,869	5,294 3,948	6,342 4,428
16,833	9,242	10,770

2. Leases in which the Company is the lessor

The Company leases a number of commercial buildings (investment property) to external institutions. The lease agreements are for variable periods that cannot be canceled, with rental fees linked to the CPI. Renewal of the leases at the end of their term is subject to the consent of the Company and the lessors.

Minimum lease fees that are receivable for lease contracts that cannot be canceled:

Year ended December 31	Year ended December 31
2014	2013	2012
	NIS thousands
124,688 442,698 544,505	110,340 315,309 297,742	58,502 205,987 199,863
1,111,891	723,391	464,302

— 304 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

NOTE 43 – SUBSEQUENT EVENTS

Subsequent to the date of the financial statements, interest rates continued to decline, which may lead to the need for further increase in liabilities for insurance contracts in the coming periods. Conversely, these interest rate changes could have a positive effect on the value of the Group's financial assets, that could reduce the foregoing effect. The decrease in interest rates is part of the macro economic effects and it is yet too early to estimate their overall effect of the financial results.
On January 27, 2015, an unbinding memorandum of understanding was signed between the Company, Delek Group, and a foreign company that also engages in insurance abroad ("the Buyer"). Under the memorandum, criteria were set out for reaching a binding agreement for selling the controlling interest in the Company (42% - 52.3% of the Company's share capital ("the Sold Stock").

Under the memorandum of understanding, the overall consideration for the Sold Stock will be based on the Company's equity at September 30, 2014, with added adjustments. It is noted that, the memorandum of understanding is not binding, other than the obligation of exclusivity for a limited period agreed on by the parties. The transaction is subject to due diligence, successful completion of negotiations between the parties and the signing of a binding agreement. The binding agreement will be subject to obtaining all the regulatory approvals required by law.

In February 2015, The Phoenix Capital Raising, a sub-subsidiary of the Company, announced its decision to examine the option of issuing two new series of debentures to the public that will be recognized as capital in The Phoenix Insurance Co. Ltd. ("The Phoenix Insurance"), and the proceeds therefrom will be listed for trading on the TASE. The foregoing debentures will be issued under an exchange tender offer to holders of debt certificates (Series A) ("the Debt Certificates") issued by The Phoenix Capital Raising, such that it will purchase the Debt Certificates in return for a package containing debentures from both series. The issue will be carried out under the shelf prospectus issued by The Phoenix Capital Raising on May 29, 2013 ("the Shelf Prospectus").

Publication of the shelf offering memorandum and execution of the issue (if it will be executed), are subject to obtaining the duly required approvals. As of reporting date, the Securities Authority decided to extend the Shelf Prospectus by a further 12 months until May 29, 2016. The date of the foregoing issue, the terms of the securities to be offered to the public, the scope of the issue and the exchange ratio in the tender offer, are yet to be set. The foregoing does not in any way obligate The Phoenix Capital Raising to execute the debenture issue as aforesaid and it is in no way a public offering or an offering to acquire The Phoenix Capital Raising securities.

In March 2015, Midroog announced ratification of the financial robustness of The Phoenix Insurance at Aa1, the rating for subordinated debt certificates A and B at Aa2, and the rating for Debentures (Series B and C) at Aa3, with stable outlook.

Midroog further announced that it would rate the debentures to be issued by The Phoenix Capital Raising, if they are issued (see section 3 above) at Aa2 rating for hybrid tier 3 capital and Aa3 for hybrid tier 2 capital.

On January 18, 2015, Maalot ratified the ratings of the Company (+ilA) and of The Phoenix Insurance (+ilAA), retaining the stable rating outlook.
On January 27, 2015, Orly Kronman Dagan, legal counsel and Company secretary, gave notice of resignation from the Company. As of reporting date, the date of termination of her term of office has not yet been set.
For information regarding class actions filed subsequent to the reporting date, see Note 42 above.

— 305 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

==> picture [71 x 82] intentionally omitted <==

Kost Forer Gabbay & Kasierer Tel: +972-3-6232525 3 Aminadav St. Fax: +972-3-5622555 Tel-Aviv 6706703, Israel ey.com

Translation from Hebrew into English of the financial statements of The Phoenix Holdings Ltd. December 31, 2014 and June 30, 2015

We wish to report that we are proficient in Hebrew and in English and in our opinion, the attached translation of the audited financial statements of The Phoenix Holdings Ltd. as at 31 December 2014 and the reviewed financial statement as at 30 June 2015 are properly conducted.

==> picture [217 x 34] intentionally omitted <==

Tel-Aviv, Israel September 21, 2015

KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global

— 306 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Kost Forer Gabbay & Kasierer Tel: 972-3-6232525 3, Aminadav Street, Fax: 972-3-5622555 Tel Aviv 6706703 ey.com

Auditor’s review report to the shareholders of The Phoenix Holdings Ltd.

Introduction

We have reviewed the accompanying financial information of The Phoenix Holdings Ltd. and its subsidiaries (“the Group"), which comprises the condensed consolidated statement of financial position as of June 30, 2015 and the related condensed consolidated statements of profit and loss, comprehensive income, changes in equity, and cash flows for the six and three months then ended. The company's board of directors and management are responsible for the preparation and presentation of interim financial information for this period in accordance with IAS 34, "Interim Financial Reporting" and in accordance with the disclosure requirements established by the Commissioner of Insurance in accordance with the Control of Financial Services (Insurance) Law, 1981 and they are responsible for preparation of the interim financial information in accordance with Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970, insofar as these regulations apply to a corporation which consolidates insurance companies. Our responsibility is to express a conclusion on this interim financial information based on our review.

We did not review the condensed interim financial statements of consolidated companies, the consolidated assets of which represent approximately 1.3% of the total consolidated assets as of June 30, 2015, and the consolidated revenue of which represents approximately 0.4% and 1.5% of the total consolidated revenue for the six and three months then ended, respectively. In addition, we did not review the condensed interim financial information of equity-accounted investees, the investment in which amounted to NIS 286,003 thousand as of June 30, 2015, and the Group’s share in their profits (losses) amounted to NIS 11,336 thousand and NIS (9,261) thousand for the six and three months then ended, respectively. The condensed interim financial information of those companies was reviewed by other auditors, whose reports were provided to us, and our conclusion, insofar as it relates to the financial information for those companies, is based on the review reports prepared by the other auditors.

Review scope

We conducted our review in accordance with Review Standard 1 of the Institute of Certified Public Accountants in Israel, "Review of Interim Financial Information Prepared by Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, mainly with the persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in Israel and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might have been identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review and the review reports prepared by other auditors, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not prepared, in all material respects, in accordance with IAS 34 and in accordance with the disclosure requirements established by the Commissioner of Insurance, in accordance with the Control of Financial Services (Insurance) Law, 1981.

Additionally, based on our review and the review reports prepared by other auditors, nothing has come to our attention that causes us to believe that this accompanying interim financial information does not comply, in all material respects, with the disclosure requirements of Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970, insofar as these regulations apply to a corporation which consolidates insurance companies.

Without qualifying our conclusion, we draw attention to Note 6 to the financial statements, regarding the exposure to contingent liabilities.

Tel Aviv August 30, 2015

Kost Forer Gabbay & Kasierer Certified Public Accountants

— 307 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Condensed Consolidated Interim Statement of Financial Position

June 30, 2015 June 30, 2014 December 31, 2014 Unaudited Audited NIS thousands	June 30, 2014	December 31, 2014
		Audited

1,742,944 9,013 1,433,552 366,733 566,895 1,036,448 1,876,291 1,315,952 202,000 101,501 308,624 670,312 32,294,399 33,728,025 5,952,438 10,991,927 922,105 1,013,221 18,879,691 4,406,432 574,711 99,513,523 37,897,787	1,706,442 53,991 1,316,116 374,161 506,875 1,033,778 1,739,738 1,372,452 149,000 87,759 327,474 703,950 29,581,276 36,718,441 5,350,878 10,097,153 698,000 1,148,615 17,294,646	1,754,454 7,906 1,358,127 370,604 582,819 1,094,954 1,857,433 1,398,926 160,000 42,083 261,933 596,844 31,438,806 39,026,300 5,503,979 10,570,471 745,245 1,236,905 18,056,600
	2,739,073 794,277	2,651,399 677,461
	96,499,449	101,336,649
	33,541,546	35,339,231

The accompanying notes are an integral part of the condensed consolidated interim financial statements

— 308 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Condensed Consolidated Interim Statement of Financial Position

June 30, 2015	June 30, 2014	December 31, 2014
		Audited

304,258 667,842 (37,302) 185,542 2,702,440	304,258 667,842 (36,486) 260,631 2,596,211	304,258 667,842 (36,637) 200,709 2,668,873
3,822,780	3,792,456	3,805,045
119,122	108,054	124,097
3,941,902	3,900,510	3,929,142
19,134,111 38,174,644 380,998 122,494 8,868 1,168,718 33,034,873 3,546,915	18,170,114 33,303,264 480,679 124,022 8,074 1,155,819 36,160,871 3,196,096	18,381,210 35,149,671 425,226 113,254 8,560 1,330,301 38,404,175 3,595,110
95,571,621	92,598,939	97,407,507
99,513,523	96,499,449	101,336,649

The accompanying notes are an integral part of the condensed consolidated interim financial statements

Asi Bartfeld Eyal Lapidot Chairman of the Board CEO

Omer Ziv Deputy CEO and CFO

Financial Statements approved on August 30, 2015

— 309 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Condensed Consolidated Interim Statements of Income

Six months ended June 30 Three months ended June 30 2015 2014 2015 2014 Unaudited NIS thousands	Six months ended June 30 Three months ended June 30 2015 2014 2015 2014 Unaudited NIS thousands	Six months ended June 30 Three months ended June 30 2015 2014 2015 2014 Unaudited NIS thousands	Six months ended June 30 Three months ended June 30 2015 2014 2015 2014 Unaudited NIS thousands	Year ended December 31
2015				2014
				Audited

4,035,661 322,480	3,901,515 304,003 3,597,512 1,601,499 457,659 121,925 94,001 18,060 5,890,656 4,505,920 158,320 4,347,600 626,712 517,745 13,247 50,294 5,555,598 20,547 355,605 111,372 244,233 234,019 10,214 244,233 0.95 0.95	2,064,788 152,742 1,912,046 (14,589) 135,883 78,962 52,760 9,531 2,174,593 1,434,945 107,083 1,327,862 368,606 279,195 6,745 58,461 2,040,869 (4,685) 129,039 46,782 82,257 77,127 5,130 82,257 0.31 0.31	2,002,049 155,047 1,847,002 620,863 192,094 64,799 53,376 8,437 2,786,571 2,136,289 65,878 2,070,411 328,327 255,111 3,482 40,534 2,697,865 (4,904) 83,802 30,061 53,741 48,034 5,707 53,741 0.20 0.20	7,698,273 644,363
3,713,181 1,633,605 523,906 146,270 100,849 19,086				7,053,910 2,774,430 857,811 259,231 202,822 41,949
6,136,897				11,190,153
4,995,254 204,510				8,397,290 450,734
4,790,744 715,365 554,575 16,848 48,001				7,946,556 1,313,780 1,030,271 36,056 126,560
6,125,533				10,453,223
18,352				45,933
29,716 (11,091)				782,863 251,678
40,807				531,185
32,630 8,177				504,480 26,705
40,807				531,185
0.13				2.05
0.13				2.05

The accompanying notes are an integral part of the condensed consolidated interim financial statements

— 310 —

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Condensed Consolidated Interim Statements of Comprehensive Income

Six months ended June 30	Six months ended June 30	Six months ended June 30	Six months ended June 30	Year ended December 31
2015		2015		2014
				Audited

40,807 84,470 (141,946) 34,628 (2,851) 7,928	244,233 127,863 (141,744) 10,058 (800) 779 (3,844) 1,136 (301) 835 (3,009) 241,224 231,010 10,214 241,224	82,257 (180,524) (58,511) 27,863 (4,222) 77,805	53,741 (18,939) (55,494) 8,126 (1,370) 24,654 (43,023) 1,136 (301) 835 (42,188) 11,553 5,846 5,707 11,553	531,185 105,593 (285,574) 70,593 6,402 40,057
(17,771)		(137,589)		(62,929)
1,500 (563)		2,591 (974)		3,697 (1,260)
937		1,617		2,437
(16,834)		(135,972)		(60,492)
23,973		(53,715)		470,693
15,898 8,075		(58,743) 5,028		443,971 26,722
23,973		(53,715)		470,693

The accompanying notes are an integral part of the condensed consolidated interim financial statements

— 311 —

					Total	equity			3,929,142	40,807		(16,834)		23,973	2,502			(13,050)		(785)		120		3,941,902
				Non-	controlling	interests			124,097	8,177		(102)		8,075	-			(13,050)		-		-		119,122
	Capital	reserve	for	available	for sale	assets Total			165,149 3,805,045	- 32,630		(14,818) (16,732)		(14,818) 15,898	- 2,502			- -		- (785)		- 120		150,331 3,822,780
Attributable to Company shareholders	Premium Capital Capital	and reserve for reserve	capital transactions for Reserve	reserves with non- share- from	Share on Treasury Retained controlling based translation	capital shares shares earnings interests payment differences	NIS thousands	Balance as of January	1, 2015 (audited) 304,258 667,842 (36,637) 2,668,873 (4,804) 37,753 2,611	Profit - - - 32,630 - - -	Other comprehensive	income (loss) - - - 937 - - (2,851)	Total comprehensive	income (loss) - - - 33,567 - - (2,851)	Share-based payment - - - - - 2,502 -	Dividend paid to holders	of non-controlling	interests - - - - - - -	Acquisition of treasury	shares - - (785) - - - -	Reissuance of treasury	shares - - 120 - - - -	Balance as of June 30,	2015 (unaudited) 304,258 667,842 (37,302) 2,702,440 (4,804) 40,255 (240)	The accompanying notes are an integral part of the condensed consolidated interim financial statements	— 312 —

					Total	equity			3,654,345	244,233	(3,009)		241,224	8,579		-		(4,638)		1,000		3,900,510
				Non-	controlling	interests			96,840	10,214	-		10,214	-		-		-		1,000		108,054
						Total			3,557,505	234,019	(3,009)		231,010	8,579		-		(4,638)		-		3,792,456
	Capital	reserve	for	available	for sale	assets			234,480	-	(3,044)		(3,044)	-		-		-		-		231,436
Attributable to Company shareholders	Capital	reserve for Capital	transactions reserve Reserve	with non- for share- from	Treasury Retained controlling based translation	shares earnings interests payment differences	NIS thousands		(31,848) 2,361,357 (4,804) 30,627 (3,791)	- 234,019 - - -	- 835 - - (800)		- 234,854 - - (800)	- - - 8,579 -		- - - (616) -		(4,638) - - - -		- - - - -		(36,486) 2,596,211 (4,804) 38,590 (4,591)
		Premium	and	capital	reserves	on shares			667,268	-	-		-	-		574		-		-		667,842
					Share	capital			304,216	-	-		-	-		42		-		-		304,258
								Balance as of January 1,	2014 (audited)	Net income	Other comprehensive loss	Total comprehensive	income (loss)	Share-based payment	Exercise of employee	options	Acquisition of treasury	shares	Issue of shares to non-	controlling interests	Balance as of June 30,	2014 (unaudited)

					Total	equity			4,003,288	82,257		(135,972)		(53,715)	1,258		120			(9,049)		3,941,902
				Non-	controlling	interests			123,143	5,130		(102)		5,028	-		-			(9,049)		119,122
	Capital	reserve	for	available	for sale	assets Total			283,596 3,880,145	- 77,127		(133,265) (135,870)		(133,265) (58,743)	- 1,258		- 120			- -		150,331 3,822,780
Attributable to Company shareholders	Capital	Premium reserve for Capital	and transactions reserve Reserve	capital with non- for share- from	Share reserves Treasury Retained controlling based translation	capital on shares shares earnings interests payment differences	NIS thousands	Balance as of April 1,	2015 (unaudited) 304,258 667,842 (37,422) 2,623,696 (4,804) 38,997 3,982	Profit - - - 77,127 - - -	Other comprehensive	income (loss) - - - 1,617 - - (4,222)	Total comprehensive	income (loss) - - - 78,744 - - (4,222)	Share-based payment - - - - - 1,258 -	Reissuance of treasury	shares - - 120 - - - -	Dividend paid to holders	of non-controlling	interests - - - - - - -	Balance as of June 30,	2015 (unaudited) 304,258 667,842 (37,302) 2,702,440 (4,804) 40,255 (240)	The accompanying notes are an integral part of the condensed consolidated interim financial statements	— 314 —

					Total	equity			3,890,046	53,741		(42,188)		11,553	2,905	-	(3,994)		3,900,510
				Non-	controlling	interests			102,347	5,707		-		5,707	-	-	-		108,054
						Total			3,787,699	48,034		(42,188)		5,846	2,905	-	(3,994)		3,792,456
	Capital	reserve	for	available	for sale	assets			273,089	-		(41,653)		(41,653)	-	-	-		231,436
Attributable to Company shareholders	Capital	Premium reserve for Capital	and transactions reserve Reserve	capital with non- for share- from	Share reserves Treasury Retained controlling based translation	capital on shares shares earnings interests payment differences	NIS thousands	Balance as of April 1, 2014	(unaudited) 304,216 667,268 (32,492) 2,547,342 (4,804) 36,301 (3,221)	Net income - - - 48,034 - - -	Other comprehensive income	(loss) - - - 835 - - (1,370)	Total comprehensive income	(loss) - - - 48,869 - - (1,370)	Share-based payment - - - - - 2,905 -	Exercise of employee options 42 574 - - - (616) -	Acquisition of treasury shares - - (3,994) - - - -	Balance as of June 30, 2014	(unaudited) 304,258 667,842 (36,486) 2,596,211 (4,804) 38,590 (4,591)	The accompanying notes are an integral part of the condensed consolidated interim financial statements	— 315 —

						Total equity			3,654,345	531,185		(60,492)		470,693	7,742	(199,384)		-			(465)		(4,789)		1,000			3,929,142
				Non-	controlling	interests			96,840	26,705		17		26,722	-	-		-			(465)		-		1,000			124,097
						Total			3,557,505	504,480		(60,509)		443,971	7,742	(199,384)		-			-		(4,789)		-			3,805,045
		Capital	reserve for	available	for sale	assets			234,480	-		(69,331)		(69,331)	-	-		-			-		-		-			165,149
Attributable to Company shareholders	Capital	reserve for Capital	transactions reserve for Reserve	with non- share- from	Retained controlling based translation	earnings interests payment differences	NIS thousands		2,361,357 (4,804) 30,627 (3,791)	504,480 - - -		2,420 - - 6,402		506,900 - - 6,402	- - 7,742 -	(199,384) - - -		- - (616) -			- - - -		- - - -		- - - -			2,668,873 (4,804) 37,753 2,611
					Treasury	shares			(31,848)	-		-		-	-	-		-			-		(4,789)		-			(36,637)
	Premium	and	capital	reserves	on	shares			667,268	-		-		-	-	-		574			-		-		-			667,842
					Share	capital			304,216	-		-		-	-	-		42			-		-		-			304,258
								Balance as of January 1,	2014 (audited)	Net income	Other comprehensive	income (loss)	Total comprehensive	income (loss)	Share-based payment	Dividends	Exercise of employee	options	Dividend paid to holders	of non-controlling	interests	Acquisition of treasury	shares	Issue of shares to non-	controlling interests	Balance as of	December 31, 2014	(audited)

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Condensed Consolidated Interim Statements of Cash Flows

Six months ended June 30	Six months ended June 30	Three months ended June 30 2015 2014 Unaudited NIS thousands	Three months ended June 30 2015 2014 Unaudited NIS thousands	Year ended December 31
2015	2014	2015		2014
				Audited
		NIS thousands
40,807 1,745,882	244,233 774,714	82,257 1,182,547	53,741 535,395 589,136 (8,781) - 944 3,410 255 (750) (44,994) (49,916) - (3,994) - - 72,691 (194,945) - - - (126,248) 412,972 3,120,378 3,533,350	531,185 110,977
1,786,689	1,018,947	1,264,804		642,162
(15,329) - (6,853) 38,411 509 (200) (85,074)	(16,833) 10 (4,432) 7,348 473 (1,185) (89,248)	(8,540) - - 3,891 256 - (42,026)		(32,306) 552 (58,543) 18,317 1,048 (1,876) (208,312)
(68,536)	(103,867)	(46,419)		(281,120)
- (785) - 120 126,000 (178,155) - (13,050) -	- (4,638) 1,000 - 125,413 (330,426) - - -	- - - 120 - (83,930) - (9,049) -		(199,384) (4,789) 1,000 - 159,286 (204,137) 394,786 (465) (5,400)
(65,870)	(208,651)	(92,859)		140,897
1,652,283 3,328,860	706,429 2,826,921	1,125,526 3,855,617		501,939 2,826,921
4,981,143	3,533,350	4,981,143		3,328,860

The accompanying notes are an integral part of the condensed consolidated interim financial statements

— 317 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Condensed Consolidated Interim Statements of Cash Flows

Six months ended June 30	Six months ended June 30	Three months ended June 30	Three months ended June 30	Year ended December 31
2015 2014 Unaudited	2014	2015 2014 Unaudited		2014
				Audited

(1,157,429) (141) 91,642 (34,193) (88,924) (72,898) 123,258 11 5,900 239 5,815 (11,091) (18,352) 2,502 752,901 3,024,973 (5,369,302) 5,301,195 (75,425) 82,974 10,177 (120,159) (174,083) (42,000) (441) (24,141) 82,788 301,836 (741,566) (60,239) 35,481 (85,782) 356	(1,072,314) - 8,598 (55,828) (33,008) (43,969) 105,989 137 5,900 133 34,719 111,372 (20,547) 8,579 624,549 2,410,756 1,434,706 (1,332,809) (99,414) (8,043) 10,150 (56,488) (196,668) 16,000 (418) (28,004) - (874,359) 4,807 (19,730) - (190,184) 30,102	383,623 - 183,931 (106,245) 13,884 (47,169) 61,142 11 (13,165) 125 64,325 46,782 4,685 1,258 61,840 973,045 (2,156,471) 2,144,733 (13,780) 51,840 441 119,915 (57,577) 41,000 (343) (17,429) - 62,910 (534,707) (51,332) - (34,706) (19)	(292,662) - 56,033 (71,689) 15,561 (29,101) 52,460 134 (2,505) (29) 60,161 30,061 4,904 2,905 286,767 1,023,027 641,275 (592,387) (27,990) 21,230 2,837 83,852 (24,249) 104,000 (333) (3,517) - (668,328) (45,079) (5,627) - (116,347) 30,031	(1,864,764) (14,487) (100,498) 160,812 21,320 (13,530) 220,527 43 (81,712) 106 (61,845) 251,678 (45,933) 7,742 835,645 4,257,163 3,492,010 (3,548,056) (141,425) (34,517) 770 10,159 98,355 5,000 (318) (74,694) - (1,939,439) (1,055,006) (49,813) - (254,931) 30,615
1,745,882	774,714	1,182,547	535,395	110,977

The accompanying notes are an integral part of the condensed consolidated interim financial statements

— 318 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Condensed Consolidated Interim Statements of Cash Flows

Six months ended June 30	Six months ended June 30	Six months ended June 30	Six months ended June 30	Six months ended June 30	Year ended December 31
2015 2014 Unaudited		2014	2015		2014
					Audited

677,461 2,651,399	585,981 2,240,940		581,944 3,273,673	532,122 2,588,256 3,120,378 794,277 2,739,073 3,533,350 5,409 215,257 10,445	585,981 2,240,940
3,328,860	2,826,921		3,855,617		2,826,921
574,711 4,406,432	794,277 2,739,073		574,711 4,406,432		677,461 2,651,399
4,981,143	3,533,350		4,981,143		3,328,860
6,556 291,682 12,226	9,838 393,143 16,368		3,331 151,105 8,035		173,658 829,903 29,597

The accompanying notes are an integral part of the condensed consolidated interim financial statements

— 319 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 1 - GENERAL

A. The Phoenix Holdings Ltd. ("the Company") is an Israeli resident company incorporated in Israel. The official address of the Company is 53 Derech Hashalom, Givatayim, Israel. The Company's consolidated interim financial statements as of June 30, 2015 and for the six and three months then ended have been prepared in condensed format (“the Condensed Consolidated Interim Financial Statements”). These financial statements should be read together with the Company’s annual financial statements as of December 31, 2014 for the year then ended, and their accompanying notes (“the Annual Financial Statements”).

B. Definitions

The Company	-	The Phoenix Holdings Ltd.
The Phoenix Insurance	-	Phoenix Insurance Company Ltd., a wholly owned subsidiary
Excellence	-	Excellence Investments Ltd., a subsidiary of Phoenix
		Investments Ltd., a wholly owned subsidiary of the Company
The Phoenix Pension	-	The Phoenix Pension and Provident Funds Ltd., a wholly
		owned subsidiary of The Phoenix Insurance.
The Phoenix Capital Raising	-	The Phoenix Capital Raising (2009) Ltd., a wholly owned
		subsidiary of The Phoenix Insurance

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

A. Preparation format of the Consolidated Interim Financial Statements

The Consolidated Interim Financial Statements have been prepared in accordance with generally accepted accounting principles for the preparation of interim financial statements as prescribed in IAS 34, Interim Financial Reporting and in accordance with the disclosure requirements established by the Commissioner of Insurance in accordance with the Control of Financial Services (Insurance) Law, 1981. In addition, these reports were prepared in accordance with the disclosure requirements of Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970, insofar as these regulations apply to an insurance subsidiary.

The significant accounting policies and calculation methods applied in the preparation of these consolidated interim financial statements are consistent with those applied in the preparation of the consolidated Annual Financial Statements.

B. Proposed changes in the calculation of insurance reserves in general insurance

In February 2013, the Control of Financial Services Regulations (Insurance) (Calculation of� Insurance Reserves in General Insurance), 2013 ("the New Regulations") were issued and a circular� that was updated in January 2015 (jointly: "the Amendment"), regarding an update of the legal� provisions for calculation of insurance reserves in general insurance.

��

In addition, as a complementary measure for the change, the Commissioner's position was� published in January 2015, regarding the best practice for actuaries when calculating general� insurance reserves for the financial statements to adequately reflect the insurance liabilities. The� Commissioner's position includes the following:

"Caution" means that, for a reserve calculated by an actuary, it is fairly likely that the insurance obligation determined will be sufficient to cover the insurer’s obligation. For outstanding claims in compulsory motor insurance and liability branches, "fairly likely" means a probability of at least 75%.

— 320 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

B. Proposed changes in the calculation of insurance reserves in general insurance (contd.)

Reference to the discounted cash flow rate.
Grouping: for the sake of caution in non-grouped branches (as defined in the circular - statistical branches), each branch should be considered separately, however, the risks of each underwriting (or damage) year in the branch can be grouped. Grouped branches (that are nonstatistical) may all be considered as a single set.
Determination of the level of insurance obligations for policies sold shortly before the balance sheet date and for unexpired risks.

The Company is reviewing the general effect of the amendment on the financial statements, together with the Commissioner's position. At this stage, the effect cannot be assessed, since initial implementation of the Commissioner's position will be in December 2015 and requires lengthy preparations.

C. Use of estimates and judgments

The preparation of interim statements in conformity with IAS 34 and in accordance with the Control� Law and the regulations issued thereunder, the Commissioner's directives, and the provisions of� Section D of the Securities Regulations (Periodic and Immediate Reports), 1970, insofar as these� are relevant, requires the Company to make judgments, estimates, and assumptions that affect the� application of accounting policies and the reported amounts of assets, liabilities, income, and� expenses. Actual results may differ from these estimates.

��

D. Changes in the CPI and the USD exchange rates

Six months ended: June 30, 2015 June 30, 2014 Three months ended June 30, 2015 June 30, 2014 Year ended December 31, 2014	CPI Known CPI % (0.5) (0.2) 1.12 0.49 (0.1)	CPI for % (0.2) - 1.11 0.49 (0.2)	Representative exchange rate of
			USD % (3.086) (0.951) (5.302) (1.405) 12.0

E. Disclosure of new IFRSs in the period prior to their adoption

IFRS 15, Revenues from Contracts with Customers

On July 22, 2015, the IASB approved the postponement of mandatory initial application of IFRS 15, Revenues from Contracts with Customers. Accordingly, application of IFRS 15 will be mandatory for annual periods starting from January 1, 2018. Early application is permitted.

— 321 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 3 – OPERATING SEGMENTS

The Company operates in the following operating segments:

1. Life insurance and long-term savings

2. Healthcare insurance

The healthcare insurance segment concentrates all of the Group’s healthcare insurance business. The segment includes long-term care insurance, medical expense insurance, operations and transplants, dental insurance, overseas travel and foreign workers.

3. General insurance

The general insurance segment includes the liability and property insurance businesses. According to the Commissioner of Insurance’s directives, the general insurance segment in Israel is divided into compulsory motor insurance, motor property insurance, other property insurance, and other liability insurance:

Compulsory motor insurance
The compulsory motor insurance branch focuses on coverage, the acquisition of which by the owner of the vehicle or the driver is compulsory by law, and which provides coverage for bodily injuries (to the driver of the vehicle, the passengers in the vehicle or to pedestrians) as a result of the use of the motor vehicle.

� Motor property insurance

The motor property insurance segment focuses on property damage coverage for the insured vehicle and property damages caused by the insured vehicle to third parties.
Other liability insurance
Liability insurance is designed to cover the policyholder's liabilities for damage caused to any third party. These segments include third party liability, employers' liability, professional liability, and product warranties.
Property and other branches
These are the remaining property sectors, other than motor property insurance or liabilities, and include other insurance sectors.

4. Financial services

The financial services segment includes the results of the subsidiary Excellence Investments Ltd., except for provident funds and pension funds, which are part of the life insurance and longterm savings segment. The segment includes investment management services, including mutual funds, ETFS, structured products, brokerage services, underwriting services, marketmaking in various securities, and other services.

5. Others segment

This segment includes operating segments, the scope of which do not meet the quantitative criterion for reporting (mainly operations of the arrangement agencies, other consolidated insurance agencies and the operations of other subsidiaries engaging in various matters).

— 322 —

					Total			4,035,661	322,480	3,713,181	1,633,605	523,906	146,270	100,849	19,086	6,136,897	4,995,254	204,510	4,790,744	715,365	554,575	16,848	48,001	6,125,533	18,352	29,716	(24,199)	5,517				38,174,644		19,134,111
				Adjustments	and offsets			-	-	-	(2,274)	(26,870)	(37,271)(1)	-	(530)	(66,945)	-	-	-	(37,756)	(29,131)	-	(1,391)	(68,278)	-	1,333	-	1,333				-		-
																																-		-
A. Reportable segment	Six months ended June 30, 2015	Not	Life insurance attributable to	and long-term Healthcare General Financial operating	*savings () insurance insurance() services Other segments	Unaudited	NIS thousands	Premiums earned, gross 2,043,129 816,494 1,176,038 - - -	Premiums earned by reinsurers 19,558 62,318 240,604 - - -	Premiums earned in retention 2,023,571 754,176 935,434 - - -	Investment income (losses), net, and finance income 1,421,316 50,416 66,334 3,000 18,181 76,632	Management fees 442,733 - - 80,000 26,530 1,513	Revenue from commissions 8,401 10,688 47,146 - 117,306 -	Revenue from financial services - - - 100,849 - -	Other revenue 171 - - - 19,415 30	Total revenue 3,896,192 815,280 1,048,914 183,849 181,432 78,175	Increase in insurance liabilities and payments for insurance contracts 3,405,415 800,353 789,486 - - -	Less - reinsurance (27) 62,448 142,089 - - -	3,405,442 737,905 647,397 - - -	Commissions and other acquisition costs 303,283 176,586 237,035 34,000 2,217 -	General and administrative expenses 236,475 52,109 59,410 101,000 108,124 26,588	Other expenses 11,125 - - 780 4,943 -	Finance expenses (807) - (2,534) 1,000 3,907 47,826	Total expenses 3,955,518 966,600 941,308 136,780 119,191 74,414	Company’s share of net expenses of investees 351 - 1,788 2,000 14,213 -	Income (loss) before taxes on income (58,975) (151,320) 109,394 49,069 76,454 3,761	Other comprehensive income (loss) before taxes on income (5,895) (5,825) (6,921) (1,000) (604) (3,954)	Total comprehensive income (loss) before taxes on income (64,870) (157,145) 102,473 48,069 75,850 (193)	June 30, 2015	Unaudited	NIS thousands	Gross liabilities for unit linked insurance contracts and investment contracts 37,729,800 444,844 - - -	Gross liabilities for non- unit linked insurance contracts and investment	contracts 11,829,639 1,880,545 5,423,927 - -	(*) See section B below for further information about life insurance and long-term savings.	(**) See section C below for further information about general insurance.	(1) Due to revenue from fees from agencies owned by the Group, mainly from operations in life insurance and long-term savings�	— 323 —

						Total			3,901,515	304,003		3,597,512	1,601,499	457,659	121,925	94,001	18,060	5,890,656	4,505,920	158,320	4,347,600	626,712	517,745	13,247	50,294		5,555,598	20,547		355,605		(3,487)		352,118					33,303,264			18,170,114
					Adjustments	and offsets			-	-		-	(1,303)	(27,358)	(31,534)(1)	-	(546)	(60,741)	-	-	-	(30,402)	(29,829)	-	(229)		(60,460)	-		(281)		-		(281)					-			-
A. Reportable segment (contd.)	Six months ended June 30, 2014	Life	insurance Not	and long- General attributable to	term savings Healthcare insurance Financial operating	*() insurance () services Other segments	Unaudited	NIS thousands	Premiums earned, gross 2,038,304 746,790 1,116,421 - - -	Premiums earned by reinsurers 30,600 57,038 216,365 - - -		Premiums earned in retention 2,007,704 689,752 900,056 - - -	Investment income (losses), net, and finance income 1,353,555 46,196 113,880 - 19,292 69,879	Management fees 380,755 - - 76,000 26,764 1,498	Revenue from commissions 6,817 11,153 21,246 - 114,243 -	Revenue from financial services - - - 94,001 - -	Other revenue - - - - 18,606 -	Total revenue 3,748,831 747,101 1,035,182 170,001 178,905 71,377	Increase in insurance liabilities and payments for insurance contracts 3,270,120 577,418 658,382 - - -	Less - reinsurance 16,996 67,793 73,531 - - -	3,253,124 509,625 584,851 - - -	Commissions and other acquisition costs 258,434 142,941 225,315 29,000 1,424 -	General and administrative expenses 225,560 46,070 60,346 87,000 108,308 20,290	Other expenses 6,317 - - 1,181 5,749 -	Finance expenses (income) 439 - 383 2,000 1,772 45,929		Total expenses 3,743,874 698,636 870,895 119,181 117,253 66,219	Company’s share of net expenses of investees 6,267 - 790 1,000 12,490 -		Income (loss) before taxes on income 11,224 48,465 165,077 51,820 74,142 5,158		Other comprehensive income (loss) before taxes on income 2,940 (298) (7,286) - (698) 1,855		Total comprehensive income (loss) before taxes on income 14,164 48,167 157,791 51,820 73,444 7,013		June 30, 2014	Unaudited	NIS thousands	Gross liabilities for unit linked insurance contracts and investment contracts 32,946,522 356,742 - - - -		Gross liabilities for non- unit linked insurance contracts and investment	contracts 11,338,136 1,516,382 5,315,596 - - -	(*) See section B below for further information about life insurance and long-term savings.	(**) See section C below for further information about general insurance.	(1) Due to revenue from fees from agencies owned by the Group, mainly from operations in life insurance and long-term savings�	— 324 —

			Total				2,064,788	152,742		1,912,046	(14,589)	135,883	78,962	52,760	9,531	2,174,593			1,434,945	107,083	1,327,862	368,606	279,195	6,745	58,461		2,040,869	(4,685)		129,039		(212,803)		(83,764)						38,174,644		19,134,111
		Adjustments and	offsets				-	-		-	(558)	(13,706)	(15,727)(1)	-	(249)	(30,240)			-	-	-	(15,867)	(14,817)	-	(120)		(30,804)	-		564		-		564						-		-
Three months ended June 30, 2015	Life insurance and Not attributable	long-term savings Healthcare General Financial to operating	*() insurance insurance () services Other segments		Unaudited	NIS thousands	Premiums earned, gross 1,059,298 412,875 592,615 - - -	Premiums earned by reinsurers 4,321 30,217 118,204 - - -		Premiums earned in retention 1,054,977 382,658 474,411 - - -	Investment income, net, and finance income (157,244) 21,853 46,513 1,000 21,858 51,989	Management fees 95,214 - - 40,000 13,623 752	Revenue from commissions 3,848 5,004 26,815 - 59,022 -	Revenue from financial services - - - 52,760 - -	Other revenue - - - - 9,780 -	Total revenue 996,795 409,515 547,739 93,760 104,283 52,741	Increase in insurance liabilities and payments for insurance		contracts 754,175 282,995 397,775 - - -	Less - reinsurance (3,878) 35,892 75,069 - - -	758,053 247,103 322,706 - - -	Commissions and other acquisition costs 147,455 92,094 125,859 18,000 1,065 -	General and administrative expenses 118,970 26,546 31,004 48,000 54,459 15,033	Other expenses 3,951 - - 390 2,404 -	Finance expenses (income) 1,796 - (5,744) 1,000 13,374 48,155		Total expenses 1,030,225 365,743 473,825 67,390 71,302 63,188	Company’s share of net expenses of investees 4,365 - 1,040 1,000 (11,090) -		Income (loss) before taxes on income (29,065) 43,772 74,954 27,370 21,891 (10,447)		Other comprehensive income (loss) before taxes on income (52,392) (22,912) (69,812) (1,000) (93) (66,594)		Total comprehensive income (loss) before taxes on income (81,457) 20,860 5,142 26,370 21,798 (77,041)		June 30, 2015	Unaudited	NIS thousands	Gross liabilities for unit linked insurance contracts and	investment contracts 37,729,800 444,844 - - - -	Gross liabilities for non- unit linked insurance contracts and	investment contracts 11,829,639 1,880,545 5,423,927 - - -	(*) See section B below for further information about life insurance and long-term savings.	(**) See section C below for further information about general insurance.	(1) Due to revenue from fees from agencies owned by the Group, mainly from operations in life insurance and long-term savings�	— 325 —

			Total			2,002,049	155,047		1,847,002	620,863	192,094	64,799	53,376	8,437	2,786,571		2,136,289	65,878	2,070,411	328,327	255,111	3,482	40,534		2,697,865	(4,904)		83,802		(66,541)		17,261					33,303,264		18,170,114
		Adjustments	and offsets			-	-		-	(835)	(15,138)	(14,476)(1)	-	(260)	(30,709)		-	-	-	(13,648)	(16,360)	-	(300)		(30,308)	-		(401)		-		(401)					-		-
Three months ended June 30, 2014	Life insurance and Not attributable	long-term savings Healthcare General Financial to operating	*() insurance insurance () services Other segments	Unaudited	NIS thousands	Premiums earned, gross 1,058,316 376,442 567,291 - - -	Premiums earned by reinsurers 15,148 27,815 112,084 - - -		Premiums earned in retention 1,043,168 348,627 455,207 - - -	Investment income (losses), net, and finance income 479,324 22,303 59,240 - 11,875 48,956	Management fees 152,615 - - 39,000 14,867 750	Revenue from commissions 3,091 6,274 11,620 - 58,290 -	Revenue from financial services - - - 53,376 - -	Other revenue - - - - 8,697 -	Total revenue 1,678,198 377,204 526,067 92,376 93,729 49,706	Increase in insurance liabilities and payments for insurance	contracts 1,532,980 297,426 305,883 - - -	Less - reinsurance 9,093 42,762 14,023 - - -	1,523,887 254,664 291,860 - - -	Commissions and other acquisition costs 129,479 77,638 117,893 16,000 965 -	General and administrative expenses 115,212 23,319 27,908 42,000 55,458 7,574	Other expenses 412 - - 353 2,717 -	Finance expenses (income) 1,376 - (460) 1,000 5,061 33,857		Total expenses 1,770,366 355,621 437,201 59,353 64,201 41,431	Company’s share of net expenses of investees 4,079 - 425 - (9,408) -		Income (loss) before taxes on income (88,089) 21,583 89,291 33,023 20,120 8,275		Other comprehensive loss before taxes on income (16,588) (6,126) (25,213) - (393) (18,221)		Total comprehensive income (loss) before taxes on income (104,677) 15,457 64,078 33,023 19,727 (9,946)	June 30, 2014	Unaudited	NIS thousands	Gross liabilities for unit linked insurance contracts and investment	contracts 32,946,522 356,742 - - - -	Gross liabilities for non- unit linked insurance contracts and	investment contracts 11,338,136 1,516,382 5,315,596 - - -	(*) See section B below for further information about life insurance and long-term savings.	(**) See section C below for further information about general insurance.	(1) Due to revenue from fees from agencies owned by the Group, mainly from operations in life insurance and long-termsavings�	— 326 —

			Total			7,698,273	644,363	7,053,910	2,774,430	857,811	259,231	202,822	41,949	11,190,153		8,397,290	450,734	7,946,556	1,313,780	1,030,271	36,056	126,560	10,453,223	45,933	782,863	(99,289)	683,574					35,149,671		18,381,210
		Adjustments	and offsets			-	-	-	(2,641)	(53,350)	(81,482)(1)	-	(1,061)	(138,534)		-	-	-	(77,721)	(58,293)	-	(458)	(136,472)	-	(2,062)	-	(2,062)					-		-
	Not attributable	to operating	segments			-	-	-	88,413	3,003	-	-	-	91,416		-	-	-	-	40,418	314	101,989	142,721	-	(51,305)	(29,829)	(81,134)					-		-
Year ended December 31, 2014	Life insurance and	long-term savings Healthcare General Financial	*() insurance insurance () services Other	Audited	NIS thousands	Premiums earned, gross 3,867,151 1,554,729 2,276,393 - -	Premiums earned by reinsurers 62,620 131,412 450,331 - -	Premiums earned in retention 3,804,531 1,423,317 1,826,062 - -	Investment income (losses), net, and finance income 2,294,145 74,565 195,470 4,000 120,478	Management fees 701,711 - - 154,000 52,447	Revenue from commissions 18,821 22,642 64,507 - 234,743	Revenue from financial and other services - - - 202,822 -	Other revenue - - - - 43,010	Total revenue 6,819,208 1,520,524 2,086,039 360,822 450,678	Increase in insurance liabilities and payments for insurance	contracts 5,761,088 1,205,497 1,430,705 - -	Less - reinsurance 32,293 137,517 280,924 - -	5,728,795 1,067,980 1,149,781 - -	Commissions and other acquisition costs 545,936 313,182 465,655 63,000 3,728	General and administrative expenses 439,399 89,054 122,964 177,000 219,729	Other expenses 22,069 - - 1,886 11,787	Finance expenses (income) 1,272 - 15,379 3,000 5,378	Total expenses 6,737,471 1,470,216 1,753,779 244,886 240,622	Company’s share of net expenses of investees 22,170 - 7,819 3,000 12,944	Income (loss) before taxes on income 103,907 50,308 340,079 118,936 223,000	Other comprehensive loss before taxes on income (5,351) (8,936) (54,066) - (1,107)	Total comprehensive income (loss) before taxes on income 98,556 41,372 286,013 118,936 221,893	December 31, 2014	Audited	NIS thousands	Gross liabilities for unit linked insurance contracts and investment	contracts 34,773,513 376,158 - - -	Gross liabilities for non- unit linked insurance contracts and	investment contracts 11,488,372 1,620,428 5,272,410 - -	(*) See section B below for further information about life insurance and long-term savings.	(**) See section C below for further information about general insurance.	(1) Due to revenue from fees from agencies owned by the Group, mainly from operations in life insurance and long-term savings�	— 327 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 3 – OPERATING SEGMENTS (CONTD.)

B. Additional information about the life insurance and long-term savings segment

Six months ended June 30, 2015	Six months ended June 30, 2015	Six months ended June 30, 2015
Life insurance	Provident fund management Pension fund management Unaudited	Pension fund management	Total

	NIS thousands
2,043,129 19,558 2,023,571 1,419,779 276,826 8,401 171 3,728,748 3,405,415 (27) 3,405,442 240,233 155,353 4,484 (807) 3,804,705 351 (75,606) (5,895) (81,501)	- - - 154 98,670 - - 98,824 - - - 22,197 58,374 6,453 - 87,024 - 11,800 - 11,800	- -	2,043,129 19,558
		- 1,383 67,237 - -	2,023,571 1,421,316 442,733 8,401 171
		68,620	3,896,192
		- -	3,405,415 (27)
		- 40,853 22,748 188 -	3,405,442 303,283 236,475 11,125 (807)
		63,789	3,955,518
		-	351
		4,831	(58,975)
		-	(5,895)
		4,831	(64,870)

— 328 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 3 – OPERATING SEGMENTS (CONTD.)

B. Additional information about the life insurance and long-term savings segment (contd.)

	Six months ended June 30, 2014	Six months ended June 30, 2014
Life insurance	Provident fund management	Pension fund management	Total

	NIS thousands
2,038,304 30,600	- -	- -	2,038,304 30,600
2,007,704 1,352,192 228,532 6,817	- 152 95,725 -	- 1,211 56,498 -	2,007,704 1,353,555 380,755 6,817
3,595,245	95,877	57,709	3,748,831
3,270,120 16,996	- -	- -	3,270,120 16,996
3,253,124 205,431 146,478 924 439	- 18,465 60,755 5,201 -	- 34,538 18,327 192 -	3,253,124 258,434 225,560 6,317 439
3,606,396	84,421	53,057	3,743,874
6,267	-	-	6,267
(4,884)	11,456	4,652	11,224
2,940	-	-	2,940
(1,944)	11,456	4,652	14,164

— 329 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 3 – OPERATING SEGMENTS (CONTD.)

B. Additional information about the life insurance and long-term savings segment (contd.)

Three months ended June 30, 2015	Three months ended June 30, 2015	Three months ended June 30, 2015
Life insurance	Provident fund management	Pension fund management	Total

	NIS thousands
1,059,298 4,321 1,054,977 (156,646) 13,285 3,848 915,464 754,175 (3,878) 758,053 116,108 77,698 386 1,796 954,041 4,365 (34,212) (52,392) (86,604)	- -	- -	1,059,298 4,321
	- (37) 47,358 -	- (561) 34,571 -	1,054,977 (157,244) 95,214 3,848
	47,321	34,010	996,795
	- -	- -	754,175 (3,878)
	- 10,544 28,664 3,471 -	- 20,803 12,608 94 -	758,053 147,455 118,970 3,951 1,796
	42,679	33,505	1,030,225
	-	-	4,365
	4,642	505	(29,065)
	-	-	(52,392)
	4,642	505	(81,457)

— 330 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 3 – OPERATING SEGMENTS (CONTD.)

B. Additional information about the life insurance and long-term savings segment (contd.)

	Three months ended June 30, 2014	Three months ended June 30, 2014
Life insurance	Provident fund management	Pension fund management	Total

	NIS thousands
1,058,316 15,148	- -	- -	1,058,316 15,148
1,043,168 478,879 75,864 3,091	- 51 46,932 -	- 394 29,819 -	1,043,168 479,324 152,615 3,091
1,601,002	46,983	30,213	1,678,198
1,532,980 9,093	- -	- -	1,532,980 9,093
1,523,887 102,376 73,227 (1,785) 1,376	- 9,289 32,712 2,101 -	- 17,814 9,273 96 -	1,523,887 129,479 115,212 412 1,376
1,699,081	44,102	27,183	1,770,366
4,079	-	-	4,079
(94,000)	2,881	3,030	(88,089)
(16,588)	-	-	(16,588)
(110,588)	2,881	3,030	(104,677)

— 331 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 3 – OPERATING SEGMENTS (CONTD.)

B. Additional information about the life insurance and long-term savings segment (contd.)

	Year ended December 31, 2014	Year ended December 31, 2014
Life insurance	Provident fund management	Pension fund management	Total

	NIS thousands
3,867,151 62,620	- -	- -	3,867,151 62,620
3,804,531 2,292,106 389,297 18,821	- 146 189,688 -	- 1,893 122,726 -	3,804,531 2,294,145 701,711 18,821
6,504,755	189,834	124,619	6,819,208
5,761,088 32,293	- -	- -	5,761,088 32,293
5,728,795 431,596 286,489 2,291 1,272	- 38,676 113,806 19,402 -	- 75,664 39,104 376 -	5,728,795 545,936 439,399 22,069 1,272
6,450,443	171,884	115,144	6,737,471
22,170	-	-	22,170
76,482	17,950	9,475	103,907
(5,351)	-	-	(5,351)
71,131	17,950	9,475	98,556

— 332 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 3 – OPERATING SEGMENTS (CONTD.)

C. Additional information about the general insurance segment

	Six months ended June 30, 2015	Six months ended June 30, 2015	Six months ended June 30, 2015
Compulsory motor	Motor property	Property insurance and *others()**	Other liability insurance()**	Total
		Unaudited
		NIS thousands
261,007 4,808 256,199 33,264 222,935 34,044 - 256,979 175,176 (754) 175,930 21,984 12,395 (1,477) 208,832 922 49,069 (3,570) 45,499 2,304,556 2,262,912	459,155 -	358,097 196,101	207,317 43,649 163,668 20,795 142,873 21,078 6,903 170,854 129,697 24,513 105,184 39,642 9,766 (915) 153,677 571 17,748 (2,210) 15,538 1,789,880 1,418,664	1,285,576 244,558
	459,155 39,948	161,996 11,577		1,041,018 105,584
	419,207 7,941 -	150,419 3,271 40,243		935,434 66,334 47,146
	427,148	193,933		1,048,914
	308,071 (4)	176,542 118,334		789,486 142,089
	308,075 97,881 21,546 -	58,208 77,528 15,703 (142)		647,397 237,035 59,410 (2,534)
	427,502	151,297		941,308
	206	89		1,788
	(148)	42,725		109,394
	(798)	(343)		(6,921)
	(946)	42,382		102,473
	612,823	716,668		5,423,927
	612,844	231,440		4,525,860

(*) Property insurance and others include mainly information from comprehensive homeowners’ insurance, comprehensive business insurance, and property loss, the operations of which account for 78% of the premiums in these branches.

(**) Other liability branches include mainly information from third-party branches, employers and professional insurance, the operations of which account for 86% of the premiums in these branches.

— 333 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 3 – OPERATING SEGMENTS (CONTD.)

C. Additional information about the general insurance segment (contd.)

	Six months ended June	Six months ended June	30, 2014
Compulsory motor	Motor property	Property insurance and others *() Unaudited**	Other liability insurance ()**	Total

		NIS thousands
246,587 4,509	444,629 -	371,938 212,126 159,812 8,917 150,895 5,947 18,940 175,782 125,769 85,988 39,781 74,361 17,013 23 131,178 41 44,645 (380) 44,265 740,725 223,304	198,778 38,001 160,777 23,237 137,540 36,757 2,306 176,603 79,711 (11,272) 90,983 37,249 9,666 140 138,038 255 38,820 (2,351) 36,469 1,742,892 1,386,934	1,261,932 254,636
242,078 35,853	444,629 39,233			1,007,296 107,240
206,225 57,393 -	405,396 13,783 -			900,056 113,880 21,246
263,618	419,179			1,035,182
171,451 (1,221)	281,451 36			658,382 73,531
172,672 20,638 12,088 220	281,415 93,067 21,579 -			584,851 225,315 60,346 383
205,618	396,061			870,895
398	96			790
58,398 (3,670)	23,214 (885)			165,077 (7,286)
54,728	22,329			157,791
2,215,118	616,861			5,315,596
2,163,921	616,891			4,391,050

(**) Other liability branches include mainly information from third-party branches, employers and professional insurance, the operations of which account for 87% of the premiums in these branches.

— 334 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 3 – OPERATING SEGMENTS (CONTD.)

C. Additional information about the general insurance segment (contd.)

	Three months ended June 30, 2015	Three months ended June 30, 2015	Three months ended June 30, 2015
Compulsory motor	Motor property	Property insurance and others *()**	Other liability insurance ()**	Total
		Unaudited
		NIS thousands
103,456 2,335	193,954 -	146,528 82,593	80,442 19,070 61,372 (13,428) 74,800 14,602 4,771 94,173 55,827 4,141 51,686 20,183 4,869 (2,078) 74,660 332 19,845 (22,323) (2,478) 1,789,880 1,418,664	524,380 103,998
101,121 (12,067)	193,954 (18,082)	63,935 (10,452)		420,382 (54,029)
113,188 23,634 -	212,036 5,991 -	74,387 2,286 22,044		474,411 46,513 26,815
136,822	218,027	98,717		547,739
84,616 (1,294)	157,653 2	99,679 72,220		397,775 75,069
85,910 12,897 6,442 (3,347)	157,651 52,313 11,503 -	27,459 40,466 8,190 (319)		322,706 125,859 31,004 (5,744)
101,902	221,467	75,796		473,825
537	118	53		1,040
35,457 (35,904)	(3,322) (8,183)	22,974 (3,402)		74,954 (69,812)
(447)	(11,505)	19,572		5,142
2,304,556	612,823	716,668		5,423,927
2,262,912	612,844	231,440		4,525,860

(**) Other liability branches include mainly information from third-party branches, employers and professional insurance, the operations of which account for 85% of the premiums in these branches.

— 335 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 3 – OPERATING SEGMENTS (CONTD.)

C. Additional information about the general insurance segment (contd.)

	Three months ended June 30, 2014	Three months ended June 30, 2014	Three months ended June 30, 2014
Compulsory motor	Motor property	Property insurance and *others()**	Other liability insurance()**	Total
		Unaudited
		NIS thousands
100,495 2,191	194,581 -	154,903 92,515	78,088 21,170 56,918 (14,673) 71,591 19,011 848 91,450 27,161 (14,943) 42,104 19,083 4,265 (171) 65,281 137 26,306 (8,161) 18,145 1,742,892 1,386,934	528,067 115,876
98,304 (7,000)	194,581 (9,970)	62,388 (11,373)		412,191 (43,016)
105,304 29,858 -	204,551 7,274 -	73,761 3,097 10,772		455,207 59,240 11,620
135,162	211,825	87,630		526,067
86,549 (446)	143,466 21	48,707 29,391		305,883 14,023
86,995 11,653 5,500 (262)	143,445 49,007 10,361 -	19,316 38,150 7,782 (27)		291,860 117,893 27,908 (460)
103,886	202,813	65,221		437,201
214	52	22		425
31,490 (12,685)	9,064 (3,054)	22,431 (1,313)		89,291 (25,213)
18,805	6,010	21,118		64,078
2,215,118	616,861	740,725		5,315,596
2,163,921	616,891	223,304		4,391,050

(**) Other liability branches include mainly information from third-party branches, employers and professional insurance, the operations of which account for 86% of the premiums in these branches.

— 336 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 3 – OPERATING SEGMENTS (CONTD.)

C. Additional information about the general insurance segment (contd.)

	Year ended December 31, 2014	Year ended December 31, 2014	Year ended December 31, 2014
Compulsory motor	Motor property	Property insurance *and others()**	Other liability insurance()**	Total
		Audited
		NIS thousands
448,256 8,916	832,154 - 832,154 9,170 822,984 21,061 - 844,045 563,481 233 563,248 194,181 45,202 - 802,631 914 42,328 (6,323) 36,005 566,117 566,143	669,296 371,367	380,512 91,409 289,103 7,729 281,374 63,449 2,655 347,478 182,823 16,743 166,080 74,229 20,266 5,595 266,170 2,512 83,820 (17,368) 66,452 1,747,639 1,363,677	2,330,218 471,692
439,340 14,283		297,929 1,282		1,858,526 32,464
425,057 99,898 -		296,647 11,062 61,852		1,826,062 195,470 64,507
524,955		369,561		2,086,039
318,885 (5,409)		365,516 269,357		1,430,705 280,924
324,294 44,722 24,182 8,809		96,159 152,523 33,314 975		1,149,781 465,655 122,964 15,379
402,007		282,971		1,753,779
3,955		438		7,819
126,903 (27,348)		87,028 (3,027)		340,079 (54,066)
99,555		84,001		286,013
2,214,280		744,374		5,272,410
2,171,019		216,717		4,317,556

(**) Other liability branches include mainly information from third-party branches, employers and professional insurance, the operations of which account for 88% of the premiums in these branches.

— 337 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS

A. Assets for unit linked contracts

Assets held against insurance contracts and investment contracts at fair value through profit and loss:

June 30 December 31 2015 2014 2014 Unaudited Audited NIS thousands	June 30 December 31 2015 2014 2014 Unaudited Audited NIS thousands	December 31
		2014
		Audited

1,036,448 14,503,134 4,687,484 7,590,329 5,513,452 32,294,399 4,406,432 160,508 37,897,787	1,033,778 13,633,105 4,180,229 6,443,444 5,324,498 29,581,276 2,739,073 187,419 33,541,546	1,094,954
		15,209,782 4,387,012 6,664,480 5,177,532
		31,438,806
		2,651,399
		154,072
		35,339,231

Fair value hierarchy of financial assets

The following table presents an analysis of assets held against insurance contracts and investment contracts at fair value through profit and loss. The hierarchy is as follows:

Level 1: quoted prices (unadjusted) in active markets for identical instruments Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly

Level 3: inputs that are not based on observable market data (unobservable inputs)

For financial instruments recognized at fair value periodically, the Company assesses, at the end of each reporting period, whether there have been transfers between different levels of the fair value hierarchy.

As of June 30, 2015, the Company holds financial instruments measured at fair value classified as follows:

	June 30, 2015	June 30, 2015
Level 1	Level 2 Level 3 Unaudited		Total

	NIS thousands
14,503,134 - 7,528,200 2,560,811 24,592,145	- 4,537,640 - 983,572 5,521,212	- 149,844 62,129 1,969,069 2,181,042	14,503,134 4,687,484 7,590,329 5,513,452
			32,294,399

— 338 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS (CONTD.)

A. Assets for unit linked contracts (contd.)

	June 30, 2014	June 30, 2014
Level 1	Level 2 Level 3 Unaudited		Total

	NIS thousands
13,633,105 - 6,405,470 3,058,523 23,097,098	- - 4,080,856 99,373 - 37,974 588,143 1,677,832 4,668,999 1,815,179 December 31, 2014		13,633,105 4,180,229 6,443,444 5,324,498
			29,581,276

Level 1	Level 2 Level 3 Audited		Total

	NIS thousands
15,209,782 - 6,601,609 2,413,164 24,224,555	- 4,299,184 - 800,279 5,099,463	- 87,828 62,871 1,964,089 2,114,788	15,209,782 4,387,012 6,664,480 5,177,532
			31,438,806

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss
Marketable debt assets	Non- marketable debt assets	Shares Unaudited	Other financial investments	Total

	NIS thousands
- - - - - - -	87,828 (3,558) 68,358 (1,510) (1,274)	62,871 (742) - - - 62,129 (742)	1,964,089 107,351 119,336 (128,357) (93,350)	2,114,788 103,051 187,694 (129,867) (94,624)
	149,844		1,969,069	2,181,042
	(3,462)		108,763	104,559

In the six months ended June 30, 2015, there were no material transfers between Level 1 and Level 2.

— 339 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS (CONTD.)

A. Assets for unit linked contracts (contd.)

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss
Marketable debt assets	Non- marketable debt assets	Shares Unaudited	Other financial investments	Total

	NIS thousands
- - - - - - -	89,121 10,363 9,844 (2,998) (6,957)	83,467 6,960 - (503) (51,950) 37,974 (28)	1,584,068 121,229 113,025 (62,699) (77,791)	1,756,656 138,552 122,869 (66,200) (136,698)
	99,373		1,677,832	1,815,179
	10,693		120,066	130,731

In the six months ended June 30, 2014, there were no material transfers between Level 1 and Level 2.

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss
Marketable debt assets	Non- marketable debt assets	Shares Unaudited	Other financial investments	Total

	NIS thousands
- - - - - - -	82,354 (379) 68,358 (206) (283)	60,961 1,168 - - - 62,129 1,168	1,967,710 20,136 55,284 (46,043) (28,018)	2,111,025 20,925 123,642 (46,249) (28,301)
	149,844		1,969,069	2,181,042
	(374)		21,449	22,243

In the three months ended March 30, 2015, there were no material transfers between Level 1 and Level 2.

— 340 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS (CONTD.)

A. Assets for unit linked contracts (contd.)

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at		fair value through profit or loss
Marketable debt assets	Non- marketable debt assets	Shares	Other financial investments	Total
		Unaudited
	NIS thousands
- - - - - - -	95,771 9,853 15 (1,551) (4,715) 99,373 10,183	83,967 6,271 - (314) (51,950)	1,658,465 59,846 41,412 (34,347) (47,544) 1,677,832 60,971	1,838,203 75,970 41,427 (36,212) (104,209)
		37,974		1,815,179
		(717)		70,437

In the three months ended March 30, 2014, there were no material transfers between Level 1 and Level 2.

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at		fair value through profit or loss
Marketable debt assets	Non- marketable debt assets	Shares Audited	Other financial investments	Total

	NIS thousands
- - - - - -	89,121 3,855 12,626 (4,614) (11,913) (1,247)	83,467 31,825 - (503) (51,918) - 62,871 24,598	1,584,068 387,917 307,756 (155,488) (160,164) -	1,756,656 423,597 320,382 (160,605) (223,995) (1,247)
-	87,828		1,964,089	2,114,788
-	3,840		385,784	414,222

In the year ended December 31, 2014, there were no material transfers between Level 1 and Level 2.

— 341 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS (CONTD.)

B. Other financial investments

Non-marketable debt assets

Composition:

Government bonds Presented as loans and receivables Designated debentures () Other non-convertible debt assets: Presented as loans and receivables, except for bank deposits Bank deposits Total other non-convertible debt assets Total non-marketable debt assets Impairment recognized in profit or loss (cumulative) () Fair value based on the contractual repayment date Government bonds: Presented as loans and receivables Designated debentures (*) Other debentures Total government bonds Other non-convertible debt assets: Presented as loans and receivables, except for bank deposits Bank deposits Total other non-convertible debt assets Total non-marketable debt assets Impairment recognized in profit or loss (cumulative)	June 30, 2015	June 30, 2015
	Carrying amount Fair value Unaudited	Fair value
	NIS thousands
	6,705,237 8,732,307 3,417,908 4,063,821 868,782 991,580 4,286,690 5,055,401 10,991,927 13,787,708 86,465 June 30, 2014	8,732,307
		4,063,821 991,580
		5,055,401
		13,787,708
	Carrying amount Fair value Unaudited	Fair value
	NIS thousands
	6,374,314 208	8,279,026 538
	6,374,522	8,279,564
	2,994,181 728,450	3,883,336 873,167
	3,722,631	4,756,503
	10,097,153	13,036,067
	106,570

(*) Fair value based on the contractual repayment date

— 342 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS (CONTD.)

B. Other financial investments (contd.)

Government bonds: Presented as loans and receivables Designated debentures (*) Other debentures Total government bonds Other non-convertible debt assets Presented as loans and receivables, except for bank deposits Bank deposits Total other non-convertible debt assets Total non-marketable debt assets Impairment recognized in profit or loss (cumulative)	December 31, 2014	December 31, 2014
	Carrying amount Fair value Audited	Fair value
	NIS thousands
	6,580,549 216	8,536,728 672
	6,580,765	8,537,400
	3,228,121 761,585	4,001,002 895,496
	3,989,706	4,896,498
	10,570,471	13,433,898
	88,126

(*) Fair value based on the contractual repayment date

Fair value hierarchy of financial assets

	June 30, 2015	June 30, 2015
Level 1	Level 2 Level 3 Unaudited		Total

	NIS thousands
5,952,438 881,980 642,539 7,476,957	- - 50,231 50,231	- 40,125 320,451 360,576	5,952,438 922,105 1,013,221
			7,887,764

	June 30, 2014	June 30, 2014
Level 1	Level 2 Level 3 Unaudited		Total

	NIS thousands
5,350,878 669,750 852,630 6,873,258	- - 30,354 30,354	- 28,250 265,631 293,881	5,350,878 698,000 1,148,615
			7,197,493

— 343 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS (CONTD.)

B. Other financial investments (contd.)

	December 31, 2014	December 31, 2014
Level 1	Level 2 Level 3 Audited		Total

	NIS thousands
5,503,979 705,785 914,858 7,124,622	- - 20,343 20,343	- 39,460 301,704 341,164	5,503,979 745,245 1,236,905
			7,486,129

Assets measured at fair value, Level 3

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss and available for sale financial assets
Marketable debt assets	Non- marketable debt assets	Shares Unaudited	Other financial investments	Total

	NIS thousands
- - - - - -	- - - - - -	39,460 (476) 1,141 - - - 40,125 (476)	301,704 12,382 (3,873) 33,545 (13,617) (9,690)	341,164 11,906 (2,732) 33,545 (13,617) (9,690)
-	-		320,451	360,576
-	-		12,745	12,269

In the six months ended June 30, 2015, there were no material transfers between Level 1 and Level 2.

— 344 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS (CONTD.)

B. Other financial investments (contd.)

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss and available for sale financial assets
Marketable debt assets	Non- marketable debt assets	Shares Unaudited	Other financial investments	Total

	NIS thousands
- - - - - - - -	- - - - - -	29,845 (24) (1,571) - - - 28,250 (24)	243,768 14,380 6,207 14,633 (6,083) (7,274)	273,613 14,356 4,636 14,633 (6,083) (7,274)
	-		265,631	293,881
	-		16,959	16,935

In the six months ended June 30, 2014, there were no material transfers between Level 1 and Level 2.

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss and available for sale financial assets
Marketable debt assets	Non- marketable debt assets	Shares Unaudited	Other financial investments	Total

	NIS thousands
- - - - - - - -	- - - - - -	39,551 574 - - - - 40,125 574	308,286 7,251 (6,065) 20,561 (5,091) (4,491)	347,837 7,825 (6,065) 20,561 (5,091) (4,491)
	-		320,451	360,576
	-		7,548	8,122

In the three months ended March 30, 2015, there were no material transfers between Level 1 and Level 2.

— 345 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS (CONTD.)

B. Other financial investments (contd.)

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss and available for sale financial assets
Marketable debt assets	Non- marketable debt assets	Shares Unaudited	Other financial investments	Total

	NIS thousands
- - - - - - - -	- - - - - -	28,521 (41) (230) - - - 28,250 (41)	254,375 5,814 2,305 9,869 (3,222) (3,510)	282,896 5,773 2,075 9,869 (3,222) (3,510)
	-		265,631	293,881
	-		9,138	9,097

In the three months ended March 30, 2014, there were no material transfers between Level 1 and Level 2.

Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date	Fair value at the reporting date
Financial assets at fair value through profit or loss and available for sale financial assets
Marketable debt assets	Non- marketable debt assets	Shares Audited	Other financial investments	Total

	NIS thousands
- - - - - - - -	- - - - - -	29,845 3,607 6,155 - (147) - 39,460 3,607	243,768 38,717 20,588 28,256 (14,905) (14,720)	273,613 42,324 26,743 28,256 (15,052) (14,720)
	-		301,704	341,164
	-		30,483	34,090

In the year ended December 31, 2014, there were no material transfers between Level 1 and Level 2.

— 346 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS (CONTD.)

C. Financial liabilities

Financial liabilities

Financial liabilities measured at reduced cost: Loans from banks Short-term credit from banks Debentures Subordinated notes () Deposits from tenants Other Financial liabilities measured at amortized cost: Financial liabilities at fair value through profit or loss Liability for short sale of marketable securities Other Total financial liabilities () Of which subordinated notes comprising subordinated and hybrid tier 2 capital and hybrid tier 3 capital Financial liabilities measured at reduced cost: Loans from banks Short-term credit from banks Debentures Subordinated notes () Deposits from tenants Other Financial liabilities measured at amortized cost: Financial liabilities at fair value through profit or loss Liability for short sale of marketable securities Other Total financial liabilities () Of which subordinated notes comprising subordinated and hybrid tier 2 capital		June	30, 2015
		Carrying amount Fair value Unaudited	Fair value
		NIS thousands
		17,922 17,922 108,310 108,310 755,972 839,415 1,717,211 1,828,677 710,919 710,919 81,558 81,558 3,391,892 3,586,801 41,000 41,000 114,023 114,023 155,023 155,023 3,546,915 3,741,824 1,648,877 1,755,908 June 30, 2014	17,922 108,310 839,415 1,828,677 710,919 81,558
			3,586,801
			41,000 114,023
			155,023
			3,741,824
			1,755,908
		Carrying amount	Fair value

		NIS thousands
		32,848 103,006 852,673 1,325,501 700,424 53,976	32,848 103,006 915,147 1,490,970 700,424 53,976
		3,068,428	3,296,371
		92,000 35,668	92,000 35,668
		127,668	127,668
		3,196,096	3,424,039
		1,318,447	1,482,177

— 347 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS (CONTD.)

C. Financial liabilities (Contd.)

Financial liabilities measured at reduced cost: Loans from banks Short-term credit from banks Debentures Subordinated notes () Deposits from tenants Other Financial liabilities at fair value through profit or loss Liability for short sale of marketable securities Other Total financial liabilities () Of which subordinated notes comprising subordinated and hybrid tier 2 capital and hybrid tier 3 capital	December 31, 2014	December 31, 2014
	Carrying amount Fair value Audited	Fair value
	NIS thousands
	24,897 60,000 848,482 1,718,845 713,303 75,777 3,441,304 52,000 101,806 153,806 3,595,110 1,534,247	24,897 60,000 944,965 1,882,962 713,303 75,777
		3,701,904
		52,000 101,806
		153,806
		3,855,710
		1,680,737

2. Fair value hierarchy of financial liabilities

	June 30, 2015	June 30, 2015
Level 1	Level 2 Level 3 Unaudited	Level 3	Total

	NIS thousands
41,000 - 41,000	- - 107,811 6,212 107,811 6,212 June 30, 2014	- 6,212	41,000 114,023
		6,212	155,023

Level 1	Level 2 Level 3 Unaudited	Level 3	Total

	NIS thousands
92,000 - 92,000	- 28,363 7,305 28,363 7,305 December 31, 2014	- 7,305	92,000 35,668
		7,305	127,668

Level 1	Level 2 Level 3 Audited	Level 3	Total

	NIS thousands
52,000 - 52,000	- 96,684 96,684	- 5,122	52,000 101,806
		5,122	153,806

— 348 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 4 - FINANCIAL INSTRUMENTS (CONTD.)

C. Financial liabilities (Contd.)

3. Valuation technique

A) Non-marketable debt assets

The fair value of non-marketable debt assets measured at fair value through profit or loss, and the fair value of non-marketable financial debt assets for which information is provided for disclosure purposes only, are determined by discounting estimated future cash flows. The discount rates are mainly based on the returns of government bonds and margins of corporate debentures as reported on the TASE. The price quotations and interest rates used for discounting are determined by the company that won the tender issued by the Ministry of Finance, for the installation and operation of a database that provides price quotations and interest rates for financial institutions.

In this regard and further to Note 13G to the Annual Financial Statements, it is noted that in accordance with a letter issued by the Ministry of Finance in September 2014, the company that operates the database is expected to implement an updated model in the schedules, which will be announced separately. At this stage, the Company is unable to assess the effect of the expected update in the methodology for the fair value of nonmarketable debt assets, nor whether there will be any effect.

B) Non-marketable shares

C) Derivatives

The Company has transactions in derivative financial instruments with several parties, mainly financial institutions. Derivatives evaluated using evaluation models with observable market data are mainly interest rate swap contracts and forward contracts on foreign exchange. The most frequent assessment techniques that are used include forward prices and swap models used to calculate present value. The models integrate several data, including the credit rating of the parties to the financial transaction, the spot exchange rate, rate of forward contracts, and interest curves. All derivative contracts are fully backed against cash, therefore there is no counterparty credit risk and non-performance risk of the Company itself.

— 349 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 5 – EQUITY AND CAPITAL REQUIREMENTS

Capital management and capital requirements

Management’s policy is to maintain a strong capital base in order to preserve the ability of the Company to continue operating in variable market conditions and to generate profits for its shareholders while maintaining financial stability.
The Phoenix Insurance, Excellence Group and other institutions consolidated in its financial statements are subject to the capital requirements determined by the Commissioner of Insurance.
The information about capital requirements should be read together with the information in Note 7(5) to the Annual Financial Statements.
The information below about the required and existing equity of The Phoenix Insurance is in accordance with Control of Financial Services Regulations (Insurance) (Minimum Equity Required of an Insurer), 1998 and its provisions (“the Capital Regulations”) and the Commissioner's directives.

Amount required according to the Regulations and guidelines of the Commissioner (A) The existing amount is calculated according to the Capital Regulations: Tier 1 capital Hybrid tier 2 capital (see section 7 below) Subordinated tier 2 capital (see section 7 below) (B) Total subordinated capital Hybrid tier 3 capital Total existing capital according to the Capital Regulations Excess () Capital transactions subsequent to the reporting date Dividend paid Excess taking into account events subsequent to the reporting date () Distributions of dividend from excess capital in insurance companies are also subject to solvency requirements and the rules of the Investment Regulations, in addition to the general requirements in the Companies Law. In this matter, the amount of the investment in investees, against which it is mandatory to place excess capital under the Commissioner’s guidelines, therefore constituting non-distributable excess (A) Amount required including capital requirements for: for activities in general insurance/required tier I capital Long-term care insurance Exceptional risks in life insurance Deferred acquisition costs in life insurance and healthcare insurance Requirements for guaranteed return plans Unrecognized assets as defined in the Capital Regulations Investment in consolidated insurance companies and managing companies Investment assets and other assets Catastrophe risks in general insurance Operating risks Total amount required under the Commissioner's regulations and guidelines	June 30	December 31
	2015	2014
	Unaudited	Audited
	3,179,679	3,017,615
	2,475,898 1,124,285 129,624	2,714,947 777,324 362,136
	1,253,909 394,968	1,139,460 394,787
	1,648,877	1,534,247
	4,124,775	4,249,194
	945,096	1,231,579
	-	(200,000)
	945,096	1,031,579
	566,291	542,633
	498,349 70,368 335,791 1,027,161 27 24,293 52,572 797,695 129,470 243,953	484,337 64,907 316,952 989,174 54 26,159 49,265 720,821 131,473 234,473
	3,179,679	3,017,615

(B) Subordinated notes issued before December 31, 2009

— 350 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 5 – EQUITY AND CAPITAL REQUIREMENTS (CONTD.)

Capital management and requirements (contd.)

Solvency II

In April 2015, the Commissioner issued a guideline for implementation of IQIS4 based on December 31, 2014 information. This guideline includes a number of material changes compared to IQIS2, the main ones being stricter capital requirements for debt instruments in Israel, and as a result, stricter margin and concentration scenarios, and a change in shares, interest, cancellations, longevity, illiquidity premium, and risk margin scenarios. In addition, the Commissioner's letter attached to the guidelines states that to remove all doubt and to prevent uncertainty in the preparation process, it is emphasized that the study reflects the Commissioner's decision regarding the adjustments required for the Israeli market and they will be reflected in the new guidelines. In advance of the application of IQIS5 for December 31, 2015 information, the Commissioner will continue to monitor developments in the European guidelines, if any, and will discuss the adjustments required in Israel.

On July 19, 2015, the Commissioner published transitional guidelines for implementing a solvency regime based on Solvency II, which will be reflected in the guidelines that will replace the current capital regulations. In accordance with these guidelines, the date for completing the measures for compliance with the capital requirements arising from the guideline will be December 31, 2018. In addition, the transitional guidelines allow distribution of some of the capital requirements for shares purchased before the guideline became binding, over seven years.

As of the publication date of the balance sheet, the Company is still processing, reviewing and studying the results of IQIS4. The results ostensibly reflect that in the absence of adequate preparation, and taking into account the transitional guidelines, the capital deficit may reached hundreds of millions under the solvency regime, most of which can be covered, among other methods, by issuing tier 2 and tier 3 capital in accordance with the current restrictions. It is noted that the deficit is mainly due to the low interest rate and the stricter scenarios that determine the capital requirements.

As aforesaid, calculation of the economic capital and capital requirements under the solvency regime is a function of the structure and mix of the assets and liabilities of the insurance company. Accordingly, it is possible that The Phoenix will implement measures such as: expansion of the capital base including raising tier 2 and tier 3 capital, change in the mix or hedging of investment assets in nostro portfolios, hedging of insurance liabilities including purchase of reinsurance, management decisions such as selling an insurance portfolio, reducing discounts, and increasing fees.

It is noted that the surplus capital within Solvency II is highly sensitive to changes in market variables, therefore these results are exposed to frequent changes and high volatility, mainly due to changes in interest rates.

The Phoenix Insurance undertook to complement, at any time, the equity of The Phoenix Pension to the amount determined in the Income Tax Regulations (Regulations for Approval and Management of Provident Funds), 1964. This undertaking will be valid as long as The Phoenix Insurance controls The Phoenix Pension, directly or indirectly.
Other subsidiaries in the Group require minimum equity in accordance with the Control of Financial Services Regulations (Provident Funds) (Minimum Equity Required of a Management Company of a Provident Fund or Pension Fund), 2012, and the guidelines of the Commissioner of the Capital Market and the Israel Securities Authority, and/or the bylaws of the TASE. As of June 30, 2015, all the subsidiaries are in compliance with these requirements.
For information about the exchange of subordinated tier 2 capital with hybrid tier 2 capital under an exchange tender offer, completed by The Phoenix Capital Raising, see Note7 (7) below.

— 351 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES

A. Class actions: applications for certification of claims as class actions and claims certified as class actions

Motions for certification of class actions are filed in accordance with the Class Actions Law, 2006 ("the Class Actions Law"). The procedure for motions for certification of class actions is divided into two main stages: The first stage is the hearing of the motion for certification of a class action ("the Motion for Certification" or the "Certification Stage", respectively). If the Motion for Certification is summarily dismissed, the hearing stage on the level of the class action is concluded. A ruling in the Certification Stage may be appealed at the court of appeal. In the second stage, if the Motion for Certification is accepted, the class action will be heard (" the Certification Stage of a Class Action"). The ruling at the Certification Stage of a Class Action can be appealed at the court of appeal. The Class Actions Law includes specific arrangements for settlements, in the approval stage and in the Certification Stage of a Class Action, and arrangements for withdrawal of the plaintiff from the Motion for Certification or from the class action.

Filing class actions in Israel does not involve payment of a fee based on the amount of the claim, therefore, the amounts of the claims may be significantly higher than the actual scope of exposure for the claim.

In respect of the motions for certification of a class action suit (including claims that were certified as class actions and the certification is being appealed) as described in sections 1-22 and 25 below, management believes, based partially, on the opinion of its legal counsel, that it is more likely than not that the statements of defense of the Company and/or its subsidiaries will be accepted and the motion for certification of a class action suit is more likely than not to be rejected, a provision was not included in the financial statements, except for motions for certification of class actions where the Company and / or subsidiaries are willing to settle. Provisions were included in the financial statements to cover the exposure estimated by the Company and/or the subsidiaries for motions for certification as class action lawsuits in which it is more likely than not that the statement of defense of the Company and/or its subsidiaries will be dismissed, or where there is a willingness to settle, as the case may be.

Management believes, based partially on the opinion of its legal counsel, that the financial statements include adequate provisions to cover the exposure estimated by the Company and/or its subsidiaries, or a provision in the amount of the settlement that the Company and/or its subsidiaries is willing to reach, as the case may be.

A significant part of the motions to certify claims as class actions was filed against the Company and/or the subsidiaries for various matters related to insurance contracts and for the ordinary course of the business of the Company and/or the subsidiaries. The Company and/or the subsidiaries have insurance reserves for these claims.

The chances of the motions for certification as a class action, which are described in sections 23, 24, 26, and 27 below, cannot be assessed at this preliminary stage, therefore the financial statements do not include a provision for these claims.

Motions for certification as class action suits:

On April 25, 2006, a claim was filed against The Phoenix Insurance and against other insurance companies ("the Defendants"), together with a motion for certification of a class action ("the Motion for Certification"), at the Tel Aviv-Jaffa District Court.

— 352 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The plaintiffs contend that the Defendants collect monthly premiums for disability insurance, including in the last three months of the insurance period, even though if there is an insurance event in this period, the policyholders will not be entitled to insurance benefits, due to the threemonth waiting period, in which only if the policyholder still has work disability, the insurance company will start to pay insurance benefits from this date onwards.

The group that the plaintiffs seek to represent includes any person insured by the Defendants for work disability, including the Non-Coverage Period for which premiums are paid, which are valid or their validity ended in the seven years prior to filing the motion for certification. The damage claimed by the plaintiffs is for the insurance premiums paid for the Non-Coverage Period. According to an expert opinion obtained by the plaintiffs, the preliminary estimate of the damage for 1998-2004 for all the defendants is NIS 47.6 million, and the estimated damage attributed to The Phoenix is approximately NIS 8.1 million.

The remedies sought by the plaintiffs include an injunction requiring The Phoenix Insurance to stop collecting insurance premiums for the Non-Coverage Period; to require the Phoenix Insurance to return to the group the entire insurance fees actually collected for the Noncoverage Period plus linkage differences and interest, as set out in section 28(C) of the Insurance Contract Law, 1981, from the collection date until the date of actual refund or alternatively, plus linkage differences and interest by law; to rule on compensation for the plaintiffs and to award court fees to the plaintiffs' counsel.

The Phoenix Insurance filed its response to the motion for certification. On February 3, 2009, the court accepted the Motion for Certification and certified the claim against all the Defendants as a class action ("the Certification Ruling").

In the Certification Ruling, the court ordered, inter alia, that the class action group is defined as "any eligible person insured by the respondents who paid (or for the mandatory injunctions - who will pay) premiums for the Non-coverage Period". The grounds of the claim are violation of sections 38 and 39 of the Control of Financial Services Law (Insurance), 1981 ("the Control Law"); misleading information under section 55 in the Control Law; breach of contract and misleading information under contract laws; breach of statutory duty; breach of duty to act in good faith under section 39 of the Contracts Law; determination that there is a discriminatory stipulation in a standard contract; unjust enrichment and that the remedy sought is to refund all the insurance premiums that were actually collected from the group members for the Noncoverage Period, plus linkage differences and interest as set out in section 28(C) of the Insurance Contract Law, from the collection date through to the actual refund date, and to order the Defendants to refrain from collecting insurance premiums for the Non-coverage Period. On April 7, 2009, the court accepted the Defendant's motion to delay the investigation of the class action until the ruling on the motion for leave to appeal the Certification Ruling. On April 26, 2009, The Phoenix Insurance filed a motion for leave to appeal the Certification Ruling at the Supreme Court. The plaintiffs filed their response to the motion for leave to appeal. On January 21, 2013, the Supreme Court heard the motion to appeal. On April 11, 2013, the Supreme Court handed down judgment for the motion for leave to appeal, accepting the appeal, by ordering another hearing of the motion for certification as a class action at the District Court, in order to rule on the following issues: whether payment in the last three months of the policy is for services that the policyholders will never be entitled to receive or whether this means distribution of payments based on actuarial calculations, whether the defendant insurance companies violated the duty of disclosure, and whether, in the view of the prima facie factual foundation, the statute of limitations applies in the circumstances of this case In accordance with the District Court ruling in the pretrial hearings held in September 2013 and January 2014, The Phoenix Insurance filed an affidavit of discovery of documents and a supplementary affidavit. On February 15, 2015, the plaintiffs filed the expert opinion on their behalf. On July 2, 2015, a supplementary affidavit was filed on behalf of the defendants, among others things, with respect to the above opinion. The plaintiff has the right to file a response opinion on his behalf and the case was scheduled for a hearing on December 29, 2015, during which the parties' actuaries will be questioned on their opinions.

— 353 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On December 19, 2006 a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the Motion for Certification"), at the Tel Aviv-Jaffa District Court.

The lawsuit refers to the Disability from Accidents Appendix, which is attached, at the request of the policyholder, to the life insurance policy ("the Appendix").

The Appendix contains a table listing the monetary compensation to be paid out of the full insurance amount in respect of various forms of bodily damage, such as the loss of a leg or an arm. The plaintiffs claim that the insurance company pays compensation based on the percentage of the disability that was determined for the damaged organ, thus limiting its liability under the policy. The plaintiff claims, on his behalf and on behalf of the group, that he is entitled to receive appropriate compensation out of the full insurance amount denominated in the policy, according to the disability grade set or to be set.

The group that the plaintiff wishes to represent is any person who is insured or is a beneficiary, or was insured or was a beneficiary, in policies in which The Phoenix Insurance provides coverage for disability resulting from an accident, who is entitled or was entitled to compensation for this insurance, when the policies indicate that the compensation is an appropriate percentage of the full amount of the insurance stated in the policy, according to the disability rate that was determined or that will be determined, and despite this, compensation was paid according to a disability rate that was lower than that determined, and the payment was made in the last seven years. The group will also include policyholders and beneficiaries under policies issued by insurance companies other than The Phoenix Insurance, which as a result of mergers or other transactions by The Phoenix Insurance, provided or provide insurance coverage in their respect. The remedy requested by the plaintiff is to charge The Phoenix Insurance for the difference between the amount of the compensation due under the policy, according to the plaintiff, and the actual compensation paid, for the entire group. The plaintiff does not have information that allows calculation of the total damage for the entire group.

On January 11, 2009, subsequent to the hearing and written summations, the district court ruled to certify the claim as a class action suit.

The court further ruled that The Phoenix Insurance is entitled to offset amounts owed to each Class member, as set out above, for any undisputed debt.

— 354 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On April 7, 2014, the court ruled that linkage and interest differentials are to be added to the payment, that the legal fees set include VAT and that there was no reason for amending the ruling in this regard, and that the policyholders eligible for relief under the ruling should be distinguished from the policyholders eligible for relief only under the ruling of the Commissioner, with regard to whom the reduced attorney's fees (3% including VAT) will apply.

On May 1, 2014, the plaintiffs appealed the district court judgment with the Supreme Court Justice with respect to the ruling pertaining to the period of limitation, denial of special interest relief, rewarding the plaintiffs compensation, and their attorneys' fees. The hearing of the appeal is scheduled for October 26, 2015.

On January 3, 2008, a claim was filed against The Phoenix Insurance and four other insurance companies ("the Defendants") together with a motion for certification as a class action ("the Motion for Certification") at the Tel Aviv-Jaffa District Court. The claim refers to the sub-annual payment factor, which is payment collected in life insurance policies, when the premium is fixed at an annual sum and is actually paid in a number of installments ("Sub-Annual Payment"). The plaintiff argues that the Defendants collect Sub-Annual Payment at an amount exceeding the allowed rate, and this is done in several ways, as contended by the plaintiff: collection of SubAnnual Payment for management fees, collection of Sub-Annual Payment at a rate exceeding the permitted rate in the circulars of the Commissioner of Insurance, collection of Sub-Annual Payment for the savings element in life insurance policies and collection of Sub-Annual Payment for policies that are not life-insurance policies.

The group that plaintiffs seek to represent is anyone who engaged with the Defendants in an insurance contract and who was charged Sub-Annual Payments in circumstances or in an amount that exceeds the maximum. The remedies requested by the plaintiffs include refund of all amounts that the Defendants unlawfully collected, and an injunction instructing the Defendants to change the manner of their operations regarding the issues that are described in the claim.

The Phoenix Insurance has responded to the motion. On February 1, 2010, the court approved a settlement to strike out the claim and motion that The Phoenix Insurance collected sub-annual rates exceeding the rate set out in the Commissioner's circulars also for policies issued prior to 1992, and the plaintiffs filed an amended claim and motion, accordingly. The Phoenix Insurance responded to the motion for certification and the plaintiffs responded to the response of The Phoenix Insurance. The Phoenix Insurance has the right to respond to the plaintiff's response, and it responded accordingly.

— 355 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The Commissioner of Insurance submitted his position on the case in accordance with the court order, the plaintiffs responded to this position and the defendants responded to the plaintiffs' response. In a hearing held on February 20, 2014, the court ordered the plaintiffs to announce, within 30 days, how they intend to continue with the procedure. In a hearing held on April 8, 2014, the plaintiffs announced that they wished to continue proceedings on the motion for certification and the case was set for written summation.

The plaintiffs, Phoenix Insurance, and the other defendants filed their summations. On May 12, 2015, a hearing was held to complete the oral argument. The case was scheduled for a hearing on September 21, 2015. The parties are waiting for a decision on the motion for certification.

On July 30, 2008, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the Motion for Certification") at the Tel Aviv-Jaffa District Court. The claim refers to the allegation that The Phoenix Insurance does not compensate its policyholders for protective measures installed in cars in cases of total loss, absolute total loss and partial loss.

The plaintiff estimates the damage for the group as NIS 27.8 million.

The group that the plaintiffs seek to represent is any person who, as from April 1, 2004, received compensation from The Phoenix Insurance for damage to a private or commercial vehicle up to 4 tons, including for total loss or theft, when insured by The Phoenix Insurance, with motor insurance in accordance with Part A of the Addendum to the Control of Insurance Business Regulations (Terms of an Insurance Contract for a Private Vehicle), 1986, in full or in part, and did not receive all and/or partial insurance compensation for loss or damage caused to the protection measures installed in the vehicle at the demand of The Phoenix Insurance. The Phoenix Insurance has responded to the motion.

The District Court transfered the claim to a consolidated hearing with seven other claims filed against other insurance companies, with a similar allegation to the allegation in the above claim. In July 2011, the Attorney General announced his participation in the case, and explained his position regarding the application of section 1 of the standard policy for insuring a private vehicle (section 1 of the Addendum to the Control of Insurance Business Regulations (Contract Conditions for Insurance of a Private Vehicle), 1986), without stating his position on the actual proceedings.

On July 2, 2012, a settlement agreement was signed for the claim and six other claims filed on the same matter against six other insurance companies ("the Settlement Agreement").

In accordance with the Settlement Agreement, without admitting to any contention and/or liability, The Phoenix Insurance was required to pay the group defined in the Settlement Agreement, 50% of the price of the theft protection system that was installed and/or that is in the private vehicle of the policyholder in accordance with the Company's requirements in the policy that was in effect on the date the insurance event occurred, less annual depreciation of 33%. The Phoenix Insurance undertook to contact the policyholders in writing and to announce the settlement agreement in the newspapers.

The Phoenix Insurance further undertook to pay a minimum amount of NIS 1 million, so that if the total amount paid by The Phoenix Insurance to the group members under the Settlement Agreement falls below this minimum amount, The Phoenix Insurance will make a further distribution to the group members who applied, up to a limit of 100% of the cost of the relevant protection.

In addition, The Phoenix Insurance was required to pay the plaintiff's counsel fees amounting to NIS 139 thousand (including VAT) and paid the plaintiff compensation of NIS 30 thousand.

— 356 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The court appointed an auditor to review the settlement agreement. The auditor submitted his opinion on December 4, 2013. The Attorney General submitted his position and the parties submitted their responses to his position. In June and July 2014, another two insurance companies announced that they were joining the settlement agreement.

The amendments refer, among other things, to the calculation of the rate to be refunded, the minimum amount for payment, how the refund will be executed, a mechanism for informing the members of the group, a mechanism for future settlement, and a mechanism for allocating the remaining funds.

On January 19, 2015, the parties submitted a consolidated motion for a hearing to be held before the court in regard to the court's ruling of December 22, 2014. On January 21, 2015, the court accepted the motion and set a hearing for February 11, 2015.

At the same time, the defendants filed a request to extend the deadline for filing leave to appeal the court judgment. The request was approved in a ruling by the Registrar of the Supreme Court on January 25, 2015.

On February 11, 2015, a hearing was held at the District Court, during which the Court handed down a few clarifications concerning the settlement agreement. It was also decided that within three weeks, the Attorney General will give his opinion regarding several amendments to the settlement agreement, after which the Court will hand down its ruling on how and under which terms the settlement agreement will be amended with respect to those issues that require the Attorney General's position.

For the sake of caution, on March 5, 2015, a joint petition was filed at the Supreme Court to extend the deadline for filing a motion for leave to appeal until April 21, 2015 The Supreme Court approved this petition.

On April 20, 2015, the position of Attorney General (the Commissioner of Insurance) was submitted. Accordingly, the defendants filed another request to extend the deadline for filing a motion for leave to appeal the court's ruling until June 5, 2015, if necessary. The Supreme Court approved this petition.

Furthermore, in view of the position of the Commissioner of Insurance, the parties were required to file a notice with the court, describing whether, in view of the Commissioner's position, the continuation of the examination may be transferred to a reviewer. On May 3, 2015, the parties informed the court that they do not object to transferring continuation of the examination to a reviewer. The court accepted the parties' notice and on May 4, 2015, the court ordered the parties to inform the court on the progress of the examination and/or its result. The parties submitted the materials to the reviewer and are taking steps to advance the examination process, in accordance with the Court's decision, such that the settlement agreement will include all the group members by the date of its approval by the court.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On April 5, 2009, a motion for certification as a class action suit was filed against Standard and Poor's Maalot Ltd. (“Maalot”), World Currencies Ltd. “World Currencies”), and officers in Excellence Investments Group Ltd. ("Excellence Group" or "Excellence", respectively), Bank Leumi Le Israel Trust Company Ltd. and against Excellence, in respect of the prospectus issued by World Currencies for the public placement of debentures backed by notes issued by Lehman Brothers Bankhaus AG ("Lehman").

The plaintiff is one of the debenture holders and he is seeking to file the claim in his name and on behalf of all holders of debenture at the date Lehman collapsed. The plaintiff estimates that the class action suit amounts to NIS 84.5 million.

The parties have recently started negotiations for a joint settlement for the motion for certification in this case and for the case regarding Keshet described in section 6 below.

On May 27, 2009, a motion for certification of a class action was filed against Keshet Debentures Ltd. (a subsidiary of Excellence Ltd., "Keshet") and its directors, against Express Finances Ltd. (which to the best of the knowledge of Excellence holds 50%) of the issued share capital of Keshet), against Excellence Nessuah Underwriting (1993) (a subsidiary, "Underwriting") which holds the remaining 50% of the issued capital of Keshet and against Excellence Investments Ltd. ("Excellence") (jointly: "the Defendants"), with respect to the prospectus issued by Keshet for the public placement of debentures backed by notes issued by Lehman Brothers Bankhaus AG ("Lehman Germany"). The liability of Lehman Germany was guaranteed by Lehman Brothers Holdings Inc. ("Lehman USA"). Lehman Germany and Lehman USA will be referred to below as “the Lehman Group”.

On June 23, 2009, another motion for certification as a class action suit was filed against Maalot, Bank Leumi Le Israel Trust Company Ltd. and against Keshet, Excellence Underwriting and officers in Excellence and Expert Finances Ltd. "the Defendants"), with respect to the prospectus issued by Keshet for the public placement of debentures backed by notes issued by Lehman Brothers Bankhaus AG (“Lehman Germany”).

The plaintiffs claim that the defendants should have informed the investors of the negative developments in the Lehman Group, and that the numerous dramatic events allegedly issued about the Lehman Group were not met by any response or disclosure by the defendants. The alleged failure to disclose and the false representations misled the investors in the debentures and was the cause of the damage to the members of the group in the claim.

The plaintiffs contend that the behavior of the defendants was faulty and that the defendants could have prevented the damage or substantially reduced it and did not do so.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

Following the request of the defendants, these claims were combined and the amount of the claim was adjusted to NIS 286 million.

The motion for certification was scheduled for written summations. The plaintiffs filed their summations on January 22, 2014 and the defendants are required to file their summations at varying dates. The plaintiffs filed their response summations on March 18, 2015. The ruling on the motion for certification of the case as a class action is still pending.

The parties have recently started negotiations for a joint settlement for the motion for certification described in section 5 above and for this case. It is clarified that until an agreement is reached, notice will not be submitted to the court, therefore in principle, the ruling can be handed down at any time, thereby ending the settlement negotiations.

On February 24, 2010, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the Motion for Certification") at the Central District Court. The plaintiff contends that The Phoenix Insurance was not permitted to collect from its life assurance policyholders any amount for the premium component called the policy factor or other management fees without the explicit consent of the policyholder, according to the insurance agreement (the policy) between the policyholder and The Phoenix Insurance, even although collection of the policy factor was explicitly permitted by the circulars of the Commissioner of Insurance and the policyholder also knew that he is charged for the policy factor from the annual reports sent to him (as of 2003).

The group that the plaintiff seeks to represent is any person who is or was insured by The Phoenix Insurance and who was charged any amount as “other management fees and/or policy factor"

The plaintiff estimates that the general damage caused to the entire group is NIS 445 million. The Phoenix Insurance has responded to the motion.

On April 12, 2011, the court certified the claim as a class action ("the Certification Ruling").

In the ruling, the court ordered to define the group as anyone who holds or held a life insurance policy from The Phoenix Insurance from February 24, 2003 through to February 24, 2010, and who was charged any amount as "other management fees" or "a policy factor", without there being an explicit condition for this payment in the policy. The grounds for the claim are unlawful collection of "a policy factor" or "other management fees"; and the requested remedy is reimbursement and compensation.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On September 5, 2011, The Phoenix Insurance filed a motion to appeal the ruling at the Supreme Court ("the Motion to Appeal"). The plaintiff filed his response to the Motion to Appeal. On February 7, 2012, a hearing was held at the Supreme Court, with the participation of the Commissioner of Insurance, at the request of the Supreme Court.

On September 4, 2012, the Supreme Court handed down a ruling on the motion to appeal, which reversed the certification ruling.

In the ruling, the Supreme Court established that the certification ruling would be reversed and that the hearing of the motion for certification would return to the district court to deliberate the following question defined by the Supreme Court: "When determining whether to accept the motion for certification, the implication of deducting "the policy factor" from this (the savings component) or from that (the risk component) should be referred to". The Supreme Court ordered the district court to consider whether to bring evidence to examine this question. Following the ruling of the Supreme Court, the hearing of the motion for certification was returned to the district court. In a pretrial hearing held on December 17, 2012, the Attorney General announced that he intends to participate in the case and to present his position and the court approved this. The Attorney General submitted his position and the plaintiff and The Phoenix Insurance submitted their responses to his position. In a preliminary hearing held on July 29, 2014, the Attorney General was given the option of announcing, within 21 days, whether the motion for certification affects the stability of the Company.

On October 2, 2014, the Attorney General announced that this matter does not raise concerns of stability at this time and that he does not consider his involvement in the proceedings at this stage necessary.

On January 20, 2015, the parties announced that they wished to waive investigations. On June 9, 2015, The Phoenix Insurance informed the court that it intends to adopt the provisions of the settlement agreement that was filed for court approval on June 10, 2015 in a parallel case against other insurance companies, subject to the findings of the legal reviewer who was appointed in the parallel case, and in the manner that the settlement will be approved in the parallel case.

On July 16, 2015, the Court ruled that the parties will update the court when receiving the opinion of the reviewer who was appointed in the parallel case.

On April 11, 2010, a claim was filed against The Phoenix Insurance and against other insurance companies ("the Defendants"), by the Israel Consumer Council ("the Plaintiff") ("the Motion for Certification") at the Central District Court. The Plaintiff contends that the Defendants breach their duties by failing to take steps to locate persons who have rights to moneys that were deposited in insurance policies, do not inform them of this, and do not take steps to return the unclaimed funds that they hold, among other things.

Moreover, the Plaintiff contends that the Defendants do not apply to the Population Registry, do not submit reports to the Administrator General, do not manage these moneys separately from other moneys and do not transfer the moneys to the Administrator General when their transfer is required. Due to these omissions, the holders of the rights do not receive their moneys and the Defendants collect excessive management fees from their moneys. Moreover, the Plaintiff contends that the Defendants are unjustly enriching themselves from the revenues generated by the unclaimed moneys.

The group that the Plaintiff seeks to represent is all the holders of rights in assets held by the defendants, or are under their responsibility or control, who the defendants allegedly did not notify that they own the assets held by the defendants, as their duties require them to do. The plaintiff did not estimate the number of members in the group or the amount of the claim.

— 360 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The Phoenix Insurance filed its response to the motion for certification. The Attorney General submitted his position following the court's request.

The parties informed the court that they agreed to mediation. The parties are currently conducting mediation proceedings. The case was scheduled for a hearing on November 9, 2015.

On April 14, 2010, a claim was filed against The Phoenix Insurance and other insurance companies ("the Defendants") together with a motion for certification as a class action ("the Motion for Certification") at the Central District Court.

The Motion for Certification is about the conduct of the insurance companies when collecting the final premium or premiums from a policyholder at the end of the insurance term, whether the policy is canceled by the policyholder or due to an insurance event (“the Termination of the Insurance”).

The Phoenix Insurance filed its response to the motion for certification and a preliminary hearing was held.

Evidentiary hearings were held in the case and the parties filed their summations.

On August 7, 2014, the court ordered the statements of arguments in the case to be sent to the Commissioner of Insurance for her position, before ruling on the Motion for Certification. On November 5, 2014, the Commissioner of Insurance submitted her position to the court and the defendants filed their response to this position.

A. On June 23, 2015, the central district court partially approved the motion for certification of the claim as a class action, on the grounds of alleged breach of the agreement, breach of the Insurance Contract Law, and unjust enrichment. The court ruled that the groups on whose behalf the class action will be conducted and the remedies will be as follows:

A. Reimbursement of the excessive insurance premiums that were collected for the month of cancellation for contracts with an immediate cancellation clause. For this remedy, it was determined that the representative group on whose behalf the case against The Phoenix Insurance and two other plaintiffs will be conducted, is any individual who is or was insured by one or more of the defendants in an insurance policy, other than a property insurance policy, who cancelled the insurance policy in the seven years prior to filing the motion for certification and up to March 14, 2012 (the effective date of Amendment No. 5), and the policy includes a clause stipulating that the cancellation is effective when the insurer receives the cancellation notice or when the cancellation notice is submitted to the insurer, and who did not receive a refund of the premium for the remainder of the cancellation month, together with linkage and interest differences under the Insurance Contract Law, from the effective cancellation date.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

B. Payment of interest and linkage differences under the Insurance Contract Law for insurance premiums that were refunded without interest and linkage differences. For this remedy, it was determined that the representative group on whose behalf the case against all the defendants will be conducted is any individual who is or was insured by one or more of the defendants in an insurance policy, other than a property insurance policy, who cancelled the insurance policy, or whose insurance policy was cancelled following an insurance event, in the seven years prior to filing the motion for certification and up to March 14, 2012 (the effective date of Amendment No. 5), and who was charged for insurance premiums for the months following the cancellation month, and who was refunded nominal values without interest and linkage differences in accordance with the Insurance Contract Law.

In addition, the court dismissed the motion for certification in all matters relating to a refund of insurance premiums for individuals who were insured by one or more of the defendants in an insurance policy other than a property insurance policy, whose policy was cancelled following an insurance event. The court also dismissed the plaintiffs' claim regarding failure to link the amounts of the refund to the CPI when it is negative, and the claim for payment of triple interest in accordance with section 28 of the Insurance Contract Law in the event of a refund, instead of linked interest.

The district court scheduled a hearing on November 26, 2015 to discuss the continuation of the proceedings.

At the same time, the parties reached a procedural arrangement, which was approved by the Supreme Court, whereby the date for filing an appeal against the decision of the district court (by the defendants) or for filing a motion to appeal (by The Phoenix Insurance) will be postponed until November 1, 2015.

On June 1, 2011, a claim was filed against The Phoenix Insurance and against other insurance companies "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification") at the Central District Court.

In the Certification Ruling, the group members are defined as any eligible person (meaning, policyholders and injured persons) who received insurance benefits from the defendants after June 1, 2008, whose right to payment was delayed due to foreclosure of the asset, or receivership orders or any rights of third parties, provided the returns from the moneys in the delayed period for the foreclosure were not transferred in full to the eligible party. The grounds of the claim are the right of the group members to receive linkage differences and interest, which represent the benefits produced by the defendants in the delay period due to the foreclosure. The remedy claimed is payment of linkage differences and interest to the group members at a rate representing the benefit to the defendants in the delay period due to the foreclosure. The plaintiffs filed a revised statement of claim. The parties are in the process of mediation, and the mediator appointed a reviewer. In November 2014, the plaintiffs announced the completion of the mediation process.

On April 15, 2015, a pretrial hearing was held, and dates were set for filing statements of claims and for completion of preliminary proceedings. On May 17, 2015, The Phoenix Insurance filed a statement of defense. Another pretrial hearing was scheduled for January 10, 2016.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On May 22, 2012, a claim was filed against The Phoenix Insurance, five other insurance companies and an insurance agency "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification") at the Jerusalem District Court. The plaintiffs contend that the defendants refuse to insure people with disabilities (or alternatively, establish impossible terms of the policies) under individual insurances, such as healthcare, travel, pension, personal accident, life, long term care and disability insurance, and by doing so, impair the rights of the group members (as defined below) to equality and dignity. The plaintiffs further contend that when refusing to insure them, the defendants do not rely on relevant information about the insurance applicant and do not examine the facts of each applicant as an individual request. By failing to do so, the defendants withhold from the group members (defined below) due process required for any person seeking to purchase insurance in one of the individual insurances.

The plaintiffs further contend that the respondents act towards the group members as if they were one individual and not as individuals and therefore harm their dignity and their right to equality.

The group that plaintiffs wish to represent includes all applicants for insurance with the defendants, who the defendants refused to insure under one of the individual insurances listed above, due to an illness or disability of the member (the First Group") , as well as people with disabilities who did not apply or will not apply to the defendants for insurance, knowing that the defendants will not agree to insure them due to their disability as described in the claim ("the Second Group"). The First Group and the Second Group will be referred to jointly below as (“the Class”).

The total compensation sought by the plaintiffs for the First Group is estimated at NIS 934 million, based on following:

The remedies sought by the plaintiffs for the whole group (the First Group and the Second Group) include to declare that the defendants violated the laws and regulations set out in the claim; to order the defendants to cease discrimination against the group and to establish clear procedures for individual, specific and equal handling, without discrimination against people with disabilities; to order the defendants to present an organized procedure for all matters relating to refusal to provide insurance to a person with disabilities; to determine compensation for members of the group; to grant retroactive coverage to group members who will be eligible to be insured after an equal underwriting procedure; to charge the defendants for expenses, compensation to the plaintiffs and legal fees for the attorneys who represent the plaintiffs.

The Phoenix Insurance filed its response to the motion for certification. Several preliminary hearings were held on the case. Following mediation between the parties, the court scheduled a hearing to be held before it on December 31, 2014 in the presence of the mediator. In this hearing, it was decided that the parties will continue mediation, with a retired judge joining as another mediator. Mediation between the parties is underway.

On January 13, 2013, a claim was filed against The Phoenix Insurance and the Israeli Motor Vehicle Insurance Pool ("the Pool") and against 13 other insurance companies (jointly below: ("the Defendants") at the Central District Court, together with a motion for certification of a class action “the Claim”).
The claim refers to excessive collection in compulsory motor insurance and return of an amount out of the premium collected by the Pool for compulsory motor insurance, without providing any insurance cover for the amount that was collected.

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FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The plaintiff notes that the compulsory insurance certificate issued by the Pool states that "the insurance starts on the date of the bank stamp, but not before April 1, 2008." According to the plaintiff, when the policyholder pays the full premium recorded on the compulsory insurance certificate after the date specified therein (in this case, the compulsory insurance certificate was paid on April 7, 2008 and not by April 1, 2008), the defendant charges a premium for the period between the date on the certificate (April 1, 2008) and the payment date at the bank (April 7, 2008), without providing any insurance coverage for this period.

The plaintiff claims that this compulsory insurance is residual insurance organized by the Pool for any user of motor vehicle insurance who could not purchase a policy directly from another insurer, and this residual insurance is provided through co-insurance of all insurance companies that provide compulsory insurance in Israel.

The group that the plaintiff seeks to represent is the group of all policyholders holding a compulsory motor insurance policy of the defendants (and alternatively only, and for due caution, as a group insured by the Pool only), who paid the premium late, meaning, after the date stated in the insurance certificate that was issued to them, in the seven years prior to filing the claim (“the Class”).

The plaintiff estimates the total damage to members of the Class for all the defendants at NIS 36.8 million, and of that amount, NIS 2.7 million refers to the Pool only. These amounts, plus interest and linkage differences by law from the middle of 2008 onwards, reach NIS 45.1 million and NIS 3.3 million, respectively.

According to the plaintiff, the size of the Class for all the defendants could reach 430 thousand policyholders (assuming that each policyholder owns no more than one vehicle), and for the Pool only, 21.1 thousand policyholders.

The remedies sought by the plaintiff include to determine that the date from which the Pool was entitled to collect a premium from the plaintiff and/or the date from which the other defendants were entitled to collect their proportionate share in the premium, is the actual date on which the plaintiff pays the premium to the bank, and not from period stated in the compulsory insurance certificate; to order the defendants to provide all relevant information to estimate the number of members in the group and estimate the amount of the class action; to order the defendants to pay the amount of the claim and to declare that the defendants refund to all the group members the amount of the premium that was unlawfully collected, plus interest and linkage differences; to award compensation to the plaintiff and the plaintiff's counsel and to order the defendants to pay all of the plaintiff's legal expenses.

The Phoenix Insurance filed its response to the motion for certification.

The plaintiff filed a motion to amend the motion for certification, whereby a representative plaintiff was added against some of the defendants, including in relation to The Phoenix Insurance. In the motion to amend, the plaintiff estimates the total damage for members of the group with regard to all the defendants at NIS 21 million, and of that amount, a total of NIS 2.7 million refers to the Pool only. These amounts, plus interest and linkage differences by law from the middle of 2008 onwards, reach NIS 27 million, and of this amount, NIS 3.4 million refers to the Pool only. The Phoenix Insurance has filed its response to this motion to amend.

In addition, on March 10, 2014, a claim and motion for certification as a class action were filed against The Phoenix Insurance and three other insurance companies (below together with The Phoenix Insurance: ("the Defendants") together with a motion for certification as a class action ("the Motion for Certification") at the Central District Court (jointly below: ("the Claim"), which refers to similar, if not identical, issues as those in the class action noted above.

— 364 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The group that the plaintiffs seek to represent in this Claim is customers of the defendants that purchased compulsory insurance as from January 13, 2006 and paid the amount stated on the insurance certificate after the date stated on the certificate as the date insurance begins ( “the Class”).

The plaintiffs in this Claim estimate that the total cumulative damage with regard to all the plaintiffs together amounts to NIS 20 million in terms of the principal (with the addition of interest and linkage differences from the middle of the period up to February 2014, this amounts to NIS 24 million). Of this amount, estimated damage of NIS 6.6 million is attributable to The Phoenix Insurance.

The main remedies sought by the plaintiffs in this Claim are to order the defendants to refund the amounts allegedly collected from the Group members in contravention of the law; to issue a forward looking permanent injunction ordering the defendants to act in one of the following manners: to add the following text to all insurance certificates issued by the defendants: "this insurance expires on the date specified in this certificate at midnight or X days after the date this certificate was stamped by the bank at midnight, whichever is later", or, alternatively, when compulsory insurance is paid after the date specified on the certificate as the date insurance begins, the expiration date of the insurance will be moved forward or alternatively, when compulsory insurance is paid after the date specified in the certificate as the date insurance begins, the policyholder will be automatically refunded the proportionate financial value for the days when there was no insurance cover; to determine compensation for the representative plaintiffs and legal fees for their counsel.

The court approved the plaintiffs' motion to transfer this case to be heard before the Honorable Judge Grosskopf, who heard the earlier class action suit on the foregoing date. In a hearing held on April 30, 2014, the court consolidated the two claims and ordered, among other things, that the plaintiffs will be the plaintiffs that appear in both claims and that at the present time, the revised motion for certification filed on February 16, 2014 in the earlier claim will be the motion heard in the consolidated proceedings and the dates will be as scheduled in the hearing on the earlier claim.

Consequently, The Phoenix Insurance's revised statement of response and the response of the plaintiffs to this statement of response were filed with the court and on November 16, 2014, a further pre-trial hearing was held. On February 8, 2015, a pre-trial hearing was held with the participation of representatives from the office of the Commissioner of Insurance and their counsel from the Tel Aviv District Attorney's office, pursuant to the rulings of the court of November 16, 2014 and January 29, 2015. On February 15, 2015 the defendants announced, without prejudice to their arguments, that they do not intend holding an evidentiary hearing on the case. The case was scheduled for filing of summations, including the Commissioner of Insurance's reference to the summations of the parties and the responses of the parties to the Commissioner's reference. The case has been scheduled for an internal hearing on October 26, 2015.

On October 24, 2012, a claim was filed against The Phoenix Insurance and Femi Premium Ltd. ("Femi Premium") (jointly below: "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification"), at the Tel Aviv-Jaffa District Court. The plaintiff contends that the defendants indemnify holders of their healthcare insurance policies at their historical nominal value, without linking these amounts to the CPI.

— 365 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

Under the settlement arrangement, anyone who received insurance compensation / refunds from The Phoenix Insurance for healthcare insurance in one or both of the following cases, will be entitled to compensation: (a) if the amount of the insurance was not linked to the CPI; (b) if the insurance compensation was not linked to the CPI, and that person holds a healthcare insurance policy and/or rider issued by The Phoenix Insurance, in the three years preceding the filing of the claim and through to approval of the claim by the court ("the Eligible Group").

The Phoenix Insurance will pay personal compensation totaling NIS 1.4 million to the Eligible Group by way of a public announcement, within 60 days after the publication of the notice of approval for the settlement arrangement. The balance of the funds not paid as personal compensation will be donated to various charities, as set out in the settlement agreement. The Phoenix Insurance will also bear the costs of compensation to the plaintiff and legal fees to the plaintiff's counsel. The validity of the settlement is contingent on receiving the approval of the court.

On January 5, 2015, the court handed a ruling that included an order to publish the motion for approval of the settlement for objections and an order that the announcement together with a copy of the motion for approval of the settlement and the motion for certification be sent to the Attorney General, Director of Consumer Protection, Commissioner of Insurance and the Courts Administration. An announcement was issued in the press as required. On May 11, 2015, the court ruled that the parties will submit a number of clarifications regarding the settlement agreement for approval of the court. These clarifications were submitted and the position of the Attorney General was received. On June 16, 2015, the Court ordered the appointment of a reviewer for the financial information underlying the settlement agreement. The reviewer has started to examine the matter.

— 366 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On December 6, 2012, a claim was filed against The Phoenix Insurance and six other insurance companies "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification") at the Central District Court.
According to the claim, the reform in the vehicle licensing branch, which came into effect in 2007, amended the Transportation Regulations, 1961, and the classification of recreational vehicles - jeeps and minivans ("the Vehicles") was changed from a commercial vehicle to a private vehicle. According to the plaintiffs, notwithstanding the above amendment, for the purpose of comprehensive, third party and compulsory insurance, the defendants chose to continue to define the Vehicles as commercial vehicles, contrary to the regulations that require the same classification of a vehicle for insurance purposes as in the transportation regulations. The plaintiffs further claim that vehicles manufactured after the reform came into effect, meaning from 2008, are insured as private vehicles, creating a baseless and discriminatory distinction.

According to the plaintiffs, since defendants classify the Vehicles as commercial vehicles, even though the Ministry of Transportation classified the Vehicles as private vehicles, the defendants allegedly charge premiums that are higher than the premiums for private vehicles. The group that plaintiffs seek to represent includes all customers of the defendants who entered into an insurance contract with the defendants for compulsory and/or property insurance, as from January 9, 2007, who hold and/or held a vehicle license at the relevant dates for the claim, which states the classification M-1, and who were charged an insurance premium based on the assumption that the vehicle is a commercial vehicle and not a private vehicle “the Class”). The plaintiffs estimate the total damage to the Class members in respect of all the defendants, for compulsory insurance and property insurance, at NIS 550 million. The plaintiffs estimate the total damage to the Class members in respect of The Phoenix Insurance, for compulsory insurance, at NIS 52 million.

The remedies sought by the plaintiffs include to order each of the defendants to provide complete and accurate information as from January 9, 2007 for insurance premiums paid by owners of vehicles classified as M-1 in the license, including the cost of insurance, classification of vehicle by the defendants when providing the insurance and the effect of this classification on the premium that was paid for the insurance policy; to declare that all amounts collected by the defendants for insurance policies which classify private vehicles as commercial vehicles were collected unlawfully; to order the defendants refund the excessive amounts that were collected, plus interest and linkage differences by law; and to award compensation to the plaintiffs and the attorney's fees to the plaintiffs' counsel.

The Phoenix Insurance filed its response to the motion for certification. In February and March 2014, evidentiary hearings were held, and the court ordered the plaintiffs to announce whether they plan to continue the proceedings. On June 8, 2014, the plaintiffs announced their intention to continue proceedings. Pursuant to the announcement of the plaintiffs, the case was scheduled for filing of summations. The plaintiffs filed their summations. The Phoenix Insurance is required to file its summations by September 16, 2015.

On March 24, 2013, a claim and motion for certification as a class action was filed against The Employee Benefit Experts, Benefit Ltd. ("Benefit", or "the Defendant"), a sub-subsidiary of The Phoenix Insurance, a subsidiary of The Phoenix Insurance ("the Motion for Certification") at the Tel Aviv District Labor Court.

The claim was also filed against Israel Discount Bank Ltd., Mercantile Discount Bank Ltd. and Discount Mortgage Bank Ltd. ("Discount Bank").

— 367 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The group that the plaintiff seeks to represent includes permanent employees of Discount Bank, who retired under the terms of voluntary retirement and whose salaries included the following salary components: healthcare insurance, refund of medical expenses, Odef Hiyuv study fund, and a compensation limit, in full or in part, which are fixed components for payment of severance under section 13 of the Severance Pay Law, 1963, and voluntary retirement compensation at a rate of 175% of the severance pay, including the heirs of retiring employees (“the Class”).

The defendant also requested that the group members include employees who retired in the period prior to the seven years before certification as a class action. The plaintiff believes that the financial scope of this claim for the entire group is NIS 40 million.

The remedy requested by the plaintiff from the defendant includes compensation for all Group members who received advice from the defendant regarding exercise of the retirement terms offered to them by Discount Bank, for the damage they incurred due to their reliance on the advice given to them by the defendant, which allegedly was negligent and/or misleading advice, being one-sided in favor of Discount Bank and contrary to their rights, and payment of fees and court costs.

On May 12, 2013, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action "the Motion for Certification") at the Tel Aviv-Jaffa District Court.

According to the plaintiff, The Phoenix Insurance does not pay interest at all, not from the date of the insurance event nor as from 30 days after the filing date of the claim, and does not pay statutory linkage differences.

— 368 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The group that the plaintiff seeks to represent is anyone who received, during the seven years prior to filing this claim and/or who will receive, up to the judgment in this claim, insurance compensation from The Phoenix Insurance, insurance, without the addition of statutory interest for the insurance compensation ("the First Group"), and anyone who received, during the seven years prior to filing this claim and/or who will receive, up to the judgment in this claim, insurance compensation from The Phoenix Insurance, insurance, without the addition of statutory linkage differences for the insurance compensation (“the Second Group”).

The damage estimated by the plaintiff in respect of the members of the First Group for the unpaid interest, at a conservative calculation based on ordinary, unlinked interest, amounts to NIS 44 million per year and NIS 308 million cumulatively over 7 years (if the court rules that the interest should be calculated from the date of the insurance event) and NIS 18 million per year and NIS 126 million over seven years (if the court rules that the interest should be calculated as from 30 days after filing the claim against the insurance company). Interest and linkage differences for the unpaid interest debt of The Phoenix Insurance should be added to these amounts, from the date of actual payment of the insurance compensation and until the date that The Phoenix Insurance pays the interest and linkage differences as required by law. The damage estimated by the plaintiff in respect of the members of the Second Group, is NIS 42 million per year and NIS 294 million over seven years.

The remedies sought by the plaintiffs include an injunction requiring The Phoenix Insurance to stop collecting insurance premiums for the Non-coverage Period; to require the Phoenix Insurance to return to the group the entire insurance fees actually collected for the Noncoverage Period plus linkage differences and interest, as set out in section 1 of the Interest and Linkage Law, 1961 ("The Interest and Linkage Law") and based on the interest rate in accordance with the Interest and Linkage Law or in accordance with the interest rate established in the policy (whichever is higher), for the period commencing from the date of the insurance event until the date of actual payment of the insurance compensation or alternatively, for the period commencing 30 days from filing of the insurance claim and until the actual payment date of the insurance compensation; to require The Phoenix Insurance to pay interest and linkage differences in accordance with the provisions of sections 28 and 56 of the Insurance Contract Law; to require The Phoenix Insurance to pay interest and linkage differences for the deficient payment to members of both groups, as from the payment date of deficient insurance compensation to a policyholder and until the date that The Phoenix pays interest and linkage differences as required by law.

The Phoenix Insurance filed its response to the motion for certification. On February 22, 2015, a pretrial hearing was held for the case. The parties submitted written summations and on July 7, 2015, a hearing was held to complete oral arguments. The parties are waiting for the court's ruling on the motion for certification.

In addition, the plaintiff filed a motion to consolidate the hearing with three motions for certification that were filed against three other insurance companies regarding the same matter. On February 22, 2015, the court accepted the motion and the hearings for all the motions were consolidated.

On October 15, 2013, a claim was filed against The Phoenix Insurance and three other insurance companies (below together with The Phoenix Insurance: "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification"), at the Central-Lod District Court (jointly below: “the Claim”). The claim refers to the defendants' conduct regarding premium adjustments during the term of the policy. The defendants determine the dates of premium adjustments due to the change in the policyholder's age earlier than when the insurance premium should have been adjusted and determine a base index for the policy which is not the index of the correct month, but rather the index of an earlier month (often several months earlier).

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APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

According to the plaintiffs, the damage is distributed among the defendants pro rata to their share in the branch, as defined in Table D-7 of the report published by the Commissioner of Insurance for 2004 to 2006, meaning that the plaintiffs estimate the damage of The Phoenix Insurance as NIS 64 million (16%).

The Phoenix Insurance filed its response to the motion for certification. On June 16, 2015, a pre-trial hearing was held and the claim was scheduled for completion of the statement of claim. On August 19, 2015, the defendants filed their supplementary statement of claim. The plaintiffs are required to submit their supplementary statement of claim by September 1, 2015.

On January 8, 2014, a claim was filed against The Phoenix Insurance and two other insurance companies (jointly below with The Phoenix Insurance: "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification") at the Tel Aviv-Jaffa District Court “the Claim”).

According to the plaintiffs, the Defendants overcharge for comprehensive car insurance. The plaintiffs allege that the Defendants sell insurance according to a higher value than the actual value of a car, as weighted by them in an insurance event, meaning total loss, in different situations, including when the vehicle was purchased by the policyholder from a rental or leasing company.

According to the plaintiffs, when selling a comprehensive insurance policy, the Defendants charge the policyholders excessive amounts due to calculation of a higher value for the vehicle, even though they know in advance that in an insurance event, the value of the vehicle will be reduced for "special variables" or "special components" whereby the "real value" of the insured car is significantly lower.

To estimate the general damage and based on the information available to the plaintiffs, the plaintiffs estimate the damage to the entire Class at NIS 200 million, according to the size of the Defendants and the number of policyholders based on information on the Defendants' websites. The damage claimed is since 2006, seven years back.

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APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The main remedies sought by the plaintiffs are to refund all the excess premiums collected from policyholders in contravention of the law, together with statutory interest, to provide declaratory relief whereby the Defendants are not permitted to charge a premium according to the value of a vehicle that does not include the deduction of the "special component" from the value of the vehicle, and an injunction prohibiting the Defendants from continuing to charge excessive premiums.

On June 23, 2014, a claim was filed against The Phoenix Insurance and two other insurance companies (jointly below with The Phoenix Insurance: "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification") at the Jerusalem District Court (jointly below: “the Claim”).

According to the plaintiffs, the grounds for the claim are the defendants' alleged collection of higher premiums in life insurance policies they issue with respect to mortgage insurance purchased by policyholders from them.

The plaintiffs contend that the surplus premiums are due to the discrepancy between the insured amount and the amount of the loan, which is reduced every month, and as a result, the plaintiffs and members of the group, as defined below, are forced to pay the defendants higher monthly premiums than those they would have to pay if the insurance amount was equivalent to the amount of the mortgage recorded at that time in the books of the lending bank.

The group that the plaintiffs seek to represent is "all the customers of the defendants who were insured by one or more defendant in the seven years prior to filing of the claim, and who purchased from them a life insurance policy for the purpose of insuring a mortgage loan taken from one of the mortgage banks in Israel, and as a result of the decision and considerations of the defendant, the insurance amount they were required to pay was higher than the balance of the loan to the bank and therefore, the policyholders overpaid for the life insurance on the mortgage that they took (“the Class”).

The plaintiffs estimate the total damages for all the members of the Class to be NIS 1.18 billion, and of this amount, the damages attributed to policyholders of The Phoenix Insurance are NIS 339.5 million.

The main remedies that the plaintiffs seek include a refund to the members of the Class of the premium differences between the premium that they should have paid according to the correct balances of the loan to the lending banks and the actual premium that they paid according to the insurance amount with the defendants, with the addition of compensation for distress caused to them; to change the way the defendants work so that the defendants will proactively calculate the insurance amount and the premiums arising from it, based on the accurate figures of the mortgage loan every month and no less than once every six months, and particularly in accordance with the interest rates, linkage terms and relative track breakdown of the loan per policyholder; to provide the policyholders with detailed information regarding the method for calculating the insurance amount and premium, and to explain to the policyholder the option of informing the defendants every month or at least once every six months regarding the balance of the loan to the banks, in cases where accurate figures cannot be used and as a result forcing the defendants to use various estimates; to charge the defendants for expenses, compensation to the plaintiffs and legal fees for their attorneys.

On January 6, 2015, the defendants filed their responses to the motion for certification. On April 19, 2015, the plaintiffs filed their responses to the respondents of the defendants to the motion for certification. On June 14, 2015, a preliminary hearing was held for the motion for certification, and the court announced that it intends to direct questions arising from the motion for certification to the Commissioner of Insurance, and invited the parties to propose questions that will be directed to the Commissioner of Insurance.

On July 16, 2015, the parties submitted proposed questions to the court, which will be directed to the Commissioner of Insurance.

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APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On July 20, 2015, another pretrial hearing was held for the motion for certification, and the court ordered questions to be directed to the Commissioner of Insurance by October 20, 2015. The court also ruled that the parties may submit their responses to the Commissioner's position by November 20, 2015.

Another preliminary hearing for the motion for certification has been scheduled for January 3, 2016.
On July 13, 2014, a claim was filed against The Phoenix Pension and four other pension fund management companies (jointly below together with Phoenix Pension: "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification"), at the Central-Lod District Court (jointly below: “the Claim”).
Plaintiff 1 is an association that serves as an umbrella organization for all associations for
the elderly in Israel and Plaintiff 2 is an association that acts on behalf of the elderly within the Kiryat Malachi municipal area and throughout Israel.

According to the plaintiffs, the Claim refers to the defendants raising management fees payable by pensioners on the accrued balance to the maximum permitted management fees, from the date on which they become pensioners, while these pensioners are unable to transfer their accrued balance to other pension funds. Consequently, according to the Claim, the defendants are using their contractual right under the provisions of pension fund articles of association, contrary (allegedly) to the essence of the agreement between the parties while exploiting (allegedly) the plight of the pensioners.

The group that the plaintiffs seek to represent is anyone who is insured under a new comprehensive pension fund belonging to one of the defendants and is eligible to receive a pension and/or will be eligible for a pension in the future (“the Class”). The plaintiffs estimated the number of members of the Class who have reached pension age of all the defendants together to be approximately 17,000. The Claim does not include an estimate of the number of Class members who will reach pension age in the future.

The plaintiffs estimate, based on an actuarial opinion attached to the Claim, the damages claimed for the members of the Class for the management fees collected unlawfully from the current pensioners to be NIS 48 million for all the defendants (at the very least and without quantifying, at this stage, all remedies).

The main remedies sought by the plaintiffs are include:

(1) To refund to the current pensioners the excess management fees collected and/or that will be collected from them so that the amount refunded to each pensioner will be the equivalent and cumulative amount collected and/or that will be collected from their accounts, in excess of the rate paid by the pensioner prior to retirement; and alternatively, to refund to the pension fund account all the management fees collected from the pensioners and to distribute the funds unlawfully collected from the pensioners, in a just and fair manner, among all the members of the pension;
(2) To prohibit the defendants from raising the management fees with regard to each policyholder shortly before their retirement;
(3) To order that the current terms set out in the bylaws of the defendants, permitting them to raise management fees from time to time, is (allegedly) a discriminatory term in a uniform contract, and to order it to be rescinded or revised to remove the alleged discrimination;
(4) To order the defendants to provide the plaintiffs various documents, as set out in the actual motion;
(5) To order special compensation for the plaintiffs and payment of the representatives' attorney fees.

The Phoenix Pension filed its response to the motion for certification on January 14, 2015. The defendants may submit a rebuttal to the response by September 9, 2015. The pre-trial hearing was set for October 22, 2015.

On September 2, 2014 a claim was filed against The Phoenix Insurance and Super-Pharm Israel Ltd., Pelephone Communications Ltd. and Mekdan Management and Maintenance (jointly below with The Phoenix Insurance "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification") at the Tel Aviv-Jaffa District Court (jointly below: “the Claim”).

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APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

According to the plaintiff, the claim refers to payment charged for parking in the Phoenix House Parking Lot known as the Rose Parking Lot, in contravention of the provisions of section 4(B) of the Disabled Parking Law, 1993 ("the Disabled Parking Law") that stipulates that at a place where there is no other accessible entry, disabled persons may not be charged for parking. The group that the plaintiff seeks to represent is any disabled persons as defined in section 5 of the Equal Opportunities for People with Disabilities Law, 1998 namely, persons with permanent or temporary physical, emotional of mental, including cognitive, disability and who has limited functional ability and/or any holder of a disability card and/or disabled parking tag, whether a round or triangular tag, and who makes use of the parking services at the Phoenix House parking lot in Givatayim, and who has been required to pay for the parking, as of the date section 4 of the Disabled Parking Law was legislated until a ruling is handed in the claim in question (“the Class”).

The plaintiffs estimate that the total damages for all the Class members is NIS 57 million, for a period of seven years.

The main remedies sought by the plaintiffs are, among other things, to declare that in the foregoing case the behavior of Mekdan Management and Maintenance by unlawfully charging payment is in violation of its duty under the law towards the plaintiff and/or members of the Class and/or is unlawful enrichment at their expense and/or negligence and/or severe damage to their autonomy causing them non-monetary damages; to order Mekdan Management and Maintenance to announce and display the announcement visibly and clearly at the entrance to and at the exit from the parking lot, stating that members of the Class and any other disabled person may park there free of charge; to order the defendants to pay the plaintiff and other members of the Class compensation with respect to their conduct and/or their oversight in the amount of the damages; to order the defendants to pay the plaintiff compensation and the plaintiff's attorney's fees.

The Phoenix Insurance filed its response to the motion for certification on February 17, 2015. In the pretrial hearing held on April 13, 2015, the court ruled that the plaintiff is required to notify the court within 30 days whether he upholds his motion. On May 11, 2015, the plaintiff announced that he is upholding his motion. Following the plaintiff's notice, a hearing was scheduled for December 23, 2015. On June 4, 2015, the Disabled Persons Organization filed a motion to join the proceedings as an amicus curiae. The Phoenix Insurance responded to this motion, however the court has not yet handed down its ruling.

On July 20, 2015, the parties filed a joint motion for withdrawal of the plaintiff from the claim. On August 10, 2015, the court ruled that the plaintiff should submit a copy of the receipt for payment to his expert for review by the court.

In September 2014, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the Motion for Certification") at the Haifa District Court (jointly below: “the Claim”).

According to the plaintiff, the Claim refers to The Phoenix Insurance establishing in its officers insurance policies that the pension coefficient (monthly annuity per NIS 10,000 accrued in the policy over the years), according to which, when female policyholders reach retirement age, they would receive lower annuities than male policyholders due to the longer life expectancy of women and yet on the other hand, The Phoenix Insurance collected and continues to collect from insured women the same risk premiums that it charges men, notwithstanding the fact that the women's mortality rates are much lower than those of men.

The group that the plaintiff seeks to represent is all women insured by The Phoenix Insurance in the type of policies as those in question in the Claim, who are salaried employees and for whom the duty to pay insurance falls on the policyholder and her employer (“the Class”). The plaintiffs estimate that the total damages for all the Class members is NIS 44.5 million with respect to over collection from active female policyholders (over seven years), plus 25% for policyholders who have already cashed in or deceased policyholders. The total damage of the Class is estimated by the plaintiff as NIS 55 million (over seven years).

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APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The remedies sought by the plaintiff include: to order the discrimination revoked, to order The Phoenix Insurance to refund to the members of the Class, all the rights they are entitled to due to the discrimination; to order The Phoenix Insurance to compensate the plaintiff; and to pay her attorney fees.

The Phoenix Insurance filed its response to the motion for certification on May 12, 2015. Another preliminary hearing on the motion for certification is set for October 15, 2015.

On December 31, 2014, Yossi Reich, Ohad Aloni, and Rivka Baruch ("the Plaintiffs") filed a claim and motion for certification as a class action against Excellence Mutual Funds Ltd. and Excellence Nessuah Mutual Fund Management Ltd. (jointly below: "Excellence Funds"), whollyowned subsidiaries of Excellence and against 13 other parties, including the seven parties serving as managers of mutual funds ("the Other Fund Managers") and six parties serving as mutual funds trustees (jointly below: “the Defendants”).

The motion refers to the claim of the Plaintiffs, who present themselves as public investors, that Excellence Funds and the Other Fund Managers managing the mutual funds in accordance with the approval received from the Securities Authority, carried out transactions for the mutual funds that they manage, and hence for public investors who invested in the mutual funds, while charging the investors, systematically and continuously and allegedly in contravention of the law, brokerage fees, at an allegedly "inflated" cost, without taking any measures to reduce the brokerage fees.

In the motion for certification of the case as a class action, the Plaintiffs requested a court order for discovery of documents in matters relating to the case and to order the defendants to compensate the members of the group in an amount of at least NIS 220 million, of which an amount of NIS 32.51�� is attributable to Excellence Funds.

Excellence Funds is required to file its response to the motion for certification by September 13, 2015. The pretrial hearing was scheduled for December 23, 2015.

On June 25, 2015, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the Motion for Certification"), at the Beersheba District Court (jointly below: “the Claim”).
According to the plaintiffs, the Claim refers to the proper interpretation of collective and/or private healthcare insurance policies of The Phoenix Insurance, "which stipulate payment of compensation to the policyholder based on the value of Form 17 and/or the overall financial commitments of the public health fund, where the respondent, the private insurance company, did not finance the surgery and/or the medical procedure supported by Form 17 and/or the commitments of the public health fund(despite its commitment under the policy to do so). The Claim also refers to what is included in the payment of this compensation, and whether the respondent breached the contracts with the policyholders, which are the policies".

The group that the plaintiffs seek to represent is defined as all policyholders who hold healthcare insurance policies of The Phoenix Insurance, which include the option of financial compensation taking into account the value of Form 17, and were who party to an insurance event in the seven years, and alternately, in the three years preceding the disclosure of the interpretation of the Phoenix Insurance regarding the compensation components in accordance with Form 17, meaning January 30, 2013 (“the Class”). The plaintiffs estimate that the Class has at least 10,000 members.

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APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The plaintiffs estimate that the total damage for all the members of the Class amounts to at least NIS 125 million.

The main remedies sought by the plaintiffs include declaratory relief regarding a breach of the provisions of the law by The Phoenix Insurance in respect of the disputed healthcare policy (in the past) and an order requiring The Phoenix Insurance to act (in the future) in accordance with the plaintiffs' interpretation of the policies; compensation for non-pecuniary damage; payment of the full amount under the policy, in accordance with one of the two alternatives: the cost of Form 17 or half of the amount saved by The Phoenix Insurance, whichever is higher; if there was a Form 17 and/or a commitment/reference of the health fund also for the cost of the surgeon, payment of 50% of the amount of the Form and/or commitment/reference, including 50% of the VAT collected by the surgeon; a charge for special interest under section 28A of the Insurance Contract Law; an order for The Phoenix Insurance to pay compensation to the plaintiffs and their attorneys' fees.

The Phoenix Insurance has yet to file its response to the motion for certification. No date has been set for the hearing.

On July 12, 2015, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the Motion for Certification") at the Central District Court (jointly below: “the Claim”).

According to the plaintiff, The Phoenix Insurance charges management fees for managers insurances issued prior to 1991, without this being permitted by law. The plaintiff claims that The Phoenix Insurance collects various management fees (both fixed and variable), in contravention of the law, for guaranteed return insurance policies, as from 2006.

The group that the plaintiff seeks to represent is defined as all policyholders of The Phoenix Insurance holding guaranteed-return life insurance policies, with a savings component, issued up to and including 1990, for which The Phoenix Insurance (or its representative) collected management fees (“the Class”).

The plaintiff has not estimated the total damage for all members of the Class.

The main remedies sought by the plaintiff for each of the Class members include compensation and a refund of the amount of the monetary damage they incurred; to order The Phoenix Insurance to refrain from collecting management fees for guaranteed-return life insurance policies issued up to and including 1990; to order The Phoenix Insurance to provide accounts and present all information required to define the Class, its size and quantification of the damage incurred; to determine fees of the representing attorneys and special compensation to the applicant, and to order The Phoenix Insurance to cover these amounts.

The Phoenix Insurance has yet to file its response to the motion for certification. The pretrial hearing was scheduled for January 17, 2016.

On July 9, 2015, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the Motion for Certification") at the Central District Court (jointly below: “the Claim”).

According to the plaintiffs, The Phoenix Insurance failed to pay its policyholders and third parties the VAT component applicable to the cost of damages, in contravention of the law, when the damages were not corrected in practice.

The group that the plaintiffs seek to represent is defined as all policyholders and/or beneficiaries and/or third parties, of any type of insurance, for whom the damage for which they claimed was not corrected at the date the claim was filed, and who received insurance compensation and/or indemnification for the damage from the insurance company, and the insurance compensation did not include the VAT component applicable to the cost of the correction (“the Class”). The plaintiffs estimate that the general damage incurred by all the members of the Class amounts to NIS 155.8 million for seven years.

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APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The main remedies sought by the plaintiffs include to declare that the failure of The Phoenix Insurance to pay insurance compensation and/or indemnity for the VAT component applicable to the correction, when the damage was not corrected in practice, is in contravention of the law; to issue an injunction ordering The Phoenix Insurance to include the VAT component applicable to the cost of the correction in the insurance compensation, even if the damage was not corrected, and as a result, also when the policyholder or third party receives insurance compensation at "the indemnity value" and not "the reinstatement value"; to order The Phoenix Insurance to pay insurance compensation for the entire damage, including VAT; to order The Phoenix Insurance to compensate all members of the Class who filed a claim in the seven years preceding the filing of the claim and up to the date of the final judgment in this claim, by paying the VAT component at the rate applicable to the amount of the damage plus interest and linkage by law; to award special compensation to the plaintiffs and appropriate legal fees for their attorneys and to order The Phoenix Insurance to pay these amounts.

The Phoenix Insurance has yet to file its response to the motion for certification. The pretrial hearing was scheduled for February 8, 2016.

At this stage, it is unclear whether the claim will be heard in its current form, as the representative plaintiff filed an individual claim against the Phoenix Insurance, including for the VAT component, and alongside the motion for certification, the plaintiff requested that the court hears the individual claim to allow him to delete the VAT component from the individual claim and to file a motion for certification as a class action for the VAT component. The court has not yet handed down a ruling on the individual claim.

On July 28, 2015, a claim was filed against The Phoenix Insurance and Poalim Mortgage Insurance Agency (2005) Ltd. ("the Defendants") together with a motion for certification as a class action ("the Motion for Certification"), at the Central-Lod District Court (jointly below: “the Claim”).

According to the plaintiffs, the defendants chose to implement substantial amendments in the policy for building insurance related to mortgages, which are usually renewed each year for another year (until the end of the loan period). The main amendments are as follows: to increase the insurance cover by 25%, consequently raising the monthly premium (insurance fee) by a significant rate of 20%, without informing the policyholders of the amendments to the policy and without their approval and consent (neither before nor after implementation of the amendments). These changes include a significant increase in insurance premiums.

The group that the plaintiffs seek to represent is defined as all customers of the defendants who purchased an insurance policy for a building, and after some time and/or after automatic renewal (of the policy) the defendants implemented significant amendments to the terms of the policy, thus increasing the premium by a significant rate, without informing their customers, in contravention of the provisions of the relevant law, in the seven years preceding the filing of the motion and up to the date the claim is heard (“the Class”).

The plaintiffs estimate that the total damages for all members of the Class amount to NIS 25 million (for pecuniary damage amounting to NIS 24 million and for non-pecuniary damage amounting to NIS 1 million).

The main remedies sought by the plaintiffs include to issue a declaratory order under which the defendants violated the provisions of the Control Law and other provisions of the law set out in the claim, and violated the provisions in the circulars of the Commissioner of Insurance; to order the defendants to refund the entire difference between the premium paid prior to its renewal and the premium collected subsequent to its renewal, plus compensation for distress they incurred, and plus interest and linkage differences; to order the defendants to refrain from their conduct as described in the claim; to order the defendants to pay the plaintiffs appropriate and fair compensation and to pay legal fees to the plaintiffs' attorneys.

The Phoenix Insurance has yet to file its response to the motion for certification. The pretrial hearing was scheduled for January 24, 2016.

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APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

B. Closed claims

On January 3, 2008, a claim was filed against The Phoenix Insurance and against other insurance companies ("the Defendants") together with a motion for certification as a class action ("the Motion for Certification") at the Tel Aviv-Jaffa District Court.
The plaintiffs contend that the Defendants collected management fees in profit-participating life insurance policies in contravention of the provisions of Regulation 6A to the Insurance Businesses Control Regulations (Terms in Insurance Contracts), 1981 (“The Control Regulations”) and contrary to the instructions of the Insurance Commissioner.

As contended, the Defendants acted in contravention of the law in two aspects (or at least in one of them):

A. They collected regular monthly management fees exceeding 0.05% until 2004 (inclusive), apart from 2002.
B. They collected the variable fees monthly and not at the end of the year, thus allegedly depriving the policyholders of the proceeds for the variable management fees, collected throughout the year.

The lawsuit against Phoenix Insurance refers only to the second argument set out above. The group that the plaintiffs seek to represent any person who is or was insured by one or more of the defendants, under a combined profit-participating life assurance policy type, issued between 1992 and 2003 (inclusive).

The total damage incurred as argued by the entire group was estimated by the plaintiffs at a nominal amount of about NIS 244 million of which the plaintiffs attribute NIS 40 million to The Phoenix Insurance. The remedies sought by the plaintiffs include to order the reimbursement of the excess management fees that were allegedly collected unlawfully, or the reimbursement of the monthly proceeds allegedly lost by each member of the group. The plaintiffs also move for a mandatory injunction that will instruct the plaintiffs to change their mode of operation.

The Phoenix Insurance has yet to file its response to the motion for certification.

On August 10, 2011, the other defendant insurance companies filed their response to the motion for certification (after the plaintiffs withdrew by consent the motion for certification against two of the companies). In a pre-trial hearing held on September 18, 2011, the court recommended that the parties reach a settlement to close the case.

On June 30, 2013, a petition to approve the settlement agreement and the settlement agreement in the class action was filed at the Court The settlement agreement establishes a mechanism for reimbursing class members holding the policies of The Phoenix Insurance listed in the settlement, and for which The Phoenix Insurance collected variable management fees, in the relevant period beginning on January 3, 2001 and ending on January 1, 2006 (when The Phoenix Insurance, at its own initiative, changed the mechanism for collecting variable management fees).

Legal fees and compensation to the applicant of the motion for certification will also be paid in a total amount of 15%, and it was proposed that half of this amount will be at the expense of the class. The reimbursed amounts are subject to the review of the officer appointed under the settlement agreement and to a minimum amount undertaken by Phoenix Insurance. On August 12, 2013, the parties submitted a revised settlement agreement for the approval of the Court, in view of the comments regarding the settlement agreement and its wording in a hearing held on July 15, 2013. On September 1, 2013, the Court ordered publication of the settlement agreement and appointed an officer to review the settlement. On August 3, 2014, the auditor filed his opinion with the court.

On October 20, 2014, the Attorney General filed an objection to the settlement agreement. On November 9, 2014, The Phoenix Insurance submitted its response to the position of the Attorney General.

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APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On March 18, 2015, the Tel Aviv-Jaffa District Court approved the amended settlement agreement. In accordance with the settlement agreement, The Phoenix Insurance will refund an amount of NIS 7.8 million to the group of plaintiffs (as defined in the settlement) (this amount was examined by the court-appointed reviewer, and includes linkage and interest differences as of May 1, 2013 in accordance with the settlement, and this amount will be added to the linkage and interest differences from that date until the actual payment date). In addition, The Phoenix Insurance will cover legal fees and compensation to the applicant of the motion for certification. The Phoenix Insurance is taking steps to implement the settlement.

On October 19, 2004, a claim was filed against Hadar Insurance Company Ltd., whose businesses were merged with the businesses of The Phoenix Insurance together with a motion for certification as a class action ("the Motion for Certification"), at the Tel Aviv-Jaffa District Court.

The group that the plaintiffs sought to represent is any person and/or other legal entity that purchased insurance and/or an insurance contract from the insurance company, over seven years or alternatively the three years preceding the date of the motion for certification, for a private and/or commercial and/or motorized vehicle, for any insurance period, and an insurance event occurred in the insurance period where the vehicle was declared a total loss, and for that insurance event, an insurance and/or financial liability of the insurance company was established and the insurance company did not pay that person and/or legal entity the full insurance benefits and/or the full value of the vehicle at the time of the insurance event and/or did not replace the vehicle with a similar vehicle. The plaintiffs estimate that the class action suit amounts to NIS 41.2 million. The Phoenix Insurance filed its response to the motion for certification. On January 14, 2010, the district court ruling accepted the motion for certification of a class action suit ("the Certification Ruling"). In the Certification Ruling, the court ordered that the class action group includes holders of private vehicle insurance policies (property damage and third-party property damage) acquired from the defendant, effective from January 1, 2001, and in the insurance period, an insurance event occurred which caused damage defined as a "total loss" to the insured vehicle, or the insurance company referred to the damage as a "total loss".

The court ruled that the group will be defined at the date the motion for certification was filed, meaning October 19, 2004. The court set the identity of the representing plaintiff leading the group to be Mr. Ben Ami and ruled that the class action was certified on the grounds of misleading information or non-disclosure.

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APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On October 5, 2010, the parties filed a motion (with consent) with the district court to approve the settlement. The court dismissed this motion.

On April 30, 2012, the Commissioner of Insurance published a draft decision concerning "systematic return for violation of Insurance Circular 2000/12", including in the matter of this procedure.

On February 7, 2013, the Attorney General announced that the Commissioner of Insurance had decided not to order systematic return for violation of the Commissioner's circular. Following this announcement, the parties consented to mediation (including the Attorney General).

On April 13, 2014 a motion was filed with the District Court for approval of the settlement between the parties, following prolonged mediation proceedings before the Honorable Former Chief Justice, M. Shemgar, in which the Attorney General took part. The highlights of the settlement agreement accepted by the Attorney General included monetary compensation for each of the members of the group, as defined in the settlement. In accordance with the settlement, The Phoenix Insurance will pay an amount of NIS 6 million which will be shared pari-passu among the members of the group according to the specific rate of deduction made for each member of the group.

If each member of the group, whose particulars are known to the parties, respond to the inquiry addressed to them, them each member of the group will receive approximately 85% of the real value of the specific deductions from the insurance proceeds for the specific insurance event due to special variables.

This rate could increase if not all the members of the group, as aforesaid, respond to the query, or decrease if it becomes apparent that there are additional members to the foregoing group. In addition, under the settlement agreement, The Phoenix Insurance will pay compensation to the plaintiffs and will pay their attorney fees.

If any funds remain that are not distributed to members of the group as defined in the settlement, the funds will be given as a donation through the Round-up Organization.

On April 29, 2014, the District Court approved the settlement agreement and ordered publication of notices and gave orders as required under the settlement agreement. The Court further ordered that if the conditions are established for handing down a ruling, the parties will file appropriate application.

On April 21, 2015, The Phoenix Insurance filed an updated notice and motion with the court, on behalf of the parties, with a description of the continued implementation of the settlement agreement, together with an application to give the settlement agreement the force of a judgment.

On April 26, 2015, the district court gave the settlement agreement the force of a judgment and the Company began to implement the settlement agreement.

On July 8, 2014, a claim was filed against The Phoenix Insurance and the St. George's Orthodox Council and the Municipality of Ramla (jointly below with The Phoenix Insurance: "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification") at the Central District Court (jointly below" “the Claim”).

According to the plaintiff, this Claim refers to alleged discrimination against many school pupils in Israel in general and against the plaintiff in particular, as the defendants, either jointly or severally, acted contrary to the directives of the Director General of the Ministry of Education when instead of insuring them under a under a minimum binding policy of the Company for maintenance support, they insured the pupils under a general personal accidents policy that does not provide cover for a pupil's confinement at home and/or hospital.

The plaintiff argues that the Defendants, whether jointly and severally, collected the full premium due to them by law, and in the occurrence of the insurance event The Phoenix Insurance deprived and deprives all its policyholders of their rights by not paying them the full compensation they are entitled to.

— 379 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The group that the plaintiff sought to represent consists of any pupil who studied at St. George's Orthodox Council, every eligible pupil who studied at a school within the Ramla municipal area and every pupil who studied and has not yet reached the age of 21 and/or three years have not passed since the entitling event and who was insured with The Phoenix Insurance under a personal accident policy and who suffered temporary disability resulting in absence from the school for a minimum of 21 days, and who did not receive any compensation for those days (“the Class”).

The plaintiff estimates the total damage for all the members of the Class, at minimal assessment, to be NIS 60 million.

The main remedies sought by the plaintiff are, among other things, refund and compensation for each member of the group for the payment difference subtracted and/or denied them; to issue an injunction against the Defendants ordering them to provide the plaintiff with all the information and/or a copy of the documents requested for clarifying and quantifying the claimed damages; to set the plaintiff's legal fees and to grant the plaintiff special compensation. On February 23, 2015, The Phoenix Insurance and the Council filed their responses to the motion for certification. Following negotiations between the parties, on May 14, 2015, the parties filed a joint motion for withdrawal from the motion for certification ("the Motion for Withdrawal"), in which the plaintiff and his counsel will be paid NIS 47,500, of which The Phoenix Insurance will pay NIS 10,000. On May 17, 2015, the Court ruled that the motion for withdrawal will be heard at the pretrial hearing scheduled on May 25, 2015. In the hearing held on May 25, 2015, the Court approved the motion for withdrawal and dismissed the motion for certification.

On June 19, 2000, a claim was filed against Discount Mortgage Bank Ltd. (“The Phoenix Insurance”) (jointly below: "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification"), at the Tel Aviv-Jaffa District Court.

The plaintiffs obtained from the Bank loans for the purpose of purchasing residential apartments secured by a mortgage, and in the context of this loan the Bank required them to purchase homeowners insurance policies for their apartments from The Phoenix Insurance. According to the plaintiffs, the initial insurance established for their apartments was higher than the appropriate insurable value of the apartments, and in December 1993 and December 1994, the insurance amounts for their apartments were increased, with no justification and on no reasonable grounds. Therefore, the plaintiffs claim they have paid excessive insurance premiums over the years. The plaintiffs estimated the amount of the class action (as of June 2000) at NIS 105 million.

The remedies sought by the plaintiffs include submission of all the relevant information in order to respond to the plaintiffs' damage; compensation of the group members for the damages described in the claim; alternatively, declaratory relief that the Defendants collected excessive premiums from the group members, and therefore they are entitled to reimbursement of the excessive moneys that were paid, according to the alleged principles of calculation in the claim; alternatively, declaration of the group's right to reimbursement of 20% of the insurance premium paid for the period as from December 1993, 38% for the period as from December 1994, and 15% for group members who took out a mortgage subsequent to December 1993 and prior to December 1994.

The group that plaintiffs sought to represent is any person who took and/or paid a mortgage to Discount Bank and was insured through the Phoenix Insurance, at any time, provided that the repayment period of the payments or part thereof applied in the period to which the claim relates, meaning December 1993 and up to the date that the motion for certification was filed, whether the mortgage was taken to acquire an asset that serves as an apartment or as a real estate asset that is not an apartment.

In September 2000, the bank and The Phoenix Insurance filed responses.

— 380 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On August 6, 2012, a claim was filed against The Phoenix Insurance and against other insurance companies "the Defendants"), together with a motion for certification of a class action ("the Motion for Certification") at the Central District Court.

This claim refers to management fees collected by the defendants from the premium in life insurance policies combined with savings that were issued from the beginning of 2004, for selfemployed and for employees, and therefore are recognized as provident funds by law and called "insurance funds", as well as those for individuals, called "individual policies"("the Policies").

The plaintiffs contend that the collection of management fees by the defendants as a percentage of the premium paid by the policyholders ("the Management Fees from the Premium") are allegedly collected in contravention of the law and any such collection is invalid and these management fees should be returned to the policyholders. The plaintiffs further contend that the maximum management fees than can be charged are 1% of the value of the investment portfolio and that any management fees that exceed this percentage should be returned to policyholders in accordance with the Control of Financial Services Regulations (Insurance) (Terms of an Insurance Contract), 1981.

The plaintiffs also contend that the Commissioner of Insurance had the authority to approve management fees of up to 2% of the value of the investment portfolio in specific cases, and that the Commissioner had exceeded his authority when permitting a sweeping charge of 2%. Alternatively, the plaintiffs contend that in any case, even if collection of management fees from the premium is permitted and even if it is sweepingly permitted to collect the full 2% from the value of the investment portfolio, they claim that the defendants collect management fees from the premium in relation to the total premium paid by the policyholder, including the management fees themselves, and management fees are collected from the premium also in respect of payments of risk premiums that are not intended for savings, therefore the excess premium should be returned to the policyholders.

The group that the plaintiffs sought to represent is anyone who is or was insured by one or more of the defendants in a life insurance policy that is combined with savings, issued from the beginning of 2004, including a risk policy that was presented as a policy combined with savings, for active policies as well as for settled or redeemed policies.

The plaintiffs estimate that the damage to the group members amounts to a total nominal amount of NIS 570 million (for collection of management fees from the premium) or alternatively, NIS 65 million (for collection of management fees in respect of the management fees) and alternatively, NIS 132 million (for collection of management fees in respect of risk coverage), all in accordance with the contentions of the plaintiffs.

— 381 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

In another pretrial hearing held on May 11, 2015, the Attorney General and representatives of the Commissioner of Insurance presented their position orally, according to which the defendants acted in compliance with the law, since the Commissioner of Insurance had defined the method for collecting management fees by the defendants by virtue of her authority, and that they see no grounds for the motion for certification.

In view of the position of the Commissioner of Insurance, the court ordered the plaintiffs' attorneys to advise, by June 3, 2015, whether they insist on continuing the hearing of the case. On June 29, 2015, the parties filed a motion with the court for consent to withdraw from the motion for certification as a class action.

On July 2, 2015, the Court accepted the motion for withdrawal and ordered that the claim be struck out and the individual claims dismissed, without an order for expenses.

Further to the plaintiff's request to amend a clerical error in the ruling, on July 9, 2015, the court ordered the amendment of the ruling, such that the individual claims of the plaintiffs will be deleted and not dismissed.

On September 8, 2014, a claim was filed against The Phoenix Insurance, together with a motion for certification as a class action ("the Motion for Certification") at the Tel Aviv-Jaffa District Court (“the Claim”).

According to the plaintiffs, the issue of the Claim is that where the amount of dental treatment does not reach the maximum amount set in its collective policy for dental insurance, The Phoenix Insurance rounds the amount downwards only. Thus, The Phoenix Insurance avoids paying its policyholders these tens of agurot when the amounts are always rounded down. The group that the plaintiffs sought to represent is, all holders of The Phoenix Insurance collective dental care policy who were underpaid for the insurance compensation due to them because The Phoenix Insurance chose to deduct tens of agurot from the amount it was supposed to refund them, according to the provisions of the policy (“the Class”).

The plaintiffs estimate the total damages for all the members of the Class, to be NIS 2.6 million, and with the addition of linkage differences and interest (for half the period) is NIS 2.9 million.

The main remedies sought by the plaintiffs include: to order The Phoenix Insurance to refund to the members of the Class in full the amounts that have not yet been refunded to them and all with the addition of due interest and linkage; to order The Phoenix Insurance to cease its unlawful practice; to prescribe a control mechanism for monitoring actual refunds and that will ensure that the compensation paid by The Phoenix Insurance is the amount actually paid by the policyholder; to order The Phoenix Insurance to compensate the plaintiffs and to pay their attorney fees.

On June 1, 2015, the Tel Aviv-Jaffa District Court approved the motion for withdrawal from the motion for certification as a class action, which was filed by the parties on May 31, 2015 and deleted the motion for certification.

— 382 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On July 15, 2009, a motion for certification as a class action suit was filed at the Tel Aviv district court against Excellence Nessuah Investments Management Ltd. (“Excellence Investments") (a subsidiary of Excellence) and against Epsilon Investment House Ltd. (“the Claim”). The plaintiffs estimate that the amount of the Claim is NIS 27 million.

The Claim was filed by several plaintiffs who contend, among other things, to be the heirs of a customer whose investment portfolio was managed by Excellence Investments until November 2007 and/or who had power of attorney for her account during the portfolio management period. The main allegations against Excellence Investments are that during the management period of the customer’s portfolio, Excellence Investments collected fees from the customer that exceeded those due to the bank for transactions in her account, while receiving some of these fees from the banks as “commission refunds”. The plaintiffs claim that these commission refunds were made through improper disclosure to the customer and were in violation of the provisions of various laws. On November 4, 2010, the settlement agreement between Epsilon and the plaintiffs was approved and it was given the validity of a judgment.

On April 4, 2011 the court certified the claim as a class action on the basis of two grounds: breach of statutory duty and unjust enrichment. The other allegations and grounds in the motion were dismissed.

Excellence Investments filed an appeal by right at the Supreme Court against the judgment of the District Court, alongside a motion to postpone implementation of the judgment in all matters relating to reimbursement of funds to the group members. On February 5, 2014, the Supreme Court ordered temporary stay of the judgment, until another decision is made after receiving the plaintiffs' position. On March 23, 2014, the Supreme Court ordered a stay of execution of the ruling until a ruling is handed on the appeal, against bank guarantee in the amount of NIS 5.8 million. Excellence Investments deposited the guarantee on April 8, 2014.

On March 13, 2014, The Phoenix Insurance informed the district court of the Supreme Court ruling: (A) to dismiss the claim on the grounds of breach of statutory duty; (B) compensation for the representative plaintiff and his legal fees will be paid out of the moneys due to the members of the plaintiff group; (C) the class action is not approved on the grounds of bad faith, negligence, misrepresentation and fraud. When filing the counter-appeal, the representative plaintiffs were required to deposit NIS 40,000 as collateral for the Company's expenses in the counter-appeal, which they deposited in the court reserve.

In the hearing of the appeal and the counter-appeal held on July 9, 2015, Excellence Investment Management and the representative plaintiffs accepted the recommendation of the Supreme Court, and agreed to the dismissal of the appeal and counter-appeal without expenses. The temporary order of stay of execution of the ruling until a ruling on the appeal is handed down has expired, therefore Excellence Investment Management is required to take steps to execute the ruling in accordance with the ruling and the timetables set out therein.

— 383 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

C. Legal proceedings

Below is a description of legal and other proceedings against the Company and/or the subsidiaries. A provision was not included in the financial statements for proceedings that management believes, based in part on legal opinion, are more likely than not that the Company's statement of defense will be accepted and the proceeding will be dismissed. In cases where it is more likely than not that all or part of the Company's defense will be dismissed, a provision was included in the financial statements to cover the exposure estimated by the Company and/or by the subsidiaries. Management believes that, based partially on the opinion of its legal counsel, the provisions made in the financial statements to cover the exposure estimated by the Company and/or its subsidiaries are appropriate.

The Phoenix Insurance and Carmel Insurance Agency ("the Agency") are in arbitration based on four issues, the main one being payment of fees and compensation for sales of insurance policies in the past. At the same time, there is a debt of the Agency to The Phoenix Insurance, for an unpaid loan. The Phoenix Insurance intends to offset this debt from any amount that may be ruled in favor of the Agency.

The proceedings for all the issues amount to NIS 41.3 million. The parties delayed the arbitration proceedings and referred the dispute to mediation. The mediation is currently underway.

On August 31, 2010, a claim was filed against Excellence Tzmicha Securities and Investments Ltd. (a subsidiary of Excellence), Gil Zvi Deutsch, Aaron Biram, and Excellence Nessuah Financial Products Ltd. ("Excellence Products"), in the amount of NIS 15 million at the Tel Aviv District Court, by Jacob Harpaz and Alpha Bull Ltd.

Until 2008, the plaintiff served as CEO of Excellence Products, and until 2007, he was a shareholder of Excellence Products, a subsidiary of Excellence.

On May 26, 2014 the defendants filed their affidavits of evidence in chief and on June 9, 2014 they filed an expert opinion.

The Court did permit the plaintiffs to revise their statement of claim by reducing the amount of the claim, and accordingly the defendants filed a motion to revise their statement of claim by reducing the amount of the claim to NIS 10 million. The defendants announced that they retain all their allegations on the matter.

Subsequently, the case was transferred to another judge and dates for hearing the parties' evidence were scheduled for September 21, 2015, and October 11, 18, 25, 26 and 28, 2015.

On March 31, 2011, Excellence Zmicha Securities and Investments Ltd. and Excellence Nessuah Financial Products Ltd. were served with a summary judgment in the amount of NIS 3.1 million plus interest and linkage differences, filed by Alpha Bull Ltd. (the plaintiff in section 2 above). The plaintiff claims that the defendants should pay the amount of the claim , which constitutes one third of the amount set aside by the parties in accordance with the share sale agreement between the parties. On June 23, 2011, leave to file a defense was filed on behalf of the defendants.

On April 3, 2013, these cases were heard and the court ruled to combine both cases and continue consolidated proceedings.

On October 15, 2013, the plaintiffs filed their affidavits of evidence in chief and an expert opinion. On May 26, 2014 the defendants filed their affidavits of evidence in chief and on June 9, 2014 they filed an expert opinion. Subsequently, the case was transferred to another judge and dates for hearing the parties' evidence were scheduled for September 21, 2015, and October 11, 18, 25, 26 and 28, 2015.

— 384 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

The shareholders Reit Management, who also serve as officers in Reit 1 Ltd., filed a claim with Excellence for retroactive payment from Reit Management, amounting to NIS 18 million for salary differences, management fees and other costs that they contend are due to them.

Excellence believes that these demands have no basis in the agreements between the parties, and the method of their calculation and amounts is unclear. Accordingly, Excellence notified them that it informed them that it dismisses their claims in full. During the fourth quarter of 2014, the parties transferred their dispute for arbitration before an agreed arbitrator. The statement of defense in the arbitration proceedings was filed on April 9, 2014.

The parties filed affidavits of evidence in chief and on July 27, 2014 an arbitration hearing was held to hear the plaintiffs' evidence. Evidentiary hearings for hearing the defendants' evidence were held on October 30, 2014, and on February 1, 2015, the defendants filed their summations. On May 20, 2015, the plaintiffs filed statements in reply and on June 30, 2015, an arbitration meeting was held in which the parties completed their arguments orally.

On February 5, 2014, a derivative claim was filed at the Tel Aviv District Court (Economic Division) against the Phoenix Insurance (“the Defendant”) (“the Claim”).

The Claim was also filed against Clalit Health Services (Ottoman Society) ("Clalit") and against four other insurance companies (together with the Defendant: (“the Defendants”). Together with the Claim, the plaintiff filed a motion for certification of a derivative claim against the Defendants. ("Motion for Certification on the Matter of Clalit").

On March 23, 2014, a derivative claim was filed with the Tel Aviv District Court Economic Division against the Phoenix Insurance and against Maccabi Healthcare Services (Ottoman Society) ("Maccabi") Together with the Claim, the plaintiff filed a motion for certification of a derivative claim against the Defendants. ("Motion for Certification on the Matter of Maccabi"; jointly below: "the Motions for Certification").

The claims refer to the failure of Clalit and Maccabi ("the Health Funds") to exhaust and exercise their right of participation by law towards the insurance companies for expenses incurred as part of the additional healthcare service plans (the healthcare basket). According to the plaintiff, the right of the Health Funds to participate against the insurance companies is due to overlapping liabilities between the healthcare basket and commercial healthcare insurance policies sold by insurance companies, and arises from a general principle with wide application of the law, common to all branches of liability laws, and by virtue of the provisions of section 56 of the Contracts Law (General Part), 1973, section 59 of the Insurance Contract Law, 1981 and enrichment laws.

The plaintiffs contend that a member of an Ottoman Association is entitled to file a derivative action in its name, as a shareholder is entitled to file derivative action in the name of the company. The plaintiffs further claim that they first applied to the Health Funds, but that their applications were denied and that their claims and proceedings are to the benefit of the Health Funds.

The remedy claimed is to order each of the defendants to pay the Health Funds at least half of the payments they incurred to cover their expenses in the healthcare basket plans, both for the surgery and selection of the surgeon in Israel, and for medical consultation, in the seven years before the claim was filed, in cases when the policyholders of the Health Funds have commercial healthcare insurance for these components.

Under the motion for certification in the matter of Clalit, the damage claimed against all the insurance companies is estimated at NIS 1 billion plus interest and linkage differences. Under the motion for certification in the matter of Maccabi, the damage claimed against all the insurance companies is estimated at NIS 800 million plus interest and linkage differences.

— 385 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On August 17, 2014, the plaintiffs filed for leave to revise the motion for certification as a class action and the defendants filed their responses to this motion. On October 28, 2014 the Court permitted the leave to revise ("Ruling on Leave to Revise"). Pursuant to the leave to revise and the ruling therein, the motions for certification in the matter of Clalit and Maccabi were consolidated and filed as one consolidated document, new grounds were added to the motion for certification with regard to the right of participation available to the health funds for surgeries carried out by them as part of the basic basket, due to overlapping liabilities in the policies of the defendant insurance companies, and an expert opinion was attached to the motion for certification that refers to the appropriate participation rate of the defendant insurance companies in the expenses of the health funds in the healthcare basket plans. The amounts claimed were also updated for surgeries carried out as part of the basic basket and for the overlapping items in the healthcare basket plans and the commercial insurances (surgeries and medical consultation). With respect to Clalit, the defendants estimate that the damages claimed against all the defendant insurance companies amount to NIS 3.5 billion; and with respect to Maccabi, the defendants estimate that the damages claimed against all the defendant insurance companies amount to NIS 1.7 billion.

Pursuant to the Ruling in the Leave to Revise, it was decided that each of the defendants would bear plaintiff expenses of NIS 5,000 (and jointly NIS 10,000) to be divided equally among the defendants.

On November 24, 2014, the plaintiffs filed the revised motion that includes the amendments requested in the leave to revise and which were approved, as aforesaid.

On February 19, 2015, The Phoenix Insurance filed its response to the amended motion for certification. On February 19, 2015, Clalit filed its response to the amended motion for certification and on February 20, 2015, Maccabi filed its response to the amended motion for certification. On April 1, 2015, the plaintiffs filed a motion for an order for discovery and inspection of documents ("the Motion for Discovery"). On April 22, 2015, The Phoenix Insurance and the health funds submitted their responses (objections) to the Motion for Discovery and on April 28, 2015, the plaintiffs submitted their responses to the defendants' responses to this motion.

On April 19, 2015, the plaintiffs filed their responses to the defendants' response to the motion for certification ("the Statement of Response”). On May 7, 2015, The Phoenix Insurance filed a motion to dismiss the Statement of Response or, alternatively, to delete some items and appendixes ("the Motion to Dismiss"). On May 12, 2015, the plaintiffs filed their response to the Motion to Dismiss and on May 13, 2015, The Phoenix Insurance filed its response to the plaintiffs' Motion to Dismiss. On June 11, 2015 the Court ruled that a member of an Ottoman association may file a motion for certification of a derivative action on behalf of the association. In a hearing on July 14, 2015, the court stated that it will request the position of the Attorney General on the issues raised in the motion for certification, with reference to the position of the Ministry of Finance, the Commissioner of Insurance, and the Ministry of Health. It was determined that the Attorney General will submit his position by November 1, 2015. Another hearing for the case was scheduled on December 6, 2015 and evidentiary hearings were scheduled on February 3 and 4, 2016.

— 386 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

On September 29, 2014 originating motion proceedings were opened with the Tel Aviv District Court (Economic Department) against Excellence Mutual Funds Ltd. ("Excellence Funds") and others under which AY Spector Ltd. ("Spector") petitioned the Court to order that the vote of Excellence Funds, by virtue of its holdings in its managed funds, against approval of a bonus earmarked for Spector, which is controlled by Yehiel Spector, the indirect controlling shareholder of Spectronix Ltd., be counted in the general meeting of the shareholders of Spectronix on July 22, 2014. The claims against Excellence Funds include that arbitrary voting against approval of the bonus constitutes an act contrary to the duty of justice prescribed in section 193(A)(2) of the Companies Law. The originating motion is for declaratory relief and does not include monetary relief. On January 14, 2015 the Securities Authority filed a response in the proceedings under which it notes that, after reviewing the originating motion and the responses of the respondents to the originating motion, it does not deem fit to file a response on its behalf in the proceeding. On January 21, 2015, the applicant in the proceeding filed a rebuttal to the responses of the respondents, under which it reiterated its position as presented in the primary proceedings and that it rejects the respondents' arguments in their responses. On February 17, 2015, the pretrial hearing was held and an evidentiary hearing was scheduled for July 13, 2015 On March 1, 2015, Spector informed the court that Spectronix Ltd. will convene another shareholders meeting to discuss the bonus underlying the claim and that following the general meeting of its shareholders, Spectronix Ltd. will inform the court of the results of the general meeting. Excellence Funds filed a response to this notice and dismissed the factual description in the notice.

At the shareholders meeting held on April 2, 2015, it was resolved to grant the bonus. On April 15, 2015, the plaintiff appealed to the Court and announced that requests a discussion in principle on questions arising from the case despite the fact that it appears that the discussion has become redundant in view of the resolution of the general meeting. Excellence Funds filed a response to the plaintiff's motion, and sought to dismiss the motion, or alternatively for dismissal in limine.

On May 17, 2015, the court ruled to dismiss the case since the relief requested in the claim is no longer required.

In March 2015, a subsidiary of Excellence (Excellence Nessuah Provident Ltd., below in this section: "Excellence Provident") received a letter from the Accountant General in the Ministry of Finance, further to the audit carried out on behalf of the Accountant General in 2013. In accordance with the audit findings, the provident fund allegedly did not act in accordance with the directives of the Ministry of Finance as described in the letter to the CEO of the provident fund at that time from May 31, 1988, the main points of which are as follows:
A. Self-employed members, who increase their deposits beyond the permitted amounts that were established are not eligible for a guaranteed return beyond the permitted amount.
B. A member who is more than three months behind in payments to the fund cannot continue to receive a guaranteed return on new deposits. In addition, the fund may not waive arrears.

In accordance with the aforesaid, Excellence Provident is required to perform calculations for these members to allow the Accountant General to estimate the deposit rate of the fund in the Ministry of Finance. In addition, the Ministry of Finance established that the fund is required to refund the entire amounts of the guaranteed return paid by the Ministry for the deposits that were allegedly in excess, taking into account the alternative interest of Ministry.

The former fund manager - Mizrahi Tefahot Bank Ltd. ("the Bank"), which managed the fund when the letter was issued in 1988, stated that it managed the fund in accordance with the provisions of the fund regulations as approved by the Capital Market from time to time, and that to the best of its knowledge, it did not receive the letter of 1988, and that it was unaware of the letter or its provisions.

— 387 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

Since for most of the audit period, the fund was managed by the Bank, most of the information required for the calculations is not available to Excellence Provident but to the Bank which received a copy of the Accountant General's letter, with a request for cooperation, and therefore Excellence Provident cannot estimate, at this stage, the amounts that it may be required to return to the Ministry of Finance (if required).

Excellence believes, based on the opinion of its legal counsel in accordance with the agreed boundaries of responsibilities established in the sales agreement between Excellence and the Bank that managed the fund until the date of acquisition of management rights of the provident fund in March 2007 ("The Transfer Date of the Activity"), that any amounts that may be required to refund to the Accountant General and other parties are the Bank's responsibility as established in the agreements between the parties.

The Company and/or its subsidiaries are party to other legal proceedings and non-insurance claims, filed by customers, former customers, agents and various third parties, in amounts that are not material, in a total aggregate amount of NIS 11.5 million. There are various grounds for the claim against the Company and/or the subsidiaries in these proceedings.

D. Other proceedings

In August 2013, a ruling in principle was issued ("the Ruling") regarding the increase of management fees without notice. In accordance with the Ruling, a number of management companies did not inform their members of their intent to increase management fees as required in legislation. In the Ruling, the Commissioner ordered the provident fund management companies to refund to the members who were not informed of the increase in management fees in accordance with the statutory arrangement, the management fees that were overcharged for the period starting on January 1, 2006 and ending on December 31, 2009 ("the Refund Period").

The financial statements of the managed companies include provision with regard to the Ruling, based on the information known to the Company as of the date of this report.

The Phoenix Insurance and the Commissioner discussed a draft ruling that refers to one-time deposits by policyholders received subsequent to 1991, in guaranteed return policies ("the Policies"). In accordance with the draft, The Phoenix Insurance is required to take certain steps in relation to policyholders whose actual return on one-time deposits, which carried the returns of the profitsharing portfolio, was equal to or exceeded the guaranteed return in the policies, and certain steps in relation to policyholders whose actual return on one-time deposits was lower than the guaranteed return. Accordingly, at this stage, since the Commissioner has yet to reach a decision regarding the draft and since the final wording is unknown, The Phoenix Insurance is unable to assess the implications and extent of its effect on The Phoenix Insurance, if it is published.

— 388 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

In November 2013, the Tel Aviv District Attorney (Taxation and Economics) ("the District Attorney") filed an indictment against two insurance agents, who had a business relationship with The Phoenix Insurance, and against The Phoenix Insurance, the former CFO, the legal counsel, and a division manager in the Phoenix Insurance for various offenses under the Penal Law, 1977.

The indictment refers to the period between five and eight years ago, and is mainly about the tax liability of insurance agents: the District Attorney claims that The Phoenix Insurance should have deducted tax at source for this liability.

The Phoenix Insurance and its organs deny the offenses attributed to them and believe that they will be acquitted of the charges against them. On September 17, 2014, the prosecution stage in the case opened and evidentiary hearings were tentatively scheduled until the end of December 2015.

For further information see the Company's report of November 25, 2013, ref. 2013-01-202041, the Company's report of March 27, 2014, ref. 2014-01-027861 and Note 22C(2) to the 2014 Annual Financial Statements in the matter of the disputed tax assessments for 2007-2009 against The Phoenix Insurance.

From time to time, complaints are filed against the Group, including complaints to the Commissioner of the Capital Market, Insurance and Savings Division of the Ministry of Finance ("the Commissioner"), for rights of policyholders according to insurance policies and/or the law. These complaints are handled routinely by the Group's public complaints department. The Commissioner’s decisions on these complaints, if and insofar as a decision has been made, are sometimes across the board decisions relating to a group of policyholders. Prior to issuing a final version of the decisions, the Commissioner usually issues a draft decision.

In addition to the motions for certification of class actions filed against the Group and the legal and other proceedings, there is a general exposure which cannot be estimated and/or quantified, partially due to the complexity of the services provided by the Group to its policyholders. The complexity of these services includes a potential for interpretation and other claims arising from differences in information between the Group and the third parties to the insurance contracts that refer to a wide range of commercial and regulatory conditions. This exposure is reflected in the Group's pension savings and long-term insurance operations. In these areas, the policies are managed over the years in which there are changes in policies, regulations and legal trends, including court rulings. These changes are made by EDP systems that undergo frequent changes and adaptations. The complexity of these changes and application of change with respect to many years, creates increased operating exposure. In addition, receipt of a new interpretation to insurance policies and long term pension products may, at times, affect the Group's future profitability with respect to the existing portfolio, in addition to the exposure involved in the demands to compensate customers for past activities. It is impossible to anticipate the types of claims that will arise in this area, and the exposure arising from these and other claims in respect of the insurance contracts, through the procedural mechanism set out in the Class Actions Law.

— 389 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

In addition, the Commissioner of Insurance is taking steps to outline principles for insurance plans, and in this context, on July 10, 2013, a position paper was issued with a list of guiding principles and guidelines designed to guide the insurer when preparing an insurance plan, so that it does not include discriminatory conditions, and it will be simple and clear. This list of principles includes a list of unacceptable practices that are presumed to be discriminatory and should not be included in an insurance plan and acceptable practices that should be included in insurance plans. In April 2015, a revised position paper was published on this subject, which will come into effect in June 2015 and will supersede the earlier position paper. Further to the above position paper, in April 2015, the Commissioner of Insurance issued a circular of guidelines for preparation of insurance plans, which includes a list of guidelines that should be included in the insurance plan and guidelines that should not be included. It is not possible to foresee whether and to what extent the insurers are exposed to claims regarding the interpretation in insurance plans, and the appropriate application of the principles and practices, which might arise, partially, through hearing mechanisms set out in the Class Actions Law.

In addition, some of the Company's products are characterized by a long useful life and high complexity, especially in view of the various legislative arrangements for product management and taxation, attribution of deposits, investment management, the policyholder's employment status, and deposit payments. The Company regularly upgrades its database and its operational systems, and includes provisions as required.

As part of regulatory changes and legal directions, in December 2011, Circular 2011-9-10 was issued for institutional entities referring to improvement of information about members rights in institutional entities. This circular was replaced with Circular 2012-9-16.

The Group's institutions regularly address improvement of policyholder rights, in accordance with gaps that arise from time to time, have completed the gap survey in March 2013 required under the circular, and in September 2013, completed the preparation of the work plan, which was approved by the board of directors. The Group's institutions are implementing the improvements in accordance with the work plan and the timetable set out in the circular.

The financial institutions made certain provisions as required. Further provisions will be made as the project progresses, if required for the data improvement processes.

— 390 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 6 – CONTINGENT LIABILITIES (CONTD.)

Summary table

Class	Number of	Amount claimed
	claims	(NIS thousands)
Claims certified as class actions:
Amount attributable to the Company	2	64,560
Claims attributable to several companies without attribution of a specific amount to the Company	1	225,200
The amount of the claim was not noted	1	-
Contingent motions for certification of class actions:
Amount attributable to the Company	12	2,212,002
Claims attributable to several companies without attribution of a specific amount to the Company	9	1,701,565
The amount of the claim was not noted	2	-
Other material claims and demands
Amount attributable to the Company	4	72,441
Claims attributable to several companies without attribution of a specific amount to the Company	1	5,232,000
Other claims	13	11,547

The amount of the total provision of class actions, legal proceedings and others, filed against the Company and /or its subsidiaries, as described above, amounts to NIS 102,744 thousand (December 31, 2014, NIS 98,041 thousand).

— 391 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 7 – MATERIAL EVENTS IN THE REPORTING PERIOD

Changes in the main estimates and assumptions used to calculate insurance reserves;
A. In the six months ended June 30, 2015, there were fluctuations in the risk-free interest curve, and in the three months ended June 30, 2015, there was a rise in the risk-free interest curve, which resulted in a decrease in life insurance reserves, including the supplemental annuity reserve, for the period of the policies and for the period of the annuity payment, while in the first quarter of 2015, the opposite applied.
- For information about changes in the risk-free interest subsequent to the balance sheet date, see Note 8(1).
B. In August 2015, an insurance circular was published regarding the calculation method of the liability adequacy test (LAT) for life and healthcare insurance ("the LAT Circular"). The circular refers to the following issues:
- Measurement guidelines for two properties of future cash flows: illiquidity (through an illiquidity premium) and the cost of non-hedgeable risks ("CNHR").
- The demographic assumptions for calculating current estimates will be selected on the best estimate level, applying judgment.
- The interest assumption and appropriate return will be based on the risk-free interest curve as of the reporting date.
- Use of the updated value of assets that are not measured at fair value (other than designated debentures).

The circular is effective for the financial statements as of June 30, 2015 and thereafter.

C. The Phoenix Insurance is reviewing the adequacy of the reserves, including the supplementary reserve for annuity. The assumptions used for these reviews include assumptions for cancellations, operating expenses, returns from assets, interest rates, illiquidity premium, and taking into account the surplus fair value of assets beyond their carrying amount, mortality, annuity realization rates and morbidity rates, and are determined by the actuaries of The Phoenix Insurance on the basis of tests, experience and other relevant surveys.
D. Effect of the main amendments described above on the financial results:
The amendments to the risk-free interest rate resulted in a decrease of NIS 11 million in insurance reserves in the six months ended on June 30, 2015, of which: In life insurance, a decrease of NIS 19 million in insurance reserves (effect on LAT, NIS 16 million), in healthcare insurance, a decrease of NIS 1 million in insurance reserves; and in general insurance, an increase of NIS 9 million in insurance reserves. The effect in the three months ended on June 30, 2015 resulted in a decrease of NIS 476 million in insurance reserves, of which: in life insurance, NIS 315 million (effect on LAT, NIS 157 million); in healthcare insurance, NIS 141 million; and in general insurance, NIS 20 million.
The change in calculation of the estimated illiquidity premium, based on the above circular, resulted in an increase of NIS 79 million in insurance reserves for the six and three months ended June 30, 2015, of which, life insurance amounting to NIS 63 million (effect on LAT, NIS 63 million), and healthcare insurance amounting to NIS 16 million.
The change in estimate of the non-hedgeable insurance risks, based on the above circular, resulted in an increase of NIS 187 million in insurance reserves for LAT for the six and three months ended June 30, 2015, of which, life insurance amounting to NIS 119 million and healthcare insurance amounting to NIS 68 million.
The change in assumptions for the rates of realization of annuity following the accumulated experience acquired by the Company resulted in an increase of NIS 118 million in life insurance reserves for the six and three months ended June 30, 2015 (effect on LAT, NIS43 million).
The change in the adjusted assumptions for cancellations following the accumulated experience acquired by the Company in long-term healthcare resulted in an increase of NIS 40 million in reserves in the first quarter of the year.

— 392 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 7 – MATERIAL EVENTS IN THE REPORTING PERIOD (CONTD.)

The total effect of these changes on life insurance reserves for the six and three months ended June 30, 2015 is an increase of NIS 281 million and a decrease of NIS 15 million, respectively. The total effect of these changes on healthcare insurance reserves (LAT) for the six and three months ended June 30, 2015 is an increase of NIS 123 million and a decrease of NIS 57 million, respectively.

The total effect of these changes on general insurance reserves for the six and three months ended June 30, 2015 is an increase of NIS 9 million and a decrease of NIS 20 million, respectively.

The total effect of these amendments for the six months ended June 30, 2015 is recognition of an expense before tax and after tax of NIS 413 million and NIS 257 million, respectively. The total effect of these amendments for the three months ended June 30, 2015 is recognition of income before tax and after tax of NIS 92 million and NIS 57 million, respectively.

Further to the Company's immediate report in January 2015 (Immediate Report dated January 27, 2015, ref. 2015-01-019660), regarding the memorandum of understanding for the sale of the control of Delek Group in the Company, in June 2015, Delek Group informed the Company that it had signed a binding agreement with PI Emerald II (UK) Limited (a wholly-owned subsidiary of Fosun International Limited) for the sale of the entire holdings of Delek Group in the Company (52.31%) for NIS 1.8 billion, as of June 21, 2015 (plus accrued interest). As of the date of this report, the transaction has not yet been completed and all the approvals required for its completion have yet to be received. For further information, see the Company's immediate report of June 21, 2015, ref. 2015-01-052248.
On January 18, 2015, Maalot confirmed the ratings of the Company (+ilA) and of The Phoenix Insurance (+ilAA), maintaining the stable outlook.
In February 2015, the Israel Securities Authority announced that it had decided, by virtue of its authority, to extend the period for the offering of securities under the shelf prospectus of The Phoenix Capital Raising for another 12 months, meaning until May 29, 2016.
On March 31, 2015, the Israel Securities Authority began an investigation, and several employees of Excellence and its subsidiary Excellence Nessuah Brokerage Services Ltd. were summoned for questioning, and at the same time, the offices of Excellence were searched.

On April 2, 2015, investigators of the Israel Securities Authority searched the offices of Excellence and its subsidiary Excellence Nessuah Brokerage Services Ltd. , and questioned several officers of Excellence and its subsidiary.

On April 2, 2015, officers in the Company were summoned for questioning at the investigation department of the Israel Securities Authority. To the best of the Company's knowledge, the questioning focused on a service that the Company received from a related company.

On April 7, 2015, Midroog confirmed the rating of the financial stability of The Phoenix Insurance at Aa1, the rating of Liability Notes (Series A) and Debentures (Series D) of The Phoenix Capital Raising at Aa2 with stable outlook, and the rating of Debentures (Series B and C) of the Phoenix Capital Raising at Aa3 with stable outlook. In addition, Midroog announced a rating of Aa3 for Debentures (Series E) issued by The Phoenix Capital through an exchange tender offer, as set out below.
In April 2015, The Phoenix Capital Raising completed an exchange tender offer under its shelf prospectus of May 29, 2013. Under the tender offer, NIS 320,262,789 par value Liability Notes (Series A) were exchanged for NIS 385,276,135 par value Debentures (Series E). Debentures (Series E), were recognized as tier 2 hybrid capital at The Phoenix Insurance and were listed for trading on the TASE.

Debentures (Series E) are repayable in one payment on October 31, 2029, and are linked (principal and interest) to the CPI published in April 2015. The debentures bear annual interest at a rate of 2.25%, payable twice a year in October and April of each year between 2015 and 2029 (inclusive).

— 393 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 7 – MATERIAL EVENTS IN THE REPORTING PERIOD (CONTD.)

The Phoenix Capital Raising may, without granting the right of choice to the debenture holders and/or the trustee, redeem all or part of the Debentures (Series E) ahead of their due date at any time, subject to the fulfillment of certain terms set out in the deed of trust. If the Debentures (Series E) are not redeemed ahead of their due date on October 31, 2026 ("the Record Date for Additional Interest"), the debentures will bear additional interest at a rate of 50% of the original risk margin set for the debentures of the same series, as defined in the shelf prospectus, for the period beginning on the Record Date for Additional Interest and ending on the redemption date of Debentures (Series E).

It is noted that the first date for full or partial early redemption of Debentures (Series E) is May 1, 2020. In accordance with the terms set out in the deed of trust, and if Debentures (Series E) are redeemed ahead of their due date as from this date and up to the Record Date for Additional Interest (not including early redemption at the Record Date for Additional Interest), the provisions overleaf on the deed of trust will apply, including payment of the higher of the following by The Phoenix Capital Raising to the holders of Debentures (Series E): (1) the market value of Debentures (Series E) in circulation, based on the average closing price of the debentures in the thirty trading days preceding the Board of Directors' resolution regarding the early redemption; (2) the commitment value of Debentures (Series E) in circulation placed for early redemption, meaning the principal plus interest and linkage differentials until the actual date of early redemption; (3) the balance of the cash flows of Debentures (Series E) placed for early redemption (principal plus interest and linkage), discounted at a discount rate and under the terms set out overleaf on the deed of trust.

On June 7, 2015, by virtue of its authority under section 23A(b) of the Securities Law, 1968, the Israel Securities Authority approved an extension of the period for offering securities under the shelf prospectus of Excellence Investments, which was published on May 29, 2013 and dated May 30, 2013, for an additional period of 12 months, namely, until May 29, 2016.

NOTE 8 – SUBSEQUENT EVENTS

Subsequent to the balance sheet date, there was an increase in the rate of short-term interest, offset by a decrease in medium- and long-term interest. The change in the interest rate may affect liabilities for insurance contracts in future periods as well as the value of the Group's financial assets.

The change in interest rates is part of the macro economic effects and it is yet too early to estimate their overall effect on the financial results.

On July 2, 2015, an agreement was signed between The Phoenix Insurance Agencies (1998) Ltd. ("The Phoenix Agencies"), a wholly-owned sub-subsidiary of The Phoenix Insurance, and the non-controlling shareholders holding 40% of the shares of Agam Leaderim Holdings (2001) Ltd. ("Agam"). The balance of the shares is held by The Phoenix Agencies. Under the agreement, the non-controlling shareholders are granted a put option ("the Put Option"), effective from January 1, 2017 to December 31, 2017 and The Phoenix Agencies is granted a call option ("the Call Option"), effective for the same period, for the acquisition of the non-controlling shares by The Phoenix Agencies, under earlier put and call options granted to the non-controlling shareholders and The Phoenix Agencies in the shareholders' agreement of September 2005. In accordance with the provisions of the agreement, if the put or call option is exercised, acquisition of the shares as of December 31, 2017 will be in accordance with the value of Agam at this date, as established by an assessor agreed on by the parties. For 26.8% of the shares, a minimum amount of NIS 56 million was set, including adjustments as defined in the agreement, including adjustments for dividends that were distributed and profits that were accumulated at Agam in the period until the exercise period. The validity of agreement and the transaction are subject to the approval of the Commissioner of Insurance and the Antitrust Commissioner. See also Note 7(4)(C) to the Company's financial statements as of December 31, 2014.

— 394 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015

NOTE 8 – SUBSEQUENT EVENTS (CONTD.)

On August 1, 2015, Orly Kronman completed her service as legal counsel and corporate secretary. For further information, see the Company's immediate report of June 30, 2015, ref. 2015-01-052992. On June 21, 2015, the Company announced the appointment of Adv. Menachem Neeman as legal counsel and corporate secretary as from August 1, 2015. For further information, see the Company's immediate report of June 21, 2015, ref. 2015-01-052995.
On August 11, 2015, the board of directors of Excellence Investments appointed RoyYakir as an alternate director to Eyal Lapidot. The Board of Directors approved the regular participation of Roy Yakir as an observer at meetings of the Board of Directors in which he does not participate as an alternate director.
Further to the Company’s immediate report of November 16, 2014 (ref. 2014-01-195234) regarding the declaration of a labor dispute and the date for a strike beginning on November 27, 2014 and onwards at The Phoenix Insurance, on August 11, 2015, The Phoenix Insurance received notice of a strike that was declared by the Histadrut New General Federation of Labor beginning on August 26, 2015, among other things, due to claims relating to the negotiations for a collective agreement at The Phoenix Insurance. The Phoenix Insurance is examining its response to this matter.
For information about class actions filed or ended subsequent to the reporting date, see Note 7(7) to the Financial Statements.

— 395 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(B) FINANCIAL STATEMENTS OF PHOENIX HOLDINGS

To: Shareholders of The Phoenix Holdings Ltd. 53 Derech HaShalom, Givatayim

Dear Sir/Madam,

Re: Special auditors’ report on the separate financial information pursuant to Regulation 9C of the Securities Regulations (Periodic and Immediate Reports), 1970

We have audited the separate financial information that is presented pursuant to Regulation 9C of the Securities Regulations (Periodic and Immediate Reports), 1970, of The Phoenix Holdings Ltd. (“the Company”) as at December 31, 2014 and 2013 and for each of the three years, the latest of which ended on December 31, 2014, and which is included in Part 4 of the Company's periodic report. The separate financial information is the responsibility of the Company’s management and board of directors. Our responsibility is to express an opinion on the financial information based on our audits.

We did not audit the separate financial information contained in the consolidated financial statements of investees for which assets less liabilities, net attributed to them amounted to NIS 770,449 thousand and NIS 1,287,794 thousand as at December 31, 2014 and 2013, respectively, and in which the Company’s share of their earnings amounted to NIS 103,478 thousand, NIS 133,770 thousand and NIS 146,608 thousand for the years ended December 31, 2014, 2013 and 2012, respectively. The financial statements of those companies were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for those companies, is based solely on the reports of the other auditors.

We conducted our audits in accordance with the Israeli generally accepted accounting principles. These standards require that we plan and perform the audit to obtain reasonable assurance that the separate financial information is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and items included in the separate financial information. An audit also includes assessing the accounting principles used in drafting the separate financial information and significant estimates made by the board of directors and management of the Company, as well as evaluating the overall presentation of the separate financial information. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the separate financial information is prepared, in all material respects, in accordance with Regulation 9 C of the Securities Regulations (Periodic and Immediate Reports), 1970.

Tel Aviv March 26, 2015

Kost Forer Gabbay & Kasierer Certified Public Accountants

— 396 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

To: Shareholders of The Phoenix Holdings Ltd. 53 Derech HaShalom, Givatayim

Dear Sir/Madam,

Re: Special auditors’ report on the separate financial information pursuant to Regulation 9C of the Securities Regulations (Periodic and Immediate Reports), 1970

We have audited the separate financial information that is presented pursuant to Regulation 9C of the Securities Regulations (Periodic and Immediate Reports), 1970, of The Phoenix Holdings Ltd. (“the Company”) as at December 31, 2013 and 2012 and for each of the three years, the latest of which ended on December 31, 2013, and which is included in Part 4 of the Company's periodic report. The separate financial information is the responsibility of the Company’s management and board of directors. Our responsibility is to express an opinion on the financial information based on our audits.

We did not audit the separate financial information contained in the consolidated financial statements of investees for which assets less liabilities, net attributed to them amounted to NIS 1,287,794 thousand and NIS 1,300,220 thousand as at December 31, 2013 and 2012, respectively, and in which the Company’s share of their earnings amounted to NIS 133,770 thousand, NIS 146,608 thousand and NIS 55,176 thousand for the years ended December 31, 2013, 2012 and 2011, respectively. The financial statements of those companies were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for those companies, is based solely on the reports of the other auditors.

In our opinion, based on our audits and the reports of other auditors, the separate financial information is prepared, in all material respects, in accordance with Regulation 9C of the Securities Regulations (Periodic and Immediate Reports), 1970.

Without qualifying our foregoing opinion, we draw your attention to Note 2(4) to the financial statements with regard to reconciliation by way of restatement of the financial statements as at December 31, 2012 and for each of the two years ended December 31, 2012 and December 31, 2011, to retrospectively reflect the changes to the investment in investees subsequent to amending the accounting treatment of protected housing for the elderly, and their reclassification from property, plant and equipment to investment property, in accordance with the business model adopted by the investee and according to which the nature and scope of the supplementary services provided by the investee to the residents is not material compared with its overall arrangement with them.

Tel Aviv March 26, 2014

Kost Forer Gabbay & Kasierer Certified Public Accountants

— 397 —

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Separate financial information from the consolidated statement of financial position

Note		December 31
	2014	2013 NIS thousands	*2012()**

9 4 5 3 7 6	3,784,069 785,686 4,569,755 83,255 1,745 40,757 125,757 4,695,512 304,258 667,842 (36,637) 200,709 2,668,873 3,805,045 873,832 - 655 15,980 16,635 890,467 4,695,512	3,579,770 786,397 4,366,167 136,687 981 36,229 173,897 4,540,064 304,216 667,268 (31,848) 256,512 2,361,357 3,557,505 962,945 - 655 18,959 19,614 982,559 4,540,064	3,089,278 746,987 3,836,265
			61,813 1,178 15,239 78,230
			3,914,495
			301,603 641,414 (31,862) 257,645 1,943,203
			3,112,003
			753,176 20,642 655 28,019 49,316 802,492
			3,914,495

(*) Reclassified, see Note 2 below

The accompanying additional information is an integral part of the separate financial information of the Company.

Asi Bartfeld Eyal Lapidot Omer Ziv Chairman of the Board of Directors CEO Deputy CEO, CFO

The Financial Statements were approved on March 26, 2015.

Omer Ziv Eyal Lapidot Deputy CEO, CFO CEO

Dr. Moshe Bareket

Chairman of the Board of Directors

The Financial Statements were approved on March 26, 2014.

— 398 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Separate financial information from the consolidated statement of income

Note	Year ended December 31	Year ended December 31
	2014	2013 NIS thousands	*2012()**

9	527,247 12,679 3,000 542,926 3,182 35,264 38,446 504,480	776,522 19,425 3,000 798,947 3,246 56,668 59,914 739,033	277,525 17,457 3,110
			298,092
			3,140 45,398 48,538
			249,554

(*) Reclassified, see Note 2 below

The accompanying additional information is an integral part of the separate financial information of the Company.

— 399 —

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Separate financial information from the consolidated statements of comprehensive Income

Year ended December 31	Year ended December 31	*2012()** 249,554 187 (187) 184,929 184,929 1,169
2014	2013 NIS thousands
504,480 1,059 (2,932) (61,056) (62,929) 2,420 (60,509) 443,971	739,033 2,901 (974) 391 2,318 3,117 5,435 744,468
		186,098
		435,652

(*) Reclassified, see Note 2 below

The accompanying additional information is an integral part of the separate financial information of the Company.

— 400 —

					Total equity		3,557,505	504,480	(60,509)		443,971	7,742	(199,384)	(4,789)	-	3,805,045
			Capital reserve for	available-for-sale	financial assets		234,480	-	(69,331)		(69,331)	-	-	-	-	165,149
			Reserve for	translation	differentials		(3,791)	-	6,402		6,402	-	-	-	-	2,611
Attributable to shareholders of the Company	Capital reserve	Share from transactions	premium with holders of Capital reserve	Share and capital Treasury Retained non-controlling for share-based	capital reserves shares earnings interests payment	NIS thousands	Balance as at January 1, 2014 304,216 667,268 (31,848) 2,361,357 (4,804) 30,627	Net income - - - 504,480 - -	Other comprehensive income (loss) - - - 2,420 - -	Total comprehensive income (loss) for	the year - - - 506,900 - -	Share-based payment - - - - - 7,742	Dividends - - - (199,384) - -	Treasury shares - - (4,789) - - -	Exercise of employee options 42 574 - - - (616)	Balance as of December 31, 2014 304,258 667,842 (36,637) 2,668,873 (4,804) 37,753	The accompanying additional information is an integral part of the separate financial information of the Company.

					Total equity		3,112,003	739,033	5,434		744,467	5,433	(323,996)	(1,618)	1,816	-		19,400	3,557,505
		Capital reserve	for available-	for-sale	financial assets		228,634	-	5,846		5,846	-	-	-	-	-		-	234,480
			Reserve for	translation	differentials		(262)	-	(3,529)		(3,529)	-	-	-	-	-		-	(3,791)
Attributable to shareholders of the Company	Capital reserve	Share from transactions	premium with holders of Capital reserve	Share and capital Treasury Retained non-controlling for share-based	capital reserves shares earnings interests payment	NIS thousands	Balance as of January 1, 2013 301,603 641,414 (31,862) 1,943,203 (24,204) 53,477	Net income - - - 739,033 - -	Other comprehensive income (loss) - - - 3,117 - -	Total comprehensive income (loss) for the	year - - - 742,150 - -	Share-based payment - - - - - 5,433	Dividends - - - (323,996) - -	Treasury shares - - (1,618) - - -	Reissuance of treasury shares - 184 1,632 - - -	Exercise of employee options 2,613 25,670 - - - (28,283)	Acquisition of non-controlling interests,	net - - - - 19,400 -	Balance as of December 31, 2013 304,216 667,268 (31,848) 2,361,357 (4,804) 30,627	The accompanying additional information is an integral part of the separate financial information of the Company.

					Total equity		2,678,916	249,554	186,098		435,652	3,656	(8,012)	7,324	(5,533)	3,112,003
		Capital reserve	for available-	for-sale	financial assets		65,960	-	162,674		162,674	-	-	-	-	228,634
			Reserve for	translation	differentials		(22,517)	-	22,255		22,255	-	-	-	-	(262)
Attributable to shareholders of the Company	Capital reserve	Share capital Share premium and capital reserves Treasury shares Retained earnings () from transactions with holders of non-controlling rights Capital reserve for share-based payment*				NIS thousands	Balance as at January 1, 2012 301,603 640,952 (30,712) 1,692,480 (18,671) 49,821	Net income - - - 249,554 - -	Other comprehensive income - - - 1,169 - -	Total comprehensive income for the	year - - - 250,723 - -	Share-based payment - - - - - 3,656	Treasury shares - - (8,012) - - -	Reissuance of treasury shares - 462 6,862 - - -	Acquisition of non-controlling interests - - - - (5,533) -	Balance as at December 31, 2012 301,603 641,414 (31,862) 1,943,203 (24,204) 53,477	(*) Reclassified, see Note 2 below	The accompanying additional information is an integral part of the separate financial information of the Company.

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Separate financial information from the consolidated statement of cash flows

Appendix		Year ended
		December 31
	2014	2013	*2012()**
		NIS thousands
(a)	504,480 (526,369)	739,033 (767,853)	249,554 (281,040)
	(21,889)	(28,820)	(31,486)
	- 260,000 515 60,150	(72,000) 315,220 34,515 (56,150)	(77,000) - 14,992 (3,424)
	320,665	221,585	(65,432)
	(200,000) - - (94,248) -	(325,000) - (20,000) - 173,225	- 20,000 - - 38,628
	(294,248)	(171,775)	58,628
	4,528 36,229	20,990 15,239	(38,290) 53,529
	40,757	36,229	15,239

(*) Reclassified, see Note 2 below

The accompanying additional information is an integral part of the separate financial information of the Company.

— 404 —

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Separate financial information from the consolidated statement of cash flows

	Year ended
	December 31
2014	2013	*2012()**
	NIS thousands
(8,586) 5,136 (527,247) 7,114 (2,981) 195	(16,798) 20,655 (776,522) 547 6,188 (1,923)	(15,338) 11,659 (277,525) (424) 2,635 (2,047)
(526,369)	(767,853)	(281,040)

(*) Reclassified, see Note 2 below

The accompanying additional information is an integral part of the separate financial information of the Company.

— 405 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes from the consolidated financial statements attributable to the company

NOTE 1 – GENERAL

Hereunder is financial information from the Group's consolidated financial statements as at December 31, 2014 ("the consolidated financial statements"), issued as part of the Periodic Reports, attributable to the Company ("the separate financial information").

The separate financial information should be read in conjunction with the consolidated financial statements.

Definitions:

(1) The Company - The Phoenix Holdings Ltd.
(2) Investees - subsidiaries and companies in which the Company's investment is included, directly or indirectly, in the financial statements using the equity method

(3) Reporting date - the date of the statement of financial position.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES APPLIED IN THE SEPARATE FINANCIAL INFORMATION

The separate financial information was prepared in accordance with Regulation 9C of the Securities Regulations (Periodic and Immediate Reports), 1970 (“Regulation 9C”), including the items provided in the Tenth Addendum to these regulations ("the Addendum'), and subject to the clarifications set out in the "Clarification Regarding the Separate Financial Statements of a Corporation" which was published on the website of the Israeli Securities Authority on January 24, 2010 and which address the manner for applying the Regulations and Addendum ("the Authority Staff Clarification").

The separate financial information does not constitute financial statements, including separate financial statements, presented in accordance with International Financial Reporting Standards ("IFRS") in general and in accordance with the provisions of IAS 27 Consolidated and Separate Financial Statements, in particular. Nonetheless, the accounting policies specified in Note 2 to the consolidated financial statements concerning the significant accounting policies and manner of classifying the financial information in the consolidated financial statements, were applied for the purpose of presenting the separate financial information, with the required changes as set out below.

The notes provided hereunder include disclosures with regard to additional material information, in accordance with the disclosure requirements provided under Regulation 9C and as set out in the Addendum and subject to the Authority Staff Clarification, if such information was not included in the consolidated financial statements in a way that explicitly relates to the Company itself.

Assets and liabilities included in the consolidated financial statements that are attributable to the Company itself:

Amounts of assets and liabilities contained in the consolidated financial statements that are attributable to the Company itself and are specified according to types of assets and liabilities, are presented. This information was classified in the same manner as classified in the consolidated statements of financial position.

In addition, information is also presented regarding the net amount, based on the consolidated financial statements, attributable to the shareholders of the Company itself, of the total assets less the total liabilities, with respect to investees, including goodwill.

As a result of this manner of presentation, the equity attributable to the Company’s shareholders, based on the consolidated financial statements, is the same as the Company's equity deriving from the separate financial information.

— 406 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes from the consolidated financial statements attributable to the company

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES APPLIED IN THE SEPARATE FINANCIAL INFORMATION (CONTD.)

2 Income and expenses included in the consolidated financial statements that are attributable to the Company itself:

The amounts of income and expenses contained in the consolidated financial statements, with a breakdown of profit or loss and other comprehensive income, attributable to the Company itself, are presented with a description of the type of income and expenditure. This information is classified in the same manner by which the consolidated statements of income and of comprehensive income are classified.

In addition, information is presented with regard to the net amount, based on the consolidated financial statements, attributable to the shareholders of the Company itself, of total income less total expenses with respect to the operating results of investees, including impairment of goodwill, impairment or derecognition of an investment in an affiliate, and impairment or derecognition of an investment in an equity-accounted jointly-controlled company.

As a result of such presentation the total income for the year attributable to the shareholders of the Company and the total comprehensive income for the year attributable to the shareholders of the Company, based on the consolidated financial statements, are the same as the total income for the year attributed to the shareholders of the Company and the total comprehensive income attributable to the shareholders of the Company, respectively, based on the separate financial information.

Cash flows included in the consolidated financial statements attributable to the Company itself:

The amounts for cash flows contained in the consolidated financial statements attributable to the Company itself, taken from the consolidated statements of cash flows with breakdown of cash flows from operating activities, cash flows from investing activities and cash flows from financing activities with a description of their composition. This information is classified in the same manner by which the consolidated financial statements are classified.

— 407 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes from the consolidated financial statements attributable to the company

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES APPLIED IN THE SEPARATE FINANCIAL INFORMATION (CONTD.)

4. Changes in accounting policies

1) Restatement - investment property

The Company reconciled, by way of restatement, its consolidated financial statements at December 31, 2012 and December 31, 2011 and for each of the two years ended on December31, 2012 and 2011, respectively, to retrospectively reflect correction of the accounting treatment of assisted living units owned by Ad 120 Residence Centers for Senior Citizens Ltd. ("Ad 120 ") as investment property.

The Company believes that the nature and scope of the supplementary services it provides to the tenants are not material compared with the overall arrangements it has with the tenants. Consequently, the Company believes that, based on the business model, the assisted living units should be viewed as investment property in accordance with the Company's accounting policies.

2) Application of IAS 19:

As of January 1, 2013, the Company has changed its accounting policy to apply the revised IAS 19 for the first time. The change was made by way of retrospective application, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors , and consequently the financial information of the previous periods has been restated.

Statement of financial position as of December 31, 2012: Investments in investees Retained earnings Statement of financial position as of December 31, 2011: Investments in investees Retained earnings	As previously reported	Change (1) NIS thousands	In these financial statements

	2,928,514 160,764 (1,782,439) (160,764) 2,494,102 127,948 (1,564,528) (127,948)		3,089,278
			(1,943,203)
			2,622,050
			(1,692,476)

— 408 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes from the consolidated financial statements attributable to the company

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES APPLIED IN THE SEPARATE FINANCIAL INFORMATION (CONTD.)

INFORMATION (CONTD.)
Year ended December 31, 2012 Company's share in earnings (losses) of investees, net of tax Income (loss) Other comprehensive income for defined benefit plans, net Total comprehensive income Year ended December 31, 2011 Company's share in earnings (losses) of investees, net of tax Income (loss) Other comprehensive income for defined benefit plans, net Total comprehensive income	As previously reported	Change (1) Change (2) NIS thousands		As presented in these financial statement

	245,882 217,911 - 402,840 82,983 53,519 - (29,993)	32,812 32,812 - 32,812 43,249 43,249 - 43,249	(1,169) (1,169) 1,169 (1,980) (1,980) 1,980 -	277,525
				249,554
				1,169
				435,652
				124,252
				94,788
				1,980
				13,256

— 409 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes from the consolidated financial statements attributable to the company

NOTE 3 - CASH AND CASH EQUIVALENTS

	December 31
2014	2013 NIS thousands	2012

40,757	36,229	15,239

As of the balance sheet date, cash in banks bears current interest based on nominal interest rates for daily bank deposits at a rate of 0.11% (December 31, 2013 - 0.93%, December 31, 2012 - 1.62%).

Short-term bank deposits are for periods of between one week and three months. The deposits bear nominal interest at a rate of 0.22% (December 31, 2013 - 0.95%, December 31, 2012, - 1.62%).

NOTE 4 – OTHER FINANCIAL INVESTMENTS

Breakdown of investments in financial assets pursuant to IAS 39 attributable to the parent company:

	December 31,2014	December 31,2014
Presented at fair value through profit or loss	Available For sale Loans and receivables NIS thousands		Total

- - - - -	45,380 - 10,991 1,758 58,129	- 25,126 - - 25,126	45,380 25,126 10,991 1,758
			83,255

	December 31,2013	December 31,2013
Presented at fair value through profit or loss	Available For sale Loans and receivables NIS thousands		Total

- - - -	98,542 - 9,415 107,957	- 28,730 - 28,730	98,542 28,730 9,415
			136,687

— 410 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes from the consolidated financial statements attributable to the company

NOTE 4 – OTHER FINANCIAL INVESTMENTS (CONTD)

	December 31,2012	December 31,2012
Presented at fair value through profit or loss	Available For sale Loans and receivables NIS thousands		Total

- - - -	21,597 - 1,524 23,121	- 38,692 - 38,692	21,597 38,692 1,524
			61,813

NOTE 5 – DEBTORS AND RECEIVABLE

Investees Accrued income Prepaid expense Others	December 31
	2014 NIS thousands	2013

	1,557 138 38 12 1,745	901 - 38 42
		981

NOTE 6 – CREDITORS AND PAYABLES

	December 31
2014	2013 NIS thousands	2012

14,941 337 - 702 15,980	17,442 293 - 1,224 18,959	25,973 442 516 1,088
		28,019

— 411 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes from the consolidated financial statements attributable to the company

NOTE 7 – DEBENTURES

In 2007, the Company issued debentures (Series 1), linked to the CPI, in an amount of NIS 600 million. The debentures bear annual interest of 4.5%.

The debenture principal is redeemable in six equal annual installments from 2014 to 2019 (inclusive). The interest payments are made once per year as of March 26, 2008.

In January 2012, debentures were issued in a private placement in a total amount of NIS 31 million registered debentures (Series 1) of NIS 1 par value each to a private investor ("the additional debentures") for total proceeds of NIS 40 million. The additional debentures are of the same series in which NIS 600 million par value debentures were issued in 2007, and their terms are the same as the terms of the debentures in circulation.

In November 2012, the Company published a shelf prospectus.

In February 2013, the Company issued, under the shelf offering memorandum, NIS 174,521,000 par value debentures (Series 2). The outstanding loan principal bears annual interest at a rate of 2.55%. The principal and interest of the debentures (Series 2) are linked to the CPI. The interest will be paid twice a year in March and September. The debentures are repayable in 11 equal annual payments on March 26 of each of the years from 2014 to 2024 (inclusive) as described below: Six equal annual installments at a rate of 5% each, on March 26 of each year from 2014 to 2019 (inclusive) and five equal annual installments at a rate of 14% each on March 26 of each year from 2020 to 2024 (inclusive). In accordance with the shelf prospectus, under certain conditions, the interest rate of the debentures will be adjusted. The proceeds from the issuance amounted to NIS 174.5 million.

In March 2013, 318,235,354 par value debentures (Series 1) were exchanged for 445,529,496 par value debentures (Series 2) through an exchange tender offer. The terms of the debentures issued in the exchange tender offer are the same as the terms of debentures (Series 2) as described above.

— 412 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes from the consolidated financial statements attributable to the company

NOTE 7 – DEBENTURES(CONTINUED)

In July 2013, Maalot ratified the rating for the Company's Series 1 debentures, at ilA+ with negative outlook.

In November 2013, Midroog Ltd. ratified the rating for the Company's Series 1 and Series 2 debentures at Aa3 with stable outlook.

Maturity dates subsequent to the reporting date:

	December 31
2014	2013 NIS thousands	2012

94,807 94,807 94,807 94,807 535,858 915,086 (41,254) 873,832	94,899 94,899 94,899 94,899 631,289 1,010,885 (47,940) 962,945	- 125,397 125,397 125,397 376,193
		752,384 792
		753,176

Under the deed of trust of the Company's debentures (Series 2), the Company undertook that as long as the debentures (Series 2) are unpaid in full, it will not create a general floating charge on its assets, unless at that date, a charge of the same rank is also created in favor of the holders of debentures (Series 2). In addition, for the debentures (Series 2), the Company also assumed restrictions on distribution of dividends and expansion of the debenture series (Series 2), and undertook to comply with various financial covenants.

For further information, see Note 26(D)(2) to the Company’s consolidated financial statements.

NOTE 8 – INCOME TAX

A. Tax assessments

The Company has been issued final tax assessments through and including 2005. Nonetheless, in accordance with and subject to the provisions of section 145 of the Income Tax Ordinance, tax returns submitted to the tax authorities for the years through and including 2010 are deemed final.

B. Losses carried forward for tax purposes and other temporary differences

The Company incurred business losses for tax purposes which are carried forward to the following years amounting to NIS 150,533 thousand� NIS 128,393 thousand and NIS 90,988 as at December 31, 2014, December 31, 2013, December 31, 2012, respectively. In addition, the Company incurred capital losses for tax purposes amounting to NIS 70,778 thousand, NIS 72,083 and NIS 70,824 thousand as at December 31, 2014, December 31, 2013, and December 31, 2012 respectively.

Deferred tax assets were not recognized for the foregoing losses due to the absence of expected utilization in the foreseeable future.

— 413 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes from the consolidated financial statements attributable to the company

NOTE 9 – SIGNIFICANT LOANS, BALANCES AND TRANSACTIONS WITH INVESTEES

A. Balances with investees

	As at
2014	2013 NIS thousands	2012

1,557 785,686	901 786,397 Year ended	988
		746,987

	December 31
2014	2013 NIS thousands	2012

3,000 29	3,000 183 Year ended	3,110
		102

	December 31
2014	2013 NIS thousands	2012

7,917	12,812	13,235

B. Transactions with investees

C. Finance income from investees

D. Agreements
The Company engaged in a service agreement with its subsidiaries to receive management, administration and accounting services for an annual amount of NIS 3,000 thousand.
The Company engaged in an agreement with a subsidiary, The Phoenix Investments, to receive management services. The Company paid management fees for these services at a rate of 0.12% of the managed assets for the year.

On December 31, 2013 it was decided to terminate the agreement.

— 414 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes from the consolidated financial statements attributable to the company

NOTE 9 – SIGNIFICANT LOANS, BALANCES AND TRANSACTIONS WITH INVESTEES (CONTID)

E. Loans and capital notes

The Phoenix Investments and Finance Ltd. - subsidiary

	December 31
2014	2013 NIS thousands	2012

578,000 199,038 - 777,038	578,000 199,233 - 777,233	506,000 195,492 20,642
		722,134

(1) During the years 2009 through 2013, The Phoenix Investments issued capital notes to the Company in the amount of NIS 578 million. The capital notes are unlinked, interest free and have no fixed repayment date.
The Phoenix Investments may repay the capital notes at any time, but not before 5 years from their signing date.
(2) The loan is linked to the CPI and bears annual interest at a rate of 4%. The interest is payable at the end of each quarter and the loan principal will be repaid on September 30, 2016.
(3) In June 2012 the Company granted a loan to The Phoenix Investments in the amount of NIS 20 million.

The loan principal bears annual interest at a rate of 4.7%. The loan principal and the interest are unlinked. The loan was fully paid up in May 2013.

(4) In December 2013, The Phoenix Investments distributed a dividend to the Company in the amount of NIS 90 million. In March 2014, The Phoenix Investments distributed a dividend to the Company in the amount of NIS 35 million.

Ad 120 RESIDENCE CENTERS FOR SENIOR CITIZENS - SUBSIDIARY

As at December 31	As at December 31
2014	2013 NIS thousands	2012

-	-	15,005

In May 2011, the Company granted a loan to its subsidiary, Ad 120 Residence Centers for Senior Citizens Ltd. ("Ad 120") in the amount of NIS 31 million for a period of two years. The loan is repayable in installments over the period of the loan and bears interest of 5%. The loan principal and interest are linked to the CPI. The loan has been paid up in full.

In February 2013, the Company granted a loan to Ad 120 Ltd. in the amount of NIS 21.4 million bearing interest of 4%. The loan principal and interest are linked to the CPI. The loan has been paid up in full.

— 415 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Notes from the consolidated financial statements attributable to the company

NOTE 9 – SIGNIFICANT LOANS, BALANCES AND TRANSACTIONS WITH INVESTEES (CONTID)

	December 31
2014	2013 NIS thousands	2012

4,648 4,000 8,648	5,164 4,000 9,164	5,847 4,000
		9,847

On February 1, 2007, Platinum Finance and Factoring Ltd. (“Platinum”) issued a capital note to the Company in the amount of NIS 4 million. The capital note is unlinked and interest free. The capital note is expected to be repaid on December 31, 2099.

In November 2011, the Company granted Platinum a loan in the amount of NIS 3,580 thousand. The loan is unlinked and bears annual interest of 5.24%.

In December 2012, the Company extended a loan to Platinum. The loan bears interest at a rate equivalent to the interest rate fixed in the Income Tax Regulations (Setting the Interest Rate for Section 3(J)), 1986. This loan will be repaid in 44 equal principal instalments from March 31, 2013.

F. Dividend
In March 2014, the Company received a dividend in the amount of NIS 35 million from The Phoenix Investments.
In September 2014, the Company received a dividend in the amount of NIS 225 million from The Phoenix Insurance Co. Ltd.
In February 2015, the Company received a dividend in the amount of NIS 200 million from The Phoenix Insurance Co. Ltd.

NOTE 10 – SUBSEQUENT EVENTS

For information pertaining to subsequent events, see Note 43 to the consolidated financial statements.

— 416 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(C) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE PH GROUP
(i) Basis of preparation of the unaudited pro forma financial information of the PH Group

To provide additional financial information, the unaudited pro forma financial information which comprises unaudited pro forma consolidated statements of income and unaudited pro forma consolidated statements of comprehensive income of Phoenix Holdings Ltd. and its subsidiaries (the “PH Group”) for each of the years ended 31 December 2012, 2013, 2014 and the six months ended 30 June 2015 and the unaudited pro forma consolidated statements of financial position of the PH Group as at 31 December 2012, 2013, 2014 and 30 June 2015 (“the Unaudited Pro Forma Financial Information of the PH Group”), has been prepared based on:

(a) the historical audited consolidated statements of income and consolidated statements of comprehensive income for each of the years ended 31 December 2012, 2013 and 2014 and consolidated statements of financial position as at 31 December 2012, 2013 and 2014 prepared in accordance with the International Financial Reporting Standards (the “IFRS”) and accounting policies adopted by the PH Group have been extracted by the Directors from the PH Group’s published annual reports for the years ended 31 December 2013 and 2014 which were audited by Ernst & Young Israel;
(b) the historical reviewed consolidated statement of income and consolidated statement of comprehensive income for the six months ended 30 June 2015 and consolidated statement of financial position as at 30 June 2015 of the PH Group have been extracted by the Directors from PH Group’s published interim reports for the six months ended 30 June 2015 which were reviewed by Ernst & Young Israel; and
(c) after taking into account of the unaudited Pro Forma Adjustments as described in the notes thereto to demonstrate the significant effects on the consolidated statements of income and consolidated statements of comprehensive income of the PH Group for each of the years ended 31 December 2012, 2013, 2014 and the six months ended 30 June 2015 and the consolidated statements of financial position of the PH Group as at 31 December 2012, 2013, 2014 and 30 June 2015 as if the Hong Kong Financial Reporting Standards and the accounting policies adopted by Fosun International Limited (the “Fosun Policies”) had been adopted by the PH Group for each of the years ended 31 December 2012, 2013 and 2014 and for the six months ended 30 June 2015.

The Unaudited Pro Forma Financial Information of the PH Group should be read in conjunction with the financial information contained in this circular and the consolidated financial statements of the PH Group as set out in Appendix II to this circular.

The Unaudited Pro Forma Financial Information of the PH Group is for illustrative purposes only, and because of its hypothetical nature, it may not give a true picture of the financial position and results of operations of the PH Group as at and for the years ended 31 December 2012, 2013, 2014, as at and for the six months ended 30 June 2015 or at any future date or for any future period.

— 417 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group

Unaudited Pro Forma Consolidated Statement of Financial Position of the PH Group as at 30 June 2015

Reviewed amount NIS'000 Note (iii)(2) Intangible assets 1,742,944 Deferred tax assets 9,013 Deferred acquisition costs 1,433,552 Property, plant and equipment 366,733 Investments in associates 566,895 Investment property for unit linked contracts 1,036,448 Other investment property 1,876,291 Reinsurance assets 1,315,952 Credit for acquisition of securities 202,000 Current tax assets 101,501 Debtors and receivables 308,624 Premiums collectible 670,312 Financial investments for unit linked contracts 32,294,399 Assets for holders of debentures, ETFs, reverse certificates, complex certificates, certificates of deposit, and structured bonds 33,728,025 Other financial investments: Marketable debt assets 5,952,438 Non-marketable debt assets 10,991,927 Shares 922,105 Others 1,013,221 Cash and cash equivalents for unit linked contracts 4,406,432 Other cash and cash equivalents 574,711 Total Assets 99,513,523 Liabilities for non-unit linked insurance contracts and investment contracts 19,134,111 Liabilities for unit linked insurance contracts and investment contracts 38,174,644 Liabilities for deferred taxes 380,998 Liabilities for employee benefits, net 122,494 Liabilities for current taxes 8,868 Creditors and payables 1,168,718 Liabilities for debentures, ETFs, reverse certificates and complex certificates, certificates of deposit, and structured debentures 33,034,873 Financial liabilities 3,546,915 Total liabilities 95,571,621	Unaudited Pro Forma Adjustments NIS'000 Note (iii)(3) - - (1,433,552) - - - - - - - 196,163 - - - - - - - - - (1,237,389) (478,774) (758,615) - - - - - - (1,237,389)	Adjusted amount NIS'000 1,742,944 9,013 - 366,733 566,895 1,036,448 1,876,291 1,315,952 202,000 101,501 504,787 670,312 32,294,399 33,728,025 5,952,438 10,991,927 922,105 1,013,221 4,406,432 574,711 98,276,134 18,655,337 37,416,029 380,998 122,494 8,868 1,168,718 33,034,873 3,546,915 94,334,232

— 418 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Financial Position of the PH Group as at 30 June 2015

Capital Share capital Premium and capital reserves on shares Treasury shares Capital reserves Retained earnings Total equity attributed to Company shareholders Non-controlling interests Total shareholders’ equity	Reviewed amount NIS'000 Note (iii)(2) 304,258 667,842 (37,302) 185,542 2,702,440 3,822,780 119,122 3,941,902	Unaudited Pro Forma Adjustments NIS'000 Note (iii)(3) - - - - - - - -	Adjusted amount NIS'000 304,258 667,842 (37,302) 185,542 2,702,440
			3,822,780
			119,122
			3,941,902

— 419 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Income of the PH Group for the six months ended 30 June 2015

Premiums earned, gross Premiums earned by reinsurers Premiums earned in retention Investment gains, net, and financing income Management fees Revenue from commissions Income from other financial services Other revenue Total revenue Payments and changes in liabilities for insurance contracts and investment contracts, gross Share of reinsurers in payments and changes in liabilities for insurance contr Payments and changes in liabilities for insurance contracts and investment contracts in retention Commissions, marketing expenses, and other acquisition costs General and administrative expenses Other expenses Finance expenses Total expenses Share in earnings of investees treated under the equity method Income before taxes on income Taxes on income Income for the period Attributable to: Company shareholders Non-controlling interests Income for the period Earnings per share attributed to shareholders (in NIS): Basic earnings per share Earnings per ordinary share of NIS 1 par value (NIS) Diluted earnings per share Earnings per ordinary share of NIS 1 par value (NIS)	Reviewed amount NIS'000 Note (iii)(2) 4,035,661 322,480 3,713,181 1,633,605 523,906 146,270 100,849 19,086 6,136,897 4,995,254 acts 204,510 4,790,744 715,365 554,575 16,848 48,001 6,125,533 18,352 29,716 (11,091) 40,807 32,630 8,177 40,807 0.13 0.13	Unaudited Pro Forma Adjustments NIS'000 Note (iii)(3) - - - - - - - - - - - - - - - - - - - - - - - -	Adjusted amount NIS'000 4,035,661 322,480 3,713,181 1,633,605 523,906 146,270 100,849 19,086 6,136,897 4,995,254 204,510 4,790,744 715,365 554,575 16,848 48,001 6,125,533 18,352 29,716 (11,091) 40,807 32,630 8,177 40,807 0.13 0.13

— 420 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Comprehensive Income of the PH Group for the six months ended 30 June 2015

Reviewed amount NIS'000 Note (iii)(2) Income for the period 40,087 Other comprehensive income (loss) Amounts classified or reclassified to profit or loss under specific conditions Net change in the fair value of financial assets available for sale attributed to capital reserves 84,470 Net change in the fair value of financial assets available for sale transfered to the statement of income (141,946) Gain from impairment to financial assets available for sale transferred to statement of income 34,628 Adjustments arising from translation of financial statements of foreign operations (2,851) Tax effect 7,928 Total components of other comprehensive income (loss), net, subsequently reclassified to profit or loss: (17,771) Amounts not subsequently reclassified to profit or loss Actuarial gain for defined benefit plans 1,500 Tax effect (563) Total components of other comprehensive income, net not subsequently reclassified to profit or loss: 937 Total other comprehensive income (loss), net (16,834) Total comprehensive income for the period 23,973 Attributable to: Company shareholders 15,898 Non-controlling interests 8,075 Comprehensive income for the period 23,973	Unaudited Pro Forma Adjustments NIS'000 Note (iii)(3) - - - - - - - - - - - - - - -	Adjusted amount NIS'000 40,087 84,470 (141,946) 34,628 (2,851) 7,928 (17,771) 1,500 (563) 937 (16,834) 23,973 15,898 8,075 23,973
Actuarial gain for defined benefit plans Tax effect Total components of other comprehensive not subsequently reclassified to profit or loss: Total other comprehensive income (loss), net Total comprehensive income for the period Attributable to: Company shareholders Non-controlling interests Comprehensive income for the period

— 421 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Financial Position of the PH Group as at 31 December 2014

Unaudited Pro Forma
Audited amount
Ajdustments
NIS'000
NIS'000
Note (iii)(1)
Note (iii)(3)
Intangible assets
1,754,454
-
Deferred tax assets
7,906
-
Deferred acquisition costs
1,358,127
(1,358,127)
Property, plant and equipment
370,604
-
Investments in associates
582,819
-
Investment property for unit linked contracts
1,094,954
-
Other investment property
1,857,433
-
Reinsurance assets
1,398,926
-
Credit for acquisition of securities
160,000
-
Current tax assets
42,083
-
Debtors and receivables
261,933
179,358
Premiums collectible
596,844
-
Financial investments for
unit linked contracts
31,438,806
-
Assets for holders of debentures, ETFs,
reverse certificates, complex certificates,
certificates of deposit, and structured bonds
39,026,300
-
Other financial investments:
Marketable debt assets
5,503,979
-
Non-marketable debt assets
10,570,471
-
Shares
745,245
-
Others
1,236,905
-
Cash and cash equivalents
for unit linked contracts
2,651,399
-
Other cash and cash equivalents
677,461
-
Total Assets
101,336,649
(1,178,769)
Liabilities for non-unit linked insurance
contracts and investment contracts
18,381,210
(470,687)
Liabilities for unit linked insurance
contracts and investment contracts
35,149,671
(708,082)
Liabilities for deferred taxes
425,226
-
Liabilities for employee benefits, net
113,254
-
Liabilities for current taxes
8,560
-
Creditors and payables
1,330,301
-
Liabilities for debentures, ETFs,
reverse certificates and complex certificates,
certificates of deposit,
and structured debentures
38,404,175
-
Financial liabilities
3,595,110
-
Total liabilities
97,407,507
**(1,178,769) **

Adjusted amount
NIS'000
1,754,454
7,906

-
370,604
582,819
1,094,954
1,857,433
1,398,926
160,000
42,083
441,291
596,844
31,438,806
39,026,300
5,503,979
10,570,471
745,245
1,236,905
2,651,399
677,461
100,157,880

17,910,523

34,441,589
425,226
113,254
8,560
1,330,301
38,404,175
3,595,110
96,228,738

— 422 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Financial Position of the PH Group as at 31 December 2014

Capital Share capital Premium and capital reserves on shares Treasury shares Capital reserves Retained earnings Total equity attributed to Company shareholders Non-controlling interests Total shareholders’ equity	Audited amount NIS'000 Note (iii)(1) 304,258 667,842 (36,637) 200,709 2,668,873 3,805,045 124,097 3,929,142	Unaudited Pro Forma Adjustments NIS'000 Note (iii)(3) - - - - - - - -	Adjusted amount NIS'000 304,258 667,842 (36,637) 200,709 2,668,873
			3,805,045
			124,097
			3,929,142

— 423 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Income of the PH Group for the year ended 31 December 2014

Premiums earned, gross Premiums earned by reinsurers Premiums earned in retention Investment gains, net, and financing income Management fees Revenue from commissions Income from other financial services Other revenue Total revenue Payments and changes in liabilities for insurance contracts and investment contracts, gross Share of reinsurers in payments and changes in liabilities for insurance contr Payments and changes in liabilities for insurance contracts and investment contracts in retention Commissions, marketing expenses, and other acquisition costs General and administrative expenses Other expenses Finance expenses Total expenses Share in earnings of investees treated under the equity method Income before taxes on income Taxes on income Income for the year Attributable to: Company shareholders Non-controlling interests Income for the year Earnings per share attributed to shareholders (in NIS): Basic earnings per share Earnings per ordinary share of NIS 1 par value (NIS) Diluted earnings per share Earnings per ordinary share of NIS 1 par value (NIS)	Audited amount NIS'000 Note (iii)(1) 7,698,273 644,363 7,053,910 2,774,430 857,811 259,231 202,822 41,949 11,190,153 8,397,290 acts 450,734 7,946,556 1,313,780 1,030,271 36,056 126,560 10,453,223 45,933 782,863 251,678 531,185 504,480 26,705 531,185 2.05 2.05	Unaudited Pro Forma Adjustments NIS'000 Note (iii)(3) - - - - - - - - - - - - - - - - - - - - - - - -	Adjusted amount NIS'000 7,698,273 644,363 7,053,910 2,774,430 857,811 259,231 202,822 41,949 11,190,153 8,397,290 450,734 7,946,556 1,313,780 1,030,271 36,056 126,560 10,453,223 45,933 782,863 251,678 531,185 504,480 26,705 531,185 2.05 2.05

— 424 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Comprehensive Income of the PH Group for the year ended 31 December 2014

Unaudited Pro Forma
Audited amount
Adjustments
NIS'000
NIS'000
Note (iii)(1)
Note (iii)(3)
Income for the year
531,185
-
Other comprehensive income (loss)
Amounts classified or reclassified to profit
or loss under specific conditions
Net change in the fair value of financial assets
available for sale attributed to capital reserves
105,593
-
Net change in the fair value of financial assets
available for sale transfered
to the statement of income
(285,574)
-
Gain from impairment to financial assets available for
sale transferred to statement of income
70,593
-
Adjustments arising from translation of financial
statements of foreign operations
6,402
-
Tax effect
40,057
-
Total components of other comprehensive loss,
net, subsequently reclassified
to profit or loss:
(62,929)
-
Amounts not subsequently reclassified to profit or loss
Actuarial gain for defined benefit plans
3,697
-
Tax effect
(1,260)
-
Total components of other comprehensive income, net
not subsequently reclassified
to profit or loss:
2,437
-
Total other comprehensive loss, net
(60,492)
-
Total comprehensive income for the year
470,693
-
Attributable to:
Company shareholders
443,971
-
Non-controlling interests
26,722
-
Comprehensive income for the year
470,693
-

Adjusted amount
NIS'000

531,185
105,593
(285,574)
70,593
6,402
40,057
(62,929)
3,697
(1,260)
2,437
(60,492)
470,693
443,971
26,722
470,693

Actuarial gain for defined benefit plans
Tax effect
Total components of other comprehensive
not subsequently reclassified
to profit or loss:
Total other comprehensive loss, net
Total comprehensive income for the year
Attributable to:
Company shareholders
Non-controlling interests
Comprehensive income for the year

— 425 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Financial Position of the PH Group as at 31 December 2013

Unaudited Pro Forma
Audited amount
Adjustments
NIS'000
NIS'000
Note (iii)(1)
Note (iii)(3)
Intangible assets
1,702,838
-
Deferred tax assets
6,844
-
Deferred acquisition costs
1,216,702
(1,216,702)
Property, plant and equipment
376,954
-
Investments in associates
488,913
-
Investment property for unit linked contracts
1,005,774
-
Other investment property
1,725,908
-
Reinsurance assets
1,364,409
-
Credit for acquisition of securities
165,000
-
Current tax assets
35,314
-
Debtors and receivables
312,162
120,794
Premiums collectible
556,774
-
Financial investments for
unit linked contracts
27,634,603
-
Assets for holders of debentures, ETFs,
reverse certificates, complex certificates,
certificates of deposit, and structured bonds
35,478,244
-
Other financial investments:
Marketable debt assets
5,424,370
-
Non-marketable debt assets
10,085,236
-
Shares
646,193
-
Others
1,023,270
-
Cash and cash equivalents
for unit linked contracts
2,240,940
-
Other cash and cash equivalents
585,981
-
Total Assets
92,076,429
(1,095,908)
Liabilities for non-unit linked insurance
contracts and investment contracts
17,545,565
(418,944)
Liabilities for unit linked insurance
contracts and investment contracts
30,892,508
(676,964)
Liabilities for deferred taxes
426,332
-
Liabilities for employee benefits, net
114,707
-
Liabilities for current taxes
12,318
-
Creditors and payables
1,207,373
-
Liabilities for debentures, ETFs,
reverse certificates and complex certificates,
certificates of deposit,
and structured debentures
34,911,165
-
Financial liabilities
3,312,116
-
Total liabilities
88,422,084
**(1,095,908) **

Adjusted amount
NIS'000
1,702,838
6,844

-
376,954
488,913
1,005,774
1,725,908
1,364,409
165,000
35,314
432,956
556,774
27,634,603
35,478,244
5,424,370
10,085,236
646,193
1,023,270
2,240,940
585,981
90,980,521

17,126,621

30,215,544
426,332
114,707
12,318
1,207,373
34,911,165
3,312,116
87,326,176

— 426 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Financial Position of the PH Group as at 31 December 2013

Capital Share capital Premium and capital reserves on shares Treasury shares Capital reserves Retained earnings Total equity attributed to Company shareholders Non-controlling interests Total shareholders’ equity	Unaudited Pro Forma Audited amount Adjustments NIS'000 NIS'000 Note (iii)(1) Note (iii)(3) 304,216 - 667,268 - (31,848) - 256,512 - 2,361,357 - 3,557,505 - 96,840 - 3,654,345 -	Adjusted amount NIS'000 304,216 667,268 (31,848) 256,512 2,361,357
		3,557,505
		96,840
		3,654,345

— 427 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Income of the PH Group for the year ended 31 December 2013

Premiums earned, gross Premiums earned by reinsurers Premiums earned in retention Investment gains, net, and financing income Management fees Revenue from commissions Income from other financial services Other revenue Total revenue Payments and changes in liabilities for insurance contracts and investment contracts, gross Share of reinsurers in payments and changes in liabilities for insurance contr Payments and changes in liabilities for insurance contracts and investment contracts in retention Commissions, marketing expenses, and other acquisition costs General and administrative expenses Other expenses Finance expenses Total expenses Share in earnings of investees treated under the equity method Income before taxes on income Taxes on income Income for the year Attributable to: Company shareholders Non-controlling interests Income for the year Earnings per share attributed to shareholders (in NIS): Basic earnings per share Earnings per ordinary share of NIS 1 par value (NIS) Diluted earnings per share Earnings per ordinary share of NIS 1 par value (NIS)	Unaudited Pro Forma Audited amount Adjustments NIS'000 NIS'000 Note (iii)(1) Note (iii)(3) 7,474,057 - 647,954 - 6,826,103 - 4,547,484 - 875,490 - 263,923 - 178,525 - 34,716 - 12,726,241 - 9,553,515 - acts 448,941 - 9,104,574 - 1,187,296 - 1,027,442 - 99,299 - 181,203 - 11,599,814 - 51,666 - 1,178,093 - 417,967 - 760,126 - 739,033 - 21,093 - 760,126 - 3.02 3.02	Adjusted amount NIS'000 7,474,057 647,954 6,826,103 4,547,484 875,490 263,923 178,525 34,716 12,726,241 9,553,515 448,941 9,104,574 1,187,296 1,027,442 99,299 181,203 11,599,814 51,666 1,178,093 417,967 760,126 739,033 21,093 760,126 3.02 3.02

— 428 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Comprehensive Income of the PH Group for the year ended 31 December 2013

Unaudited Pro Forma
Audited amount
Adjustments
NIS'000
NIS'000
Note (iii)(1)
Note (iii)(3)
Income for the year
760,126
-
Other comprehensive income (loss)
Amounts classified or reclassified to profit
or loss under specific conditions
Net change in the fair value of financial assets
available for sale attributed to capital reserves
314,349
-
Net change in the fair value of financial assets
available for sale transfered
to the statement of income
(310,444)
-
Gain from impairment to financial assets available for
sale transferred to statement of income
13,707
-
Adjustments arising from translation of financial
statements of foreign operations
(3,529)
-
Tax effect
(11,663)
-
Total components of other comprehensive income,
net, subsequently reclassified
to profit or loss:
2,420
-
Amounts not subsequently reclassified to profit or loss
Actuarial gain for defined benefit plans
4,949
-
Tax effect
(1,832)
-
Total components of other comprehensive income, net
not subsequently reclassified
to profit or loss:
3,117
-
Total other comprehensive income, net
5,537
-
Total comprehensive income for the year
765,663
-
Attributable to:
Company shareholders
744,468
-
Non-controlling interests
21,195
-
Comprehensive income for the year
765,663
-

Adjusted amount
NIS'000

760,126
314,349
(310,444)
13,707
(3,529)
(11,663)
2,420
4,949
(1,832)
3,117
5,537
765,663
744,468
21,195
765,663

Actuarial gain for defined benefit plans
Tax effect
Total components of other comprehensive
not subsequently reclassified
to profit or loss:
Total other comprehensive income, net
Total comprehensive income for the year
Attributable to:
Company shareholders
Non-controlling interests
Comprehensive income for the year

— 429 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Financial Position of the PH Group as at 31 December 2012

Unaudited Pro Forma
Audited amount
Adjustments
NIS'000
NIS'000
Note (iii)(1)
Note (iii)(3)
Intangible assets
1,714,984
-
Deferred tax assets
36,835
-
Deferred acquisition costs
1,101,493
(1,101,493)
Property, plant and equipment
428,533
-
Investments in associates
465,054
-
Investment property for unit linked contracts
444,906
-
Other investment property
1,326,156
-
Reinsurance assets
1,352,112
-
Credit for acquisition of securities
237,000
-
Current tax assets
40,680
-
Debtors and receivables
440,150
97,871
Premiums collectible
571,841
-
Financial investments for
unit linked contracts
23,231,004
-
Financial investments for holders of debentures,
exchange-traded funds , reverse certificates, complex
certificates, certificates of deposit,
and structured bonds
11,455,979
-
Other financial investments:
Marketable debt assets
5,277,927
-
Non-marketable debt assets
8,784,551
-
Shares
585,409
-
Others
850,571
-
Cash and cash equivalents pledged for
holders of debentures, exchange-traded
funds, reverse certificates, complex certificates,
certificates of deposit, and structured bonds
14,367,000
-
Cash and cash equivalents
for unit linked contracts
1,700,297
-
Other cash and cash equivalents
965,632
-
Total Assets
75,378,114
**(1,003,622) **

Adjusted amount
NIS'000
1,714,984
36,835

-
428,533
465,054
444,906
1,326,156
1,352,112
237,000
40,680
538,021
571,841
23,231,004
11,455,979
5,277,927
8,784,551
585,409
850,571
14,367,000
1,700,297
965,632
74,374,492

— 430 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Financial Position of the PH Group as at 31 December 2012

Unaudited Pro Forma
Audited amount Adjustments
NIS'000
NIS'000
Note (iii)(1)
Note (iii)(3)
Liabilities for non-unit linked insurance
contracts and investment contracts
15,918,319
(346,913)
Liabilities for unit linked insurance
contracts and investment contracts
25,521,266
(656,709)
Liabilities for deferred taxes
376,160
-
Liabilities for employee benefits, net
119,178
-
Liabilities for current taxes
15,486
-
Creditors and payables
1,390,708
-
Liabilities for debentures, ETFs,
reverse certificates and complex certificates,
certificates of deposit,
and structured debentures
25,148,994
-
Financial liabilities
3,552,587
-
Provision for payment for
acquisition of an investee
86,007
-
Total liabilities
72,128,705
(1,003,622)
Capital
Share capital
301,603
-
Premium and capital reserves on shares
641,414
-
Treasury shares
(31,862)
-
Capital reserves
257,645
-
Retained earnings
1,943,203
-
Total equity attributed to
Company shareholders
3,112,003
-
Non-controlling interests
137,406
-
Total shareholders’ equity
3,249,409
-

Adjusted amount
NIS'000

15,571,406

24,864,557
376,160
119,178
15,486
1,390,708
25,148,994
3,552,587
86,007
71,125,083
301,603
641,414
(31,862)
257,645
1,943,203
3,112,003
137,406
3,249,409

— 431 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Income of the PH Group For the year ended 31 December 2012

Premiums earned, gross Premiums earned by reinsurers Premiums earned in retention Investment gains, net, and financing income Management fees Revenue from commissions Income from other financial services Other revenue Total revenue Payments and changes in liabilities for insurance contracts and investment contracts, gross Share of reinsurers in payments and changes in liabilities for insurance contr Payments and changes in liabilities for insurance contracts and investment contracts in retention Commissions, marketing expenses, and other acquisition costs General and administrative expenses Other expenses Finance expenses Total expenses Share in earnings of investees treated under the equity method Income before taxes on income Taxes on income Income for the year Attributable to: Company shareholders Non-controlling interests Income for the year Earnings per share attributed to shareholders (in NIS): Basic earnings per share Earnings per ordinary share of NIS 1 par value (NIS) Diluted earnings per share Earnings per ordinary share of NIS 1 par value (NIS)	Unaudited Pro Forma Audited amount Adjustments NIS'000 NIS'000 Note (iii)(1) Note (iii)(3) 7,153,960 - 670,322 - 6,483,638 - 3,316,941 - 637,758 - 247,562 - 177,987 - 38,119 - 10,902,005 - 8,579,205 - acts 386,217 - 8,192,988 - 1,121,062 - 941,986 - 67,417 - 201,616 - 10,525,069 - 41,079 - 418,015 - 138,511 - 279,504 - 249,554 - 29,950 - 279,504 - 1.02 1.02	Adjusted amount NIS'000 7,153,960 670,322 6,483,638 3,316,941 637,758 247,562 177,987 38,119 10,902,005 8,579,205 386,217 8,192,988 1,121,062 941,986 67,417 201,616 10,525,069 41,079 418,015 138,511 279,504 249,554 29,950 279,504 1.02 1.02

— 432 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(ii) Unaudited Pro Forma Financial Information of the PH Group (Continued)

Unaudited Pro Forma Consolidated Statement of Comprehensive Income of the PH Group for the year ended 31 December 2012

Unaudited Pro Forma
Audited amount
Adjustments
NIS'000
NIS'000
Note (iii)(1)
Note (iii)(3)
Income for the year
279,504
-
Other comprehensive income (loss)
Amounts classified or reclassified to profit
or loss under specific conditions
Net change in the fair value of financial assets
available for sale attributed to capital reserves
325,812
-
Net change in the fair value of financial assets
available for sale transfered
to the statement of income
(147,831)
-
Gain from impairment to financial assets available for
sale transferred to statement of income
78,014
-
Adjustments arising from translation of financial
statements of foreign operations
22,255
-
Tax effect
(93,321)
-
Total components of other comprehensive loss,
net, subsequently reclassified
to profit or loss:
184,929
-
Amounts not subsequently reclassified to profit or loss
Actuarial gain for defined benefit plans
1,762
-
Tax effect
(593)
-
Total components of other comprehensive income, net
not subsequently reclassified
to profit or loss:
1,169
-
Total other comprehensive income, net
186,098
-
Total comprehensive income for the year
465,602
-
Attributable to:
Company shareholders
435,652
-
Non-controlling interests
29,950
-
Comprehensive income for the year
465,602
-

Adjusted amount
NIS'000

279,504
325,812
(147,831)
78,014
22,255
(93,321)
184,929
1,762
(593)
1,169
186,098
465,602
435,652
29,950
465,602

— 433 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(iii) Notes to the Unaudited Pro Forma Financial Information of the PH Group
The historical audited consolidated statements of income and consolidated statements of comprehensive income for each of the years ended 31 December 2012, 2013 and 2014 and consolidated statements of financial position as at 31 December 2012, 2013 and 2014 have been extracted by the Directors from the PH Group’s published annual reports for the years ended 31 December 2013 and 2014 which were audited by Ernst & Young Israel;
The historical reviewed consolidated statement of income and consolidated statement of comprehensive income for the six months ended 30 June 2015 and consolidated statement of financial position as at 30 June 2015 of the PH Group have been extracted by the Directors from PH Group’s published interim reports for the six months ended 30 June 2015 which were reviewed by Ernst & Young Israel;
The Pro Forma Adjustments represent the significant differences between the International Financial Reporting Standards and accounting policies adopted by the PH Group and the Fosun Polices, which relates to deferred acquisition costs (“DAC”). DAC are presented as an asset on the consolidated statement of financial position of the PH Group, while under the Fosun Polices, they are either presented as other receivables (if reimbursable from third parties) or deducted from related insurance contracts and investment contracts liabilities (if related to insurance contracts and investment contracts that are issued).

— 434 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(iv) ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE PH GROUP

The following is the text of a report received from the Company’s reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE PH GROUP

Ernst & Young �� Tel��: +852 2846 9888 22/F, CITIC Tower ��1� Fax��: +852 2868 4432 1 Tim Mei Avenue ��22� ey.com Central, Hong Kong

31 December 2015

To the Directors of Fosun International Limited

We have completed our assurance engagement to report on compilation of the pro forma financial information of Phoenix Holdings Ltd. and its subsidiaries (the “PH Group”), by the directors of Fosun International Limited (the “Directors”) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statements of income and the unaudited pro forma consolidated statements of comprehensive income of the PH Group for each of the years ended 31 December 2012, 2013, 2014 and the six months ended 30 June 2015 and the unaudited pro forma consolidated statements of financial position of the PH Group as at 31 December 2012, 2013, 2014 and 30 June 2015 (the “Pro Forma Financial Information of the PH Group”) in connection with the acquisition (the “Acquisition”) of 52.31% equity interests of the PH Group by PI Emerald II (UK) Limited (an indirect wholly-owned subsidiary of Fosun International Limited). The applicable criteria on the basis of which the Directors have compiled the Pro Forma Financial Information of the PH Group are set out in Part (C) of Appendix II to the Circular.

The Pro Forma Financial Information of the PH Group has been compiled by the Directors to illustrate the impact on the consolidated statements of income and the consolidated statements of comprehensive income of the PH Group for each of the years ended 31 December 2012, 2013, 2014 and the six months ended 30 June 2015 and the consolidated statements of financial position of the PH Group as at 31 December 2012, 2013, 2014 and 30 June 2015 (the “Consolidated Financial Statements”) as if the Hong Kong Financial Reporting Standards (the “HKFRS”) and the accounting policies adopted by Fosun International Limited (the “Fosun Policies”) had been adopted by the PH Group for each of the years ended 31 December 2012, 2013 and 2014 and for the six months ended 30 June 2015. As part of this process, the Consolidated Financial Statements of the PH Group have been extracted by the Directors from the PH Group’s published annual reports for the years ended 31 December 2013 and 2014 which were audited by Ernst & Young Israel and the six months ended 30 June 2015, which were reviewed by Ernst & Young Israel as set out in Appendix II to the Circular.

— 435 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

Directors’ responsibility for the Pro Forma Financial Information

The Directors are responsible for compiling the Pro Forma Financial Information of the PH Group in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline (“AG”) 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

Our independence and quality control

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

Our firm applies Hong Kong Standard on Quality Control 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting accountant’s responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Pro Forma Financial Information of the PH Group and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Pro Forma Financial Information of the PH Group beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Pro Forma Financial Information, in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Pro Forma Financial Information of the PH Group, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Pro Forma Financial Information of the PH Group.

The purpose of Pro Forma Financial Information of the PH Group included in the Circular is solely to illustrate the impact of the significant effects on the Consolidated Financial Statements of the PH Group as if the Fosun Policies had been adopted by the PH Group for each of years ended 31 December 2012, 2013 and 2014 and for the six months ended 30 June 2015, for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the transaction would have been as presented.

— 436 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

A reasonable assurance engagement to report on whether the Pro Forma Financial Information of the PH Group has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Pro Forma Financial Information of the PH Group provide a reasonable basis for presenting the significant effects of adopting the Fosun Policies, and to obtain sufficient appropriate evidence about whether:

The related pro forma adjustments give appropriate effect to those criteria; and
The Pro Forma Financial Information of the PH Group reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the PH Group, the Fosun Policies in respect of which the Pro Forma Financial Information of the PH Group has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Pro Forma Financial Information of the PH Group.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

(a) the Pro Forma Financial Information of the PH Group has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of Fosun International Limited; and
(c) the adjustments are appropriate for the purpose of the Pro Forma Financial Information of the PH Group as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

Ernst & Young Certified Public Accountants Hong Kong

— 437 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

(D) SUPPLEMENTAL FINANCIAL INFORMATION OF PH GROUP

The Company sets out the following supplemental financial information of the PH Group, prepared under IFRS, which were not included in the published audited financial statements of PH Group:

1. DIRECTORS' AND CHIEF EXECUTIVE'S REMUNERATION

Directors’ and chief executive’s remuneration during the relevant periods, disclosed pursuant to the Listing Rules and Hong Kong Companies Ordinance, is as follows:

Fees Other emoluments: Salaries Bonuses Share-based payment	2014 NIS’000 3,375 3,653 1,000 � 4,653 8,028	2013 NIS’000 3,931 3,819 4,900 4,906 13,625 17,556	2012 NIS’000 3,481
			3,712 � 3,812
			7,524
			11,005

Certain director and chief executive were granted share options in respect of their services to the PH Group, further details of which are included in the disclosures in note 36 to the financial statements as set out in Part (A) of Appendix II to the Circular.

(a) Independent directors

The fees paid to independent directors during the relevant periods were as follows:

Tamir Agmon Roni Maliniyak	2014 NIS’000 660 580 1,240	2013 NIS’000 652 594 1,246	2012 NIS’000 479 454
			933

There were no other emoluments payables to the independent directors during the relevant periods.

— 438 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

DIRECTORS' AND CHIEF EXECUTIVE'S REMUNERATION (CONTINUED)

(b) Non-independent directors and the chief executive

2014 Non-independent directors: Moshe Bareket Avi Harel Israel Kez Omer Shachar Pratt Levin Leora Bartfeld Asaf Chief executive: Eyal Lapidot 2013 Non-independent directors: Moshe Bareket Avi Harel Israel Kez Omer Shachar Pratt Levin Leora Bartfeld Asaf Chief executive: Eyal Lapidot 2012 Non-independent directors: Moshe Bareket* Avi Harel Israel Kez Omer Shachar Pratt Levin Leora Bartfeld Asaf Chief executive: Eyal Lapidot	Fee NIS’000 713 549 237 248 207 181 2,135 � 2,135 1,260 586 209 212 213 205 2,685 � 2,685 1,483 377 190 182 115 201 2,548 � 2,548	Salaries NIS’000 � � � � � � � 3,653 3,653 � � � � � � � 3,819 3,819 � � � � � � � 3,712 3,712	Bonus NIS’000 � � � � � � � 1,000 1,000 350 � � � � � 350 4,550 4,900 � � � � � � � � �	Share-based payment NIS’000 � � � � � � � � � 2,812 � � � � � 2,812 2,094 4,906 751 � � � � � 751 3,061 3,812	Total remuneration NIS’000 713 549 237 248 207 181
					2,135 4,653
					6,788
					4,422 586 209 212 213 205
					5,847 10,463
					16,310
					2,234 377 190 182 115 201
					3,299 6,773
					10,072

In November 2014, Dr Moshe Bareket ceased his service as director of Phoenix Holdings.

There was no arrangement under which a non-independent director or the chief executive waived or agreed to waive any remuneration during the relevant periods.

— 439 —

FINANCIAL INFORMATION OF THE PH GROUP

APPENDIX II

2. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the relevant periods included the chief executive (2013: one director and the chief executive; 2012: the chief executive), details of whose remuneration are set out above. Details of the remuneration for the relevant periods of the remaining four (2013: three; 2012: four) highest paid employees who are neither a director nor chief executive of the Phoenix Holdings are as follows:

Salaries Bonuses Share-based payment Other compensation	2014 NIS’000 4,538 5,292 2,445 4,599 16,874	2013 NIS’000 1,897 5,115 � 4,556 11,568	2012 NIS’000 3,038 12,364 � 4,453
			19,855

The number of non-director and non-chief executive highest paid employees whose remuneration fell within the following bands is as follows:

HK$6,000,001 to HK$6,500,000 HK$6,500,001 to HK$7,000,000 HK$7,000,001 to HK$7,500,000 HK$7,500,001 to HK$8,000,000 HK$8,000,001 to HK$8,500,000 HK$8,500,001 to HK$9,000,000 HK$9,000,001 to HK$9,500,000 HK$9,500,001 to HK$10,000,000 HK$1,000,0001 to HK$10,500,000 HK$10,500,001 to HK$11,000,000 HK$11,000,001 to HK$17,000,000 HK$17,000,001 to HK$17,500,000	Number of employees 2014 2013 2012 � � 1 1 � � � 1 1 1 1 � � � � 1 � � � � � � � � 1 � 1 � 1 � � � � � � 1 4 3 4	Number of employees 2014 2013 2012 � � 1 1 � � � 1 1 1 1 � � � � 1 � � � � � � � � 1 � 1 � 1 � � � � � � 1 4 3 4
		4

During the relevant periods, share options were granted to certain non-director and non-chief executive highest paid employees in respect of their services to the Group, further details of which are included in the disclosures in note 36 to the financial statements as set out in Part (A) of Appendix II to the Circular.

— 440 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
(i) Basis of preparation of the unaudited pro forma financial information of the Enlarged Group

To provide additional financial information, the unaudited pro forma statement of assets and liabilities (the “Unaudited Pro Forma Financial Information”) of the Enlarged Group (being the Group together with the Phoenix Holdings Ltd., and its subsidiaries (hereinafter collectively referred to the “PH Group”)) as at 30 June 2015 has been prepared based on:

(a) the historical unaudited consolidated statement of financial position of the Group as at 30 June 2015 which has been extracted from the published interim report for the period ended 30 June 2015 of the Company;
(b) the consolidated statements of financial position of the PH Group as at 30 June 2015 which has been extracted from Appendix II to this circular; and
(c) after taking into account of the unaudited pro forma adjustments as described in the notes thereto to demonstrate how the acquisition of 52.31% equity interests of the PH Croup (“Acquisition Transaction”) might have affected the historical financial information in respect of the Group as if the Acquisition Transaction had been completed on 30 June 2015.

The Unaudited Pro Forma Financial Information of the Enlarged Group should be read in conjunction with the financial information contained in this circular and the consolidated financial statements of the PH Group as set out in Appendix II to this circular.

The Unaudited Pro Forma Financial Information of the Enlarged Group is for illustrative purposes only, and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group as at 30 June 2015 or at any future date.

— 441 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(ii) Unaudited Pro Forma Financial Information of the Enlarged Group

NON-CURRENT ASSETS Property, plant and equipment Investment properties Prepaid land lease payments Exploration and evaluation assets Mining rights Oil and gas assets Intangible assets Goodwill Investments in joint ventures Investments in associates Investments in subsidiaries Investments at fair value through profit or loss Available-for-sale investments Properties under development Loans receivable Prepayments, deposits and other receivables Deferred tax assets Inventories Policyholder account assets in respect of unit-linked contracts Insurance and reinsurance debtors Reinsurers’ share of insurance contract provisions Term deposits Deferred acquisition costs Investment property for unit linked contracts Other investment property Reinsurance assets Debtors and receivables Financial investments for unit linked contracts Assets for holders of debentures, exchange-traded funds, reverse certificates, complex certificates, certificates of deposit, and structured bonds Other financial investments Total non-current assets	The Group as at 30 June 2015 RMB’000 note 1 41,048,534 17,610,829 3,034,234 178,285 665,909 1,333,194 2,559,372 9,520,329 8,316,142 31,748,766 — — 69,969,400 11,465,372 1,567,979 4,530,110 4,568,949 64,624 3,711,109 51,655 463,592 379,934 — — — — — — — — 212,788,318	The PH Group as at 30 June 2015 Unaudited Pro Forma Adjustments RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 note 2 note 3 note 4 note 5 note 6 593,704 — 3,037,527 — — — — 2,821,652 (1,478,896) — 1,478,896 (918,381) — 917,746 — 3,024,212 (3,024,212) — 210,243 — 8,758,328 — — 17,433,816 — 324,983 14,591 — — 53,959,309 — — 1,373,907 — 1,967,648 (1,967,648) 1,677,906 (1,677,906) 3,037,527 (3,037,527) 1,373,907 (1,373,907) 7,415 (7,415) 52,281,403 (52,281,403) 683,175 26,402,388 (26,402,388) 91,779,062	Unaudited Pro Forma Enlarged Group as at 30 June 2015 RMB’000 41,642,238 20,648,356 3,034,234 178,285 665,909 1,333,194 3,902,128 10,080,844 8,316,142 32,666,512 — 210,243 78,727,728 11,465,372 19,001,795 4,855,093 4,583,540 64,624 57,670,418 51,655 1,837,499 379,934 — — — — — — 683,175 —
			301,998,918

— 442 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

CURRENT ASSETS Cash and bank Investments at fair value through profit or loss Trade and notes receivables Prepayments, deposits and other receivables Inventories Completed properties for sale Properties under development Loans receivable Due from related companies Available-for-sale investments Policyholder account assets in respect of unit-linked contracts Insurance and reinsurance debtors Reinsurers’ share of insurance contract provisions Deferred acquisition costs Reinsurance assets Credit for acquisition of securities Current tax assets Debtors and receivables Premiums collectible Assets for holders of debentures, exchange-traded funds, reverse certificates, complex certificates, certificates of deposit, and structured bonds Other current financial investments Cash and cash equivalents for unit linked contracts Other cash and cash equivalents Non-current assets/assets of a disposal group classified as held for sale Total current assets	The Group as at 30 June 2015 RMB’000 note 1 36,734,552 15,277,127 7,687,079 14,926,022 6,523,914 10,319,037 21,295,385 3,355,089 5,353,701 14,969,964 1,053,985 2,478,328 707,686 — — — — — — — — — — 140,681,869 56,127 140,737,996	The PH Group as at 30 June 2015 Unaudited Pro Forma Adjustments Unaudited Pro Forma Enlarged Group as at 30 June 2015 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 note 2 note 3 note 4 note 5 note 6 — 930,400 (1,512,106) (30,000) 36,122,846 — 87,421 15,364,548 — 7,687,079 — 656,537 15,582,559 — 6,523,914 — 10,319,037 — 21,295,385 — 688,033 4,043,122 — 5,353,701 — 3,713,509 18,683,473 — 7,133,573 8,187,558 — 1,085,168 3,563,496 — 756,488 1,464,174 353,129 (353,129) — 756,488 (756,488) — 327,018 (327,018) — 164,320 (164,320) — 492,217 (492,217) — 1,085,168 (1,085,168) — 53,919,123 53,919,123 4,161,944 (4,161,944) — 7,133,573 (7,133,573) — 930,400 (930,400) — 69,323,380 208,110,015 — 56,127 69,323,380 208,166,142	The PH Group as at 30 June 2015 Unaudited Pro Forma Adjustments Unaudited Pro Forma Enlarged Group as at 30 June 2015 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 note 2 note 3 note 4 note 5 note 6 — 930,400 (1,512,106) (30,000) 36,122,846 — 87,421 15,364,548 — 7,687,079 — 656,537 15,582,559 — 6,523,914 — 10,319,037 — 21,295,385 — 688,033 4,043,122 — 5,353,701 — 3,713,509 18,683,473 — 7,133,573 8,187,558 — 1,085,168 3,563,496 — 756,488 1,464,174 353,129 (353,129) — 756,488 (756,488) — 327,018 (327,018) — 164,320 (164,320) — 492,217 (492,217) — 1,085,168 (1,085,168) — 53,919,123 53,919,123 4,161,944 (4,161,944) — 7,133,573 (7,133,573) — 930,400 (930,400) — 69,323,380 208,110,015 — 56,127 69,323,380 208,166,142
			208,110,015 56,127
			208,166,142

— 443 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

CURRENT LIABILITIES Interest-bearing bank and other borrowings Loans from related companies Trade and notes payables Accrued liabilities and other payables Tax payable Finance lease payables Deposit from customers Due to the holding company Due to related companies Derivative financial instruments Unearned premium provisions Provision for outstanding claims Provision for unexpired risks Financial liabilities for unit-linked contracts Investment contract liabilities Other life insurance contract liabilities Insurance and reinsurance creditors Liabilities for non-unit linked insurance contracts and investment contracts Liabilities for unit linked insurance contracts and investment contracts Liabilities for current taxes Creditors and payables Liabilities for debentures, ETFs, reverse certificates and complex certificates, certificates of deposit, and structured debentures Financial liabilities Total current liabilities	The Group as at 30 June 2015 RMB’000 note 1 55,052,949 193,000 22,325,499 30,089,327 4,911,097 78,357 1,274,133 1,412,193 2,757,138 78,958 3,036,946 5,628,903 461,093 895,685 7,188,163 1,469,295 1,444,622 — — — — — — 138,297,358	The PH Group as at 30 June 2015 Unaudited Pro Forma Adjustments RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 note 2 note 3 note 4 note 5 note 6 — 356,626 — — — 3,186,142 — — — — — — 66,375 — 632,765 — 2,566,235 — — 2,590,240 — — 485,670 — 4,037,799 (4,037,799) 2,590,240 (2,590,240) 14,356 (14,356) 1,717,486 (1,717,486) 52,850,404 1,877,301 (1,877,301) 63,087,586	Unaudited Pro Forma Enlarged Group as at 30 June 2015 RMB’000 55,409,575 193,000 22,325,499 33,275,469 4,911,097 78,357 1,274,133 1,412,193 2,757,138 145,333 3,669,711 8,195,138 461,093 3,485,925 7,188,163 1,954,965 1,444,622 — — — — 52,850,404 —
			201,031,815

— 444 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings Convertible bonds Finance lease payables Deferred income Other long term payables Deferred tax liabilities Unearned premium provisions Provision for outstanding claims Financial liabilities for unit-linked contracts Investment contract liabilities Other life insurance contract liabilities Liabilities for non-unit linked insurance contracts and investment contracts Liabilities for unit linked insurance contracts and investment contracts Liabilities for deferred taxes Liabilities for employee benefits, net Creditors and payables Liabilities for debentures, ETFs, reverse certificates and complex certificates, certificates of deposit, and structured debentures Financial liabilities Total non-current liabilities Net assets EQUITY Equity attributable to owners of the parent Share capital and other statutory capital reserves Equity component of convertible bonds Other reserves Share capital Premium and capital reserves on shares Treasury shares Capital reserves Retained earnings Non-controlling interests Total equity	The Group as at 30 June 2015 RMB’000 note 1 41,427,421 326,261 131,292 463,492 4,743,624 6,909,258 — 7,846,778 3,869,399 44,099,480 11,158,540 — — — — — — — 120,975,545 94,253,411 26,425,973 91,193 36,797,812 — — — — — 63,314,978 30,938,433 94,253,411	The PH Group as at 30 June 2015 Unaudited Pro Forma Adjustments Unaudited Pro Forma Enlarged Group as at 30 June 2015 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 note 2 note 3 note 4 note 5 note 6 — 3,851,567 1,512,106 46,791,094 — 326,261 — 131,292 — 463,492 — 386,090 5,129,714 — 616,798 7,526,056 — 473,226 473,226 — 5,184,187 13,030,965 — 57,982,569 61,851,968 — 44,099,480 — 20,859,042 32,017,582 26,938,413 (26,938,413) — 59,210,691 (59,210,691) — 616,798 (616,798) — 198,306 (198,306) — 174,551 (174,551) — 629,752 629,752 3,864,800 (3,864,800) — 91,633,311 212,470,882 6,381,545 96,662,363 — 1,513,344 (1,513,344) 26,425,973 — 91,193 — 4,675,354 (4,675,354) (30,000) 36,767,812 492,563 (492,563) — 1,081,169 (1,081,169) — (60,388) 60,388 — 300,374 (300,374) — 4,374,980 (4,374,980) — 6,188,698 63,284,978 192,847 2,246,105 33,377,385 6,381,545 96,662,363	Unaudited Pro Forma Enlarged Group as at 30 June 2015 RMB’000 46,791,094 326,261 131,292 463,492 5,129,714 7,526,056 473,226 13,030,965 61,851,968 44,099,480 32,017,582 — — — — — 629,752 —
			212,470,882
			96,662,363
			63,284,978 33,377,385
			96,662,363

— 445 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(iii) Notes to the Unaudited Pro Forma Financial Information of the Enlarged Group

(1) The balances were extracted from the published interim report for the period ended 30 June 2015 of the Company.
(2) The balances were extracted from Appendix II to this circular, adjusted for the further classification of current and non-current portion of the assets and liabilities of the PH Group, to conform to the presentation of the historical unaudited consolidated statement of financial position of the Group. Such classification is just for the purpose of the illustration of this Unaudited Pro Forma Financial Information.

The functional currency and the presentation currency of the PH Group are New Israeli Shekel (“NIS”). For illustrative purpose, the assets, liabilities and equity of the PH Group as at 30 June 2015 are translated into RMB, the presentation currency of the Group, at the exchange rate of NIS 1.00 to RMB 1.6189 as at 30 June 2015 (the exchange rates of NIS 1.00 to USD 0.2648 and USD 1.00 to RMB 6.1136 published by the State Administration of Foreign Exchanges of China prevailing as at 30 June 2015 were used to calculate the indirect exchange rate of NIS to RMB). Such translation does not constitute a representation that any amount has been, could have been, or may otherwise be exchanged or converted at the above rate.

(3) The adjustment represents the reclassification of the PH Group account balances to conform to the accounting policies and presentation of the Group.
(4) According to the purchase agreement, the total consideration for the acquisition of 52.31% interests in the PH Group represents the purchase price amounted to NIS1,763 million plus the interests calculated from 30 September 2014 to the closing date at an interest rate of 4.75% per annum. As a result, the maximum amount of consideration payable is expected to be not more than approximately NIS1,868 million which is used in pro forma adjustment.

In the opinion of the Directors, the consideration will be satisfied by a combination of the internal resources of the Group and external banking facility obtained by the Group.

The Unaudited Pro Forma Financial Information has been prepared based on the assumption that 50% of the consideration will be satisfied by the internal resources of the Group and the rest will be satisfied by long term loan facilities which is based on the management’s estimation. For the purpose to illustrate the Unaudited Pro Forma Financial Information, the exchange rate of NIS 1.00 to RMB 1.6189 as at 30 June 2015 as explained above was used to convert the cash consideration from NIS to RMB. The details are set out as follows:

Cash and bank balances Non-current portion of interest-bearing bank and other borrowings Total Consideration	NIS’000 934,033 934,033 1,868,066	RMB’000 1,512,106 1,512,106
		3,024,212

— 446 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(5) The pro forma adjustments reflect the allocation of the cost of the Acquisition Transaction to the identifiable assets and liabilities of the PH Group acquired by the Company which represent:
(a) Fair value adjustments of the identifiable assets and liabilities of the PH Group.

Upon completion of the Acquisition Transaction, the identifiable assets and liabilities of the PH Group will be accounted for in the consolidated financial statements of the Enlarged Group at fair value under the purchase method of accounting in accordance with HKFRS 3 (Revised) “Business Combinations” (“HKFRS 3”).

For the purpose of this Unaudited Pro Forma Financial Information, the Directors had assumed that the carrying amounts of the identifiable assets and liabilities of the PH Group at the completion date approximated to their fair values. The reassessment of the fair value adjustment of the identifiable assets and liabilities acquired and related deferred tax impact as at the completion date will be performed by the management and the information of the fair values of the identifiable assets and liabilities acquired is not available at the date of this circular.

(b) Recognition of goodwill in relation to the Acquisition Transaction

Goodwill of the Enlarged Group represents the excess of the estimated cost of the Acquisition Transaction over the estimated fair value of the identifiable net assets of the PH Group. For the purpose of the Unaudited Pro Forma Information, the Directors of the Company had assumed that: (1) the estimated consideration of the Acquisition Transaction was NIS1,868 million as set out in note 4 above (equivalent to RMB3,024 million at the exchange rate of NIS 1.00 to RMB 1.6189 as set out in note 2 above); and (2) the estimated fair value of the identifiable net assets of the PH Group as at 30 June 2015 is determined based on the carrying value of the net assets attributable to the equity holders of the PH Group as set out in note 5(a) above.

— 447 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Goodwill of the Enlarged Group is calculated as below:

As The consideration of the Acquisition Transaction Carrying amount of the net assets Less: Goodwill currently carried in the PH Group’s books Carrying amount of non-controlling interests Non-controlling interests of 47.69% in the PH Group Identifiable net assets acquired Goodwill arising from the Acquisition Transaction	at 30 June 2015 RMB’000 3,024,212 6,381,545 (1,478,896) (192,847) 4,709,802 (2,246,105) 2,463,697 560,515

The Group prepared this Unaudited Pro Forma Financial Information in accordance with HKFRS 3 and assumed that the carrying amounts of the identifiable assets and liabilities of the PH Group as at 30 June 2015 approximated the fair values of the PH Group. The Group has elected to measure the non-controlling interests in the PH Group at the non-controlling interests’ proportionate share of the PH Group’s identifiable assets. According to HKFRS 3, it suggests that, at the acquisition date, the acquirer shall classify or designate the identifiable assets acquired and liabilities assumed as necessary to apply other HKFRSs subsequently.

HKAS 38 “Intangible Assets” requires an intangible asset to be identifiable to distinguish it from goodwill. Goodwill recognised in a business combination is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised. Any intangible item acquired in a business combination was recognised as an asset separately from goodwill when it was identifiable and could be measured reliably. If the amount cannot be recognized as an intangible asset, it forms part of the amount recognised as goodwill at the acquisition date. Based on currently available information, the management has not identified any intangible assets to be separate from goodwill.

The Acquisition Transaction giving rise to goodwill of RMB561 million is measured at cost at initial recognition and would be subsequently tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

— 448 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Group’s accounting policies for goodwill is in accordance with the applicable accounting standards. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests over the identifiable net assets acquired and liabilities assumed. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

The Directors confirm that the basis used in the preparation of the Unaudited Pro Forma Financial Information is consistent with the accounting policies of the Group. The Group will adopt consistent accounting policies for goodwill as disclosed in its annual report for the year ended 31 December 2015, save for compliance with any new or revised HKFRS that would be issued by the HKICPA, to perform impairment assessment of the Enlarged Group’s goodwill during the future annual audit of the Enlarged Group. The Directors consider that the Group’s accounting treatment and principal assumptions used to assess the impairment of such goodwill will be the same as other acquisitions of similar nature. To the best knowledge of the Directors, the Group’s independent auditors will conduct the audit in accordance with the Hong Kong Standards on Auditing issued by the HKICPA to perform the impairment assessment of the Enlarged Group’s goodwill during the future annual audit of the Enlarged Group.

Even though the impairment assessment will be carried out in the accounting periods in the future, in view of the date of the circular, the Directors consider that the amount of goodwill as a result of the difference between the consideration and the fair value of the assets and liabilities of the PH Group is a reflection of the expected future economic benefits, i.e. the net cash flows and earnings of the PH Group.

The fair value of the identifiable assets and liabilities of the PH Group as at the closing date will be reassessed which may be substantially different from the respective value used in the unaudited pro forma statement of assets and liabilities of the Enlarged Group. Once the information of the fair value of the identifiable net assets of the PH Group is available, the goodwill recognised for identifiable assets and liabilities acquired at the closing date may be different from the amount presented above.

(6) For the purpose of the preparation of the Unaudited Pro Forma Financial Information of the Enlarge Group, the total transaction costs of legal, accountancy and other professional services related to the Acquisition Transaction are estimated to be approximately RMB30,000,000.

— 449 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(B) ACCOUNTANTS’REPORT ON UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP AS AT 30 JUNE 2015

The following is the text of a report received from the Company’s reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

Ernst & Young 22/F, CITIC Tower 1 1 Tim Mei Avenue 22 Central, Hong Kong

Tel : +852 2846 9888 Fax : +852 2868 4432 www.ey.com

31 December 2015

To the Directors of Fosun International Limited:

We have completed our assurance engagement to report on compilation of the unaudited pro forma financial information of Fosun International Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to the “Group”), the Phoenix Holdings Ltd., and its subsidiaries (hereinafter collectively referred to as the “PH Group”) (the Group together with the PH Group are collectively referred to as the “Enlarged Group”), by the directors of the Company (the “Directors”) for illustrative purpose only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of assets and liabilities as at 30 June 2015, and related notes as set out in Appendix III to the circular dated 31 December 2015 (the “Circular”) issued by the Company (the “Unaudited Pro Forma Financial Information”) in connection with the acquisition (the “Acquisition Transaction”) of 52.31% equity interests of the PH Group by PI Emerald II (UK) Limited (an indirect wholly-owned subsidiary of the Company). The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial Information are set out in Section A of Appendix III to the Circular.

The Unaudited Pro Forma financial Information has been compiled by the Directors to illustrate the impact of the Acquisition Transaction on the Group’s financial position as at 30 June 2015 as if the Acquisition Transaction had taken place at 30 June 2015. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Company’s published interim report for the period ended 30 June 2015, and the information about the PH Group’s financial position has been extracted by the Directors from the PH Group’s consolidated financial statements for the period ended 30 June 2015 as set out in Appendix II to the Circular.

— 450 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Directors’ responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline (“AG”) 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

Our independence and quality control

Reporting accountant’s responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Unaudited Pro Forma Financial Information, in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of the Acquisition Transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the transaction would have been as presented.

— 451 —

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the transactions, and to obtain sufficient appropriate evidence about whether:

The related unaudited pro forma adjustments give appropriate effect to those criteria; and
The Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the Group, the transactions in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

— 452 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Set out below is the management discussion and analysis of the PH Group (where ‘PH Group’ refers to the Phoenix Holdings and its subsidiaries) for the three financial years ended 31 December 2012, 2013 and 2014 and for the six months ended 30 June 2014 and 2015. The discussion and analysis relate to the consolidated results and financial position of the PH Group.

MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITIONS

1. OVERVIEW

1.1 General

The PH Group was incorporated in 1949 as a private company and became a publicly traded company in 1978 when Phoenix Holdings’ shares were registered for trade on the TASE. As at 30 June 2015, Phoenix Holdings’ shares are traded on the TA-75 share index, the TA-100 index, the TA-Finance 15 index, TA Insurance index, the TA-Composite index, and Maala Index for Social Responsibility.

The PH Group has been operating in the insurance industry for more than 60 years and it is currently one of Israel’s five leading insurance groups. At the Latest Practicable Date, the PH Group focuses principally on insurance, pensions and provident fund activity, as well as in the financial services industry through the subsidiary Excellence.

1.2 The PH Group’s Structure

The consolidated financial statements include the statements of Phoenix Holdings-controlled investees. In determining whether control exists, the effect of potential voting rights, exercisable on the financial position statement date, is taken into account.

The PH Group’s material investees are as follows:

Full ownership (100%) of The Phoenix Insurance Company Ltd. (“The Phoenix Insurance”).
Full ownership (100%) of The Phoenix Investments and Finances Ltd. (“The Phoenix Investments”), whose material investees are as follows:
Excellence, a public company traded on the TASE. As of the financial statements’ publication date, The Phoenix Investments holds 89.8% of Excellence’s issued and paid-up capital.
A 41.4% stake in Mehadrin Ltd. (“Mehadrin”).
Gamma Management and Settlement Ltd. (“Gamma”), holding of 49%.
Full ownership (100%) of Ad 120 - Retirement Centers for Senior Citizens Ltd. (“Ad 120”).

1.3 The PH Group’s Operating Segments

The PH Group deals primarily in life insurance and long-term savings, healthcare insurance, general insurance and financial services.

— 453 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

TURNOVER

Unit: NIS million

	For the six months	For the six months	For the year ended	For the year ended	For the year ended
	ended 30 June			31 December
	2015	2014	2014	2013	2012
Life insurance and long-term savings	3,896	3,749	6,819	8,391	7,101
Life insurance	3,729	3,595	6,505	8,095	6,793
Provident	99	96	190	197	220
Pension	68	58	124	99	88
General insurance	1,049	1,035	2,086	2,087	1,863
Compulsory motor	257	264	525	534	428
Motor property	427	419	844	825	775
Property and others	194	176	370	355	342
Other liabilities	171	176	347	373	318
Healthcare	815	747	1,521	1,422	1,216
Financial services	184	170	361	324	340
Other	181	179	451	428	381
Not attributed to operating segments	78	71	91	211	129
Adjustments and offsets	(66)	(60)	(139)	(137)	(128)
Total	6,137	5,891	11,190	12,726	10,902

The turnover of the PH Group was NIS 11,190 million in 2014, representing a decrease of NIS 1,536 million from NIS 12,726 million in 2013 and an increase of NIS 288 million from NIS 10,902 million in 2012. The overall steady business evolution was largely driven by General Insurance and Healthcare. The decline in the PH Group turnover is attributed to the decline in Life Insurance turnover.

The half-year turnover of the PH Group was NIS 6,137 million for the six months ended 30 June 2015, representing an increase of NIS 246 million from NIS 5,891 million in 30 June 2014. The main increase is attributed to the increased contribution of the Life Insurance turnover.

The life insurance and long-term savings segment includes life insurance, related coverage and pension and provident funds management. The segment includes long-term savings (through various types of insurance policies, pension funds, and provident funds) and insurance coverage for various risks such as death, disability and work disability. According to the commissioner’s directives, the long-term savings segment is divided into life insurance, pension funds and provident funds.

Annual comparison

Turnover of the Life insurance was NIS 6,505 million in 2014, representing a decrease of NIS 1,590 million from NIS 8,095 million in 2013;
Turnover of the Provident segment was NIS 190 million in 2014, representing a decrease of NIS 7 million from NIS 197 million in 2013;
Turnover of the Pension segment was NIS 124 million in 2014, representing an increase of NIS 25 million from NIS 99 million in 2013.

— 454 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Half year comparison

Turnover of the Life insurance for the six months ended 30 June 2015 was NIS 3,729 million, representing an increase of NIS 134 million from NIS 3,595 million for the six months ended 30 June 2014;
Turnover of the Provident segment for the six months ended 30 June 2015 was NIS 99 million, representing an increase of NIS 3 million from NIS 96 million for the six months ended 30 June 2014;
Turnover of the Pension segment for the six months ended 30 June 2015 was NIS 68 million, representing an increase of NIS 11 million from NIS 58 million for the six months ended 30 June 2014.

General insurance includes all lines of insurance activity, except for life insurance and long-term savings, and healthcare insurance. The principal insurance cover provided in this segment is property and liability insurance. The PH Group operates in the general insurance segment in these key branches - compulsory motor insurance, motor property insurance, and other general insurance.

Compulsory motor insurance comprises the PH Group’s activity in providing insurance cover pursuant to the statutory provisions (Motor Vehicle Insurance Ordinance) (New Version), 1970, resulting from the use of a motor vehicle, and provides cover for bodily injury (to the driver of the vehicle, passengers in the vehicle or pedestrians) resulting from the use of a motorized vehicle, under the Compensation for Road Accident Victims (CRAV) Law.

Motor property insurance focuses on cover for property loss to the insured vehicle and includes the PH Group’s activity in the sale of policies for damage to the insured vehicle, including cover for motor property loss (e.g. due to an accident and/or theft) and cover for third-party loss caused by the insured vehicle.

Other general insurance: this includes the PH Group’s activity in the sale of a variety of policies in three key branches: property (non-motor) insurance, which provides the insured with cover against physical damage to his property (e.g. insurance for households and businesses), liability insurance which is generally sold together with property insurance for businesses, and provides cover for the insured’s liability towards a third party (e.g. third-party liability, employers’ liability, professional liability, including directors and officers liability and liability for faulty products) and other general insurance sectors (e.g. personal accident insurance and insurance for the work of contractors).

Annual Comparison

Turnover of the Compulsory motor segment was NIS 525 million in 2014, representing a decrease of NIS 9 million from NIS 534 million in 2013;
Turnover of the Motor property segment was NIS 844 million in 2014, representing an increase of NIS 19 million from NIS 825 million in 2013;
Turnover of the Property and others segment was NIS 370 million in 2014, representing an increase of NIS 15 million from NIS 355 million in 2013;
Turnover of Other liabilities was NIS 347 million in 2014, representing a decrease of NIS 26 million from NIS 373 million in 2013

— 455 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Half year comparison

Turnover of the Compulsory motor segment for the six months ended 30 June 2015 was NIS 257 million, representing a decrease of NIS 7 million from NIS 264 million for the six months ended 30 June 2014;
Turnover of the Motor property for the six months ended 30 June 2015 was NIS 427 million, representing an increase of NIS 8 million from NIS 419 million for the six months ended 30 June 2014;
Turnover of the Property and Others for the six months ended 30 June 2015 was NIS 194 million, representing an increase of NIS 18 million from NIS 176 million for the six months ended 30 June 2014;
Turnover of the Other liabilities for the six months ended 30 June 2015 was NIS 171 million, representing a decrease of NIS 5 million from NIS 176 million for the six months ended 30 June 2014.

The health insurance segment includes the PH Group’s activity in illness and hospitalization insurance, for individuals and groups, as well as dental insurance. The policies sold in these branches cover the range of losses sustained by the insured resulting from illness and/or accidents (excluding death). Furthermore, this segment also includes the PH Group’s activity in long-term care insurance (LTC) and critical illness insurance, as well as overseas travel insurance, insurance for foreign workers and sick pay.

Turnover of the Healthcare segment was NIS 1,521 million in 2014, representing an increase of NIS 99 million from NIS 1,422 million in 2013;
Turnover of the Healthcare segment for the six months ended 30 June 2015 was NIS 815 million, representing an increase of NIS 68 million from NIS 747 million for the six months ended 30 June 2014.

Activity in the financial services segment takes place through the Excellence Group and consists mainly of financial asset management services such as the marketing and management of investments for customers, underwriting and investment banking, the issuance of structured products, financial products, management of mutual funds, the issuance of index-linked certificates and rendering of TASE and trading services.

Turnover of the Financial services segment was NIS 361 million in 2014, representing an increase of NIS 37 million from NIS 324 million in 2013;
Turnover of the Financial services segment for the six months ended 30 June 2015 was NIS 184 million, representing an increase of NIS 14 million from NIS 170 million for the six months ended 30 June 2014.

Additional operations that altogether do not form an operating segment include other investment activity of the PH Group, holding of arrangement agencies and other insurance agencies and risk management.

Other turnover was NIS 451 million in 2014, representing an increase of NIS 23 million from NIS 428 million in 2013;
Other turnover for the six months ended 30 June 2015 was NIS 181 million, representing an increase of NIS 2 million from NIS 179 million for the six months ended 30 June 2014.

— 456 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

2. EXPLANATIONS ON THE STATE OF PHOENIX HOLDINGS’ AFFAIRS

2.1 General

The PH Group’s operations are affected by continual regulation and regulatory changes and reforms, which are not implemented in a single process. The PH Group operates in a complex and dynamic environment in which it must adapt to such regulatory changes.

Furthermore, the PH Group, as the controlling shareholder in institutional entities, must also meet proposed changes in minimum capital requirements for institutional entities which, inter alia, also impose restrictions on the distribution of dividends by institutional entities.

The PH Group’s operations and results are significantly affected by the capital markets, and low interest rates, which affect insurance liabilities and returns on the PH Group’s financial asset portfolios, as well as management fees and investment margins.

Annual principal data from the consolidated statements of financial position as at December 31, 2014 (NIS million)

	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Investment in investees	583	489	465
Investment property for performance based
contracts	1,095	1,006	445
Other investment property	1,857	1,726	1,326
Reinsurance assets	1,399	1,364	1,352
Other receivables	262	312	440
Premiums receivable	597	557	572
Financial investments for performance based
contracts	31,439	27,635	23,231
Other financial investments	18,057	17,179	15,498
Financial investments for holders of debt
certificates, ETNs, reverse certificates, complex
certificates, deposit certificates, and structured
bonds	39,026	35,478	25,823
Total assets	101,337	92,076	75,378
Total equity (including non-controlling interests)	3,929	3,654	3,249
Total liabilities for insurance contracts and
investment contracts:	53,531	48,439	41,439
of which:
Liabilities for non-performance based insurance
contracts and investment contracts	18,381	17,546	15,918
Liabilities for performance based insurance
contracts and investment contracts	35,150	30,893	25,521
Other payables	1,330	1,207	1,391
Financial liabilities	3,595	3,312	3,553
Liabilities for debt certificates, ETNs, reverse
certificates, complex certificates, deposit
certificates and structured bonds	38,404	34,911	25,149
Total liabilities	97,408	88,422	72,129
Total equity and liabilities	101,337	92,076	75,378

— 457 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

December 31, 2014 compared with December 31, 2013

Assets:

Total assets as of December 31, 2014, amounted to NIS 101,337 million, compared with NIS 92,076 million as of December 31, 2013, an increase of 10.1%.

Total financial investments for performance based contracts as of December 31, 2014, amounted to NIS 31,439 million, compared with NIS 27,635 million as of December 31, 2013, an increase of 13.8%, which was primarily affected by capital market returns and net accruals on the asset portfolio.

Total other financial investments as of December 31, 2014, amounted to NIS 18,057 million, compared with NIS 17,179 million as of December 31, 2013, an increase of 5.1%. This increase was mainly affected by the increase in non-marketable debt assets and other investments, in light of growth in the PH Group’s operations and resulting from investment income.

Total financial investments for holders of debt certificates, ETNs, reverse certificates, complex certificates, deposit certificates and structured bonds as of December 31, 2014, amounted to NIS 39,026 million, compared with NIS 35,478 million as of December 31, 2013, an increase of 10%. Investments in this item mainly serve as underlying assets backing the liabilities of a consolidated company (Excellence) for the issue of ETFs. The change in this item is mainly attributable to changes in the collateral assets of the SPCs in the ETF sector, which were affected, inter alia, by the number of notes in circulation, changes in the prices of the underlying assets (various index rates in Israel and abroad) and changes in the exchange rates to which some of the notes are linked.

Liabilities:

Liabilities for non-performance based insurance and investment contracts as of December 31, 2014, amounted to NIS 18,381 million, compared with NIS 17,546 million as of December 31, 2013, an increase of 4.8%. This increase was mainly affected by the increase in net accruals in the asset portfolio and growth in Phoenix Holdings’ operations.

Liabilities for performance based insurance and investment contracts as of December 31, 2014, amounted to NIS 35,150 million, compared with NIS 30,893 million as of December 31, 2013, an increase of 13.8%. This increase was mainly influenced by capital market returns and net accruals in the asset portfolio.

Liabilities for debt certificates, ETNs, reverse certificates, complex certificates, deposit certificates and structured bonds as of December 31, 2014, amounted to NIS 38,404 million, compared with NIS 34,911 million on December 31, 2013, an increase of 10%. This increase was mainly attributable to growth in deposits and ETF assets.

December 31, 2013 compared with December 31, 2012

Assets:

Total assets as of December 31, 2013, amounted to NIS 92,076 million, compared with NIS 75,378 million as of December 31, 2012, an increase of 22.2%.

Total financial investments for performance based contracts as of December 31, 2013, amounted to NIS 27,635 million, compared with NIS 23,231 million as of December 31, 2012, an increase of 19%, which was primarily affected by capital market returns and net accruals on the asset portfolio.

— 458 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Total other financial investments as of December 31, 2013, amounted to NIS 17,179 million, compared with NIS 15,498 million as of December 31, 2012, an increase of 10.8%, which was primarily affected by an increase in non-marketable debt assets and other investments, growth in the PH Group’s operations and revenues from the corresponding investments.

Total investment property for performance based contracts and other investment property as of December 31, 2013, amounted to NIS 1,006 million and NIS 1,726 million, respectively, compared with NIS 445 million and NIS 1,326 million, respectively, as of December 31, 2012. This increase was attributable to the PH Group’s efforts to increase and expand its investment in income-generating properties, both in Israel and abroad. It is noted that the PH Group has restated its financial statements to retrospectively reflect Ad 120 Ltd.’s accounting for its senior housing assets as investment property.

Total financial investments for holders of debt certificates, ETNs, reverse certificates, complex certificates, deposit certificates, and structured bonds as of December 31, 2013, amounted to NIS 35,478 million, compared with NIS 25,823 million on December 31, 2012, an increase of 37.4%. Investments in this item are mostly used as underlying assets backing the liabilities of a consolidated company (Excellence) from ETN issues. The change in this item is mainly attributable to changes in the collateral assets of the SPCs in the ETN sector, which were affected, inter alia, by the number of notes in circulation, changes in the prices of the underlying assets (various index rates in Israel and abroad) and changes in the exchange rates to which some of the notes are linked.

Total cash and cash equivalents pledged for holders of debt certificates, ETNs, reverse certificates, complex certificates, deposit certificates, and structured bonds as of December 31, 2013, amounted to NIS 21,225 million, compared with NIS 14,367 million on December 31, 2012, an increase of 47.7%. This increase was attributable to an increase in assets under management in ETN and deposit operations coupled with an increase in liabilities in the ETNs and deposits item. This item was further affected by the value and composition of the underlying assets and the types of notes in circulation (coverage for the notes is subject to change from time to time and is sometimes effected through contracts or options with the remaining portion of the series held in deposit).

Liabilities:

Liabilities for non-performance based insurance and investment contracts as of December 31, 2013, amounted to NIS 17,546 million, compared with NIS 15,918 million as of December 31, 2012, an increase of 10.2%. This increase was mainly attributable to an increase in the net accruals on the asset portfolio, and growth in Phoenix Holdings’ operations.

Liabilities for performance based insurance and investment contracts as of December 31, 2013, amounted to NIS 30,893 million, compared with NIS 25,521 million as of December 31, 2012, an increase of 21%. This increase was mainly influenced by capital market returns and net accruals in the asset portfolio.

Liabilities for debt certificates, ETNs, reverse certificates, complex certificates, deposit certificates and structured bonds as of December 31, 2013, amounted to NIS 34,911 million, compared with NIS 25,149 million on December 31, 2012, an increase of 38.8%. This increase was mainly attributable to growth in deposits and ETN assets.

— 459 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Quarter principal data from the consolidated statements of financial position as at June 30, 2015 (NIS million):

	30.6.2015	30.6.2014	31.12.2014
Investment in investees	567	507	583
Investment property for performance based
contracts	1,036	1,034	1,095
Other investment property	1,876	1,740	1,857
Reinsurance assets	1,316	1,372	1,399
Other receivables	309	327	262
Premiums receivable	670	704	597
Financial investments for performance based
contracts	32,294	29,581	31,439
Other financial investments	18,880	17,295	18,057
Financial investments for holders of debt
certificates, ETNs, reverse certificates, complex
certificates, deposit certificates, and structured
bonds	33,728	36,718	39,026
Total assets	99,514	96,499	101,337
Total equity (including non-controlling interests)	3,942	3,901	3,929
Total liabilities for insurance contracts and
investment contracts:	57,309	51,473	53,531
of which:
Liabilities for non-performance based insurance
contracts and investment contracts	19,134	18,170	18,381
Liabilities for performance based insurance
contracts and investment contracts	38,175	33,303	35,150
Other payables	1,169	1,156	1,330
Financial liabilities	3,547	3,196	3,595
Liabilities for debt certificates, ETNs, reverse
certificates, complex certificates, deposit
certificates and structured bonds	33,035	36,161	38,404
Total liabilities	95,572	92,598	97,408
Total equity and liabilities	99,514	96,499	101,337

Assets:

Total assets as of June 30, 2015, amounted to NIS 99,514 million, compared with NIS 101,337 million as of December 31, 2014, a decrease of 1.8%.

Total financial investments for performance-based contracts as of June 30, 2015, amounted to NIS 32,294 million, compared with NIS 31,439 million as of December 31, 2014, an increase of 2.7%, which was primarily affected by capital market returns and net accruals on the asset portfolio.

Total financial investments for holders of debt certificates, ETNs, reverse certificates, complex certificates, deposit certificates and structured bonds as of June 30, 2015, amounted to NIS 33,728 million, compared with NIS 39,026 million as of December 31, 2014, a decrease of 13.6%. Investments in this item mainly serve as underlying assets backing the liabilities of a consolidated company (Excellence) for the issue of ETNs. The decrease in the present period was mainly due to a decrease in the underlying assets of deposit certificates following redemptions of these certificates which are affected by the lower market interest rates and final redemption of a structured bond series.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

The rest of the change in this item is attributable to changes in the collateral assets of the SPCs in the ETN sector, which were affected, inter alia, by the number of notes in circulation, changes in the prices of the underlying assets (various index rates in Israel and abroad) and changes in the exchange rates to which some of the notes are linked.

Liabilities:

Liabilities for non-performance based insurance and investment contracts as of June 30, 2015, amounted to NIS 19,134 million, compared with NIS 18,381 million as of December 31, 2014, an increase of 4.1%. This increase was mainly attributable to an increase in the net accruals on the asset portfolio, and growth in Phoenix Holdings’ operations.

Liabilities for performance based insurance and investment contracts as of June 30, 2015, amounted to NIS 38,175 million, compared with NIS 35,150 million as of December 31, 2014, an increase of 8.6%. This increase was mainly influenced by capital market returns and net accruals in the asset portfolio.

Liabilities for debt certificates, ETNs, reverse certificates, complex certificates, deposit certificates and structured bonds as of June 30, 2015, amounted to NIS 33,035 million, compared with NIS 38,404 million on December 31, 2014, a decrease of 14.0%. This decrease was mainly due to final redemption of a structured bond series issued by a consolidated company (Excellence) under the terms of the issue prospectus, to the amount of NIS 2,344 million in the present period, and redemption of deposit certificates. The remaining change in this item was due to changes in assets under management by the issuing companies and changes in the indexes to which the notes are linked.

— 461 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

2.2 Insurance business premiums (NIS million):

		2014			2013			2012
				Premiums
	NIS		%	NIS		%	NIS		%
Operating Segments	million	_of _	total	million	_of _	total	million	_of _	total
Composition of gross premiums in life
insurance segment
Current	3,285		65%	3,201		69%	3,051		79%
Non-recurring	582		12%	660		15%	702		18%
Premiums on investment contracts (*)	1,175		23%	749		16%	116		3%
Total	5,042	100%		4,610	100%		3,869	100%
Composition of premiums in healthcare
insurance segment
Gross premiums	1,559			1,407			1,273
Retained premiums	1,427			1,281			1,114
Composition of gross premiums in
general insurance segment
Compulsory automotive insurance	448		19%	425		19%	384		18%
Auto property insurance	832		36%	821		36%	763		36%
Other general insurance sectors	1,050		45%	1,023		45%	977		46%
Of which: Property	669		29%	663		29%	623		29%
Of which: Liability	381		16%	360		16%	354		17%
Total	2,330	100%		2,269	100%		2,124	100%
Composition of retained premiums in
general insurance segment
Compulsory automotive insurance	439		24%	416		23%	370		22%
Auto property insurance	832		45%	821		45%	763		45%
Other general insurance sectors	587		31%	570		32%	550		33%
Of which: Property	298		16%	297		16%	285		17%
Of which: Liability	289		15%	273		15%	265		16%
Total	1,858	100%		1,807	100%		1,683	100%

— 462 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

	1-6/2015	1-6/2015	1-6/2014	1-6/2014	4-6/2015	4-6/2015	4-6/2014	4-6/2014	1-12/2014	1-12/2014
					Premiums
	NIS	%	NIS	%	NIS	%	NIS	%	NIS	%
Operating Segments	million	of total	million	of total	million	of total	million	of total	million	of total
Composition of gross premiums
earned in life insurance segment
Current	1,649	51%	1,631	64%	826	44%	821	63%	3,285	65%
Non-recurring	394	12%	407	16%	233	12%	237	18%	582	12%
Premiums on investment contracts (*)	1,207	37%	509	20%	814	43%	238	18%	1,175	23%
Total	3,250	100%	2,547	100%	1,873	100%	1,296	100%	5,042	100%
Composition of gross premiums
earned in health insurance
segment
Gross premiums	816		747		413		376		1,555
Retained premiums	754		690		383		349		1,423
Composition of gross premiums in
general insurance segment
Compulsory automotive insurance	261	20%	247	20%	103	20%	100	19%	448	19%
Auto property insurance	459	36%	445	35%	194	37%	195	37%	832	36%
Other general insurance sectors	565	44%	571	45%	227	43%	233	44%	1,050	45%
Of which: Property	358	28%	372	29%	147	28%	155	29%	669	29%
Of which: Liability	207	16%	199	16%	80	15%	78	15%	381	16%
Total	1,285	100%	1,263	100%	524	100%	528	100%	2,330	100%
Composition of retained premiums in
general insurance segment
Compulsory automotive insurance	256	25%	242	24%	101	24%	98	24%	439	24%
Auto property insurance	459	44%	445	44%	194	46%	195	47%	832	45%
Other general insurance sectors	326	31%	321	32%	125	30%	119	29%	587	32%
Of which: Property	162	16%	160	16%	64	15%	62	15%	298	16%
Of which: Liability	164	16%	161	16%	61	15%	57	14%	289	16%
Total	1,041	100%	1,008	100%	420	100%	412	100%	1,858	100%

(*) Proceeds on investment contracts are not included in the premiums item, unless they are recognized directly as liabilities for insurance and investment contracts.

Phoenix Holdings continues growing in most operating segments.

Annual Comparison

In the life insurance segment, gross premiums including investment contracts grew 9.4% year-on-year in 2014, following year-on-year growth of 19.2% in 2013. This increase was affected by new sales including increases in less cancellations.

It is noted that following the discontinuation of sales of savings-integrated insurance plans with guaranteed pension payments for people under 60 in 2013, a sharp decrease was recorded in 2013 and 2014 in new sales of life insurance policies with savings components.

In the healthcare insurance segment, gross premiums grew 10.8% year-on-year in 2014, following year-on-year growth of 10.5% in 2013. Gross premiums were up primarily due to growth in premiums on personal insurance policies, continued growth in new sales, coupled with more moderate growth in premiums on collective policies. The upward trend in premiums on individual insurance policies is evident in most of the individual products offered by the PH Group.

— 463 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

In the general insurance segment, gross premiums were up 2.7% in 2014, following year-on-year growth of 6.8% in 2013. This increase was attributable to most sectors in which the PH Group operates.

Half Year Comparison

Gross premiums earned in the first six months of 2015 amounted to NIS 4,036 million, compared with NIS 3,902 million in the same period of last year, an increase of 3.4%. Gross premiums earned in the second quarter of the year amounted to NIS 2,065 million, compared with NIS 2,002 million in the same period of last year, an increase of 3.1%. Retained premiums earned in the first six months of 2015 amounted to NIS 3,713 million, compared with NIS 3,598 million in the same period of last year, an increase of 3.2%. Retained premiums in the second quarter of 2015 amounted to NIS 1,912 million, compared with NIS 1,847 million in the same quarter of last year, an increase of 3.5%.

In the life insurance segment, gross premiums including investment contracts grew in the first six months of 2015 by 27.6% compared with the same period of last year, and by 44.5% as compared to the same quarter of last year. This increase was mainly due to an increase in one-time deposits for investment contracts in the second quarter of 2015, in addition to the effect of new sales including increases in cancellation deductions.

In the health insurance segment, gross premiums grew in the first six months of 2015 by 9.3% compared with the same period of last year, and by 9.7% over the same quarter of last year. Premiums were up primarily due to growth in premiums on personal insurance contracts, continued growth in new sales, coupled with more moderate growth in premiums on collective contracts. The upward trend in premiums on individual insurance policies is evident in most of the individual products offered by the PH Group.

In the general insurance segment, gross premiums grew in the first six months of 2015 by 5.3% compared with the same period of last year, and by 4.5% quarter-on-quarter.

— 464 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

2.3 Developments in the PH Group’s profit for the period and comprehensive income:

Key data for the reporting period from the consolidated statements of income and the consolidated statements of comprehensive income (NIS million):

	2014	2013	2012
Key data from the consolidated statements of income
Gross premiums earned	7,698	7,474	7,154
Premiums earned in retention	7,054	6,826	6,484
Net gains on investments, and finance income	2,774	4,547	3,317
Income from management fees	858	875	638
Payments and changes in liabilities for insurance contracts and
investment contracts in retention	7,947	9,105	8,193
Commission, marketing, and other purchasing expenses	1,314	1,187	1,121
General and administrative expenses	1,030	1,027	942
Other expenses	36	99	67
Finance expenses	127	181	202
Company’s share in the profits of investees accounted for as
per the equity method	46	52	41
Profit for the period	531	760	280
Profit for the period attributable to Company shareholders	504	739	250
Shareholders’ return on equity for the period (based on profit
for the period)	13.7%	22.2%	8.6%
Other comprehensive income (loss), net of taxes	(60)	6	186
Comprehensive income for the period	471	766	466
Comprehensive income for the period attributable to
Company shareholders	444	744	436
Shareholders’ return on equity for the period (based on
comprehensive income for the period)	12.1%	22.3%	15.0%

— 465 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Key data from the consolidated
statements of income
Gross premiums earned	4,036	3,902	2,065	2,002	7,698
Premiums earned in retention	3,713	3,598	1,912	1,847	7,054
Net gains (losses) on investments, and
finance income	1,634	1,601	(15)	621	2,774
Income from management fees	524	458	136	192	858
Payments and changes in liabilities for
insurance contracts and investment
contracts in retention	4,791	4,348	1,328	2,070	7,947
Commission, marketing, and other
purchasing expenses	715	627	369	328	1,314
General and administrative expenses	555	518	279	255	1,030
Other expenses	17	13	7	3	36
Finance expenses	48	50	58	41	127
Company’s share in the profits of investees
accounted for as per the equity method	18	21	(5)	(5)	46
Profit for the period	41	244	82	54	531
Profit (loss) for the period attributable to
equity holders of the parent	33	234	77	48	504
Shareholders’ return on equity (annualized)
for the period (based on profit for the
period)	1.7%	12.7%	8.0%	5.1%	13.7%
Other comprehensive income (loss), net of
taxes	(17)	(3)	(136)	(42)	(60)
Comprehensive income (loss) for the period	24	241	(54)	12	471
Comprehensive income (loss) for the period
attributable to owners of the parent	16	231	(59)	6	444
Shareholders’ return on equity (annualized)
for the period (based on comprehensive
income for the period)	0.8%	12.6%	(6.1%)	0.6%	12.1%

Annual Comparison

A significant part of the PH Group’s asset portfolio is invested on the capital market. Therefore, capital market returns for the various investment channels have a material effect on the yields achieved for the PH Group’s customers and on the PH Group’s profits. Gains and losses on investments reflect capital market performance in Israel and abroad, as well as changes in the CPI and the NIS exchange rates against the main currencies. The aggregate effect of these factors on the financial margin is the main reason for fluctuations in the reported results.

Gains on investments, including other comprehensive income (pre-tax), amounted to NIS 2,671 million in 2014, as compared to NIS 4,562 million in 2013, and NIS 3,595 million in 2012.

Gains (losses) on investments, including other comprehensive income (pre-tax), amounted to NIS 13 million in the fourth quarter of 2014, as compared to NIS 1,284 million in the same quarter last year. Profit was down due to relatively low yields in the fourth quarter, as compared to the same quarter last year.

It is noted that a significant part of the gains (losses) is attributable to investment profit-sharing policies and did not directly influence Phoenix Holdings’ results. It is further noted that gains on investments include gains on the revaluation of investment property, including revaluation of residential buildings in Ad 120 Ltd., which amounted to NIS 70 million in 2014, similar to their amount last year.

— 466 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Results for the reporting year were materially affected by lower market interest rates. Due to lower interest rates, Phoenix Holdings recognized an expense in 2014 following an increase in its insurance liabilities to the amount of NIS 198 million pre-tax, and NIS 123 million post-tax.

Revenues from management fees totaled NIS 858 million in 2014, as compared to NIS 875 million in 2013 and NIS 638 million in 2012. This year-on-year decrease in management fees in 2014 was due to a decrease in variable management fees on profit-sharing policies marketed through 2003. Figures for 2012 reflect the fact that Phoenix Holdings did not charge variable management fees in that year. It is noted that, had it not been for the cumulative negative real yield on these policies as of December 31, 2012, variable management fees in 2013 would have increased by an additional NIS 62 million.

In the first quarter of 2013, the PH Group signed a cut-off agreement with a reinsurer, and a reinsurance contract with another reinsurer who will serve as a reinsurer for insurance operations included under the cut-off agreement (“the Reinsurer Swap Agreement”). Following these activities, Phoenix Holdings recorded gains of NIS 72 million (pre-tax) in the first quarter of 2013. In the reporting period, commissions, marketing and other purchasing expenses totaled 16.9% of the gross premiums earned, as compared to 15.8% and 15.7% in 2013 and 2012, respectively.

In 2014, general and administrative expenses totaled 13.3% of the gross premiums earned, as compared to 13.6% and 13.2% in 2013 and 2012, respectively.

Other expenses amounted to NIS 36 million in 2014, as compared to NIS 99 million and NIS 67 million in 2013 and 2012, respectively. Figures for 2014 and 2013 include a write-down of NIS 7 million and NIS 36 million, respectively, on provident fund operations, made in the fourth quarter of each of these years. These write-downs were mainly made in light of declining management fees on provident fund operations.

Finance expenses amounted to NIS 127 million in 2014, as compared to NIS 181 million and NIS 202 million in 2013 and 2012, respectively. Finance expenses were down in 2014 mainly due to the 0.1% decrease in the CPI in 2014 as compared to a positive change of 1.9% in the CPI in 2013. This effect was partially offset by gains made by the USD which affected, inter alia, the revaluation of reinsurer deposits. In 2013, year-on-year finance expenses were down mainly due to a decrease in Phoenix Holdings’ liabilities.

The share in the earnings of investees totaled NIS 46 million in 2014, as compared to a profit of NIS 52 million in 2013 and a profit of NIS 41 million in 2012. Lower year-on-year profitability in 2014 was mainly attributable to an associate (“Mehadrin”), which is engaged in agricultural operations, and whose profitability was cut by lower sales turnover following a year-on-year decrease in both quantities and market price on crops.

Half Year Comparison

In the first six months of 2015, Phoenix Holdings experienced exceptional growth in its insurance reserves, mainly following new supervisory guidelines for measuring liability adequacy tests (LAT), and due to updated assumptions mainly concerning pension exercise rates.

— 467 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

The overall effect of these changes, as detailed in the said Note, in the six months ended June 30, 2015, was a pre- and post-tax expense of NIS 413 million and NIS 257 million, respectively.

The overall effect of these changes in the three months ended June 30, 2015, was a pre- and post-tax income of NIS 92 million and NIS 57 million, respectively.

It is noted that in the corresponding periods last year, the decrease in the risk-free interest rate seen in those periods resulted in an increase in insurance liabilities, seen in the financial statements as a pre-tax and post-tax expense of NIS 227 million and NIS 141 million, respectively, recognized in the first six months of 2014; and in the second quarter of 2014, pre-tax and post-tax expenses are NIS 183 million and NIS 114 million, respectively.

Revenues from investments, including other comprehensive income (pre-tax), amounted to NIS 1,609 million in the first six months of 2015, as compared to NIS 1,598 million in the same period of last year. Revenues from investments, including other comprehensive income (pre-tax), amounted to a loss of NIS 227 million in the second quarter of 2015, as compared to income of NIS 554 million in the same quarter of last year. It is noted that a significant part of the gains (losses) is attributable to investment profit-sharing policies and did not directly influence Phoenix Holdings’ results.

Revenues from management fees increased by NIS 66 million in the first six months of 2015, as compared to the same period of last year. This increase was mainly attributable to an increase in variable management fees in the first six months of 2015, which totaled NIS 139 million (pre-tax), as compared to NIS 107 million (pre-tax) in the same period of last year, following higher real yields achieved by Phoenix Holdings in the first six months of 2015 as compared to the same period of last year. Revenues were also up due to growth in fixed management fees following growth in assets under management in the long-term savings segment.

Revenues from management fees were down NIS 56 million in the second quarter of 2015, as compared to the same period of last year. This decrease was mainly attributable to a NIS 57 million refund of management fees in the second quarter, as compared to NIS 13 million in revenues from management fees recorded in the same period of last year. This decrease was due to negative real yields recorded by Phoenix Holdings in the second quarter of 2015, as compared to positive yields recorded in the same period of last year.

In the first six months of 2015, commissions, marketing and other purchasing expenses totaled 17.7% of the gross premiums earned, as compared to 16.1% in the same period of last year. In the second quarter of 2015, commissions, marketing and other purchasing expenses totaled 17.9% of the gross premiums earned, as compared to 16.4% in the same quarter of last year.

In the first six months of 2015, general and administrative expenses totaled 13.7% of the gross premiums earned, as compared to 13.3% in the same period of last year. In the second quarter, general and administrative expenses totaled 13.5% of the gross premiums earned, as compared to 12.7% in the same quarter of last year.

Finance expenses in the first six months of 2015 totaled NIS 48 million similar to the figure for the same period of last year. In the second quarter of 2015, these expenses were up NIS 17 million as compared to the same quarter of last year. This increase was mainly due to a higher CPI in the present quarter, as compared to the same period of last year.

— 468 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Composition of pre-tax comprehensive income for the year, by operating segments (NIS million):

				2014		2013	2012
Comprehensive income from life insurance and long-term
savings segment				99		367	141
Comprehensive income from healthcare insurance segment				41		219	116
Comprehensive income from general insurance	segment			286		366	234
Comprehensive income from financial services	segment			119		73	78
Total comprehensive income from operating segments				545		1,025	569
Profit not attributed to reporting segments				126		144	98
Company’s share in the net results of investees not included			in
the reported segments				13		28	31
Comprehensive income before income tax				684		1,197	698
Income tax				213		431	232
Comprehensive income for the period				471		766	466
Comprehensive income for the period attributable to
shareholders				444		744	436
1-6/2015		1-6/2014		4-6/2015		4-6/2014	1-12/2014
Comprehensive income (loss) from life
insurance and long-term savings segment	(65)		14	(81)		(105)	99
Comprehensive income (loss) from
healthcare insurance segment	(157)		48	21		15	41
Comprehensive income from general
insurance segment	102		158		5	64	286
Comprehensive income from financial
services segment	48		52	26		33	119
Total comprehensive income (loss) from
operating segments	(72)		272	(29)		7	545
Profit (loss) not attributed to reporting
segments	64		68	(44)		19	126
Company’s share in the net results of
investees not included in the reported
segments	14		12	(11)		(9)	13
Comprehensive income (loss) before
income tax	6		352	(84)		17	684
Income tax	(18)		111	(30)		5	213
Comprehensive income (loss) for the
period	24		241	(54)		12	471
Comprehensive income (loss) for the
period attributable to owners of the
parent	16		231	(59)		6	444

Annual Comparison

The change in comprehensive income not attributed to reporting segments in 2014, as compared to 2013 and 2012, was mainly affected by a decrease in investment income and a decrease in finance expenses following the lower CPI in the present period.

The decrease in Phoenix Holdings’ share in the net results of investees not included in the reported segments was mainly due to Mehadrin’s results, as aforesaid.

— 469 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

Half Year Comparison

It is noted, that higher capital market returns in the first half of 2015 materially affected the reported results.

Composition of pre-tax profit for the period, by operating segments (NIS million):

			2014	2013	2012
Profit from life insurance and long term savings segment			104	372	65
Profit from healthcare insurance segment			50	219	92
Profit from general insurance segment			340	353	132
Profit from financial services segment			119	72	78
Total profit from operating segments			613	1,016	367
Profit not attributed to reporting segments			157	134	20
Company’s share in the net results of investees not included in
the reported segments			13	28	31
Profit before income tax			783	1,178	418
Income tax			252	418	138
Profit for the period			531	760	280
Profit for the period attributable to Company shareholders			504	739	250
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Profit (loss) from life insurance and long
term savings segment	(59)	11	(29)	(88)	104
Profit (loss) from healthcare insurance
segment	(151)	48	44	22	50
Profit from general insurance segment	109	165	75	89	340
Profit from financial services segment	49	52	27	33	119
Total comprehensive income (loss) from
operating segments	(52)	276	117	56	613
Profit (loss) not attributed to reporting
segments	68	68	23	37	157
Company’s share in the net results of
investees not included in the reported
segments	14	12	(11)	(9)	13
Profit before income tax	30	356	129	84	783
Income tax	(11)	112	47	30	252
Profit for the period	41	244	82	54	531
Profit for the period attributable to
Company shareholders	33	234	77	48	504

Annual Comparison

For clarifications regarding the changes in comprehensive income for the various operating segments between the above periods, see Section 2.4 below.

Half Year Comparison

The difference between comprehensive income and loss for the first half of 2015 is due to gains (losses) on the PH Group’s marketable assets not held against performance based liabilities and which have yet to be sold. Year-on-year changes in this difference also depend on the timing in which marketable securities are sold.

— 470 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

The decrease in the second quarter of 2015 in comprehensive income and loss and in income and loss for first half of 2015 not attributable to reported segments was mainly due to capital market yields, which were lower than those recorded in the same period of last year. The said decrease was also due to higher finance expenses, and the CPI being higher in the first half of 2015 as compared to the last-year period.

2.4 Developments in the PH Group’s operating results, by operating segments:

2.4.1 Developments in the life insurance and long-term savings segment

2.4.1.1 Life insurance segment

Key data from the financial results of the life insurance segment, as included in Phoenix Holdings’ financial statements in the three years (NIS million):

		Life Insurance
	2014	2013	2012
Gross premiums earned	3,867	3,861	3,753
Premiums earned by reinsurers	62	62	63
Premiums earned in retention	3,805	3,799	3,690
Investment income, net	2,292	3,841	2,911
Income from management fees	389	432	178
Payments and changes in liabilities for insurance contracts
and investment contracts in retention	5,729	7,084	6,197
Commission, marketing, and other purchasing expenses	432	399	374
General and administrative expenses	286	239	216
Profit before taxes on income	76	374	9
Other comprehensive income (loss) before income tax	(5)	(5)	75
Comprehensive income before income tax	71	369	84

			Life Insurance	Life Insurance
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Gross premiums earned	2,043	2,038	1,059	1,058	3,867
Premiums earned by reinsurers	20	31	4	15	63
Premiums earned in retention	2,024	2,008	1,055	1,043	3,805
Investment income (loss), net	1,420	1,352	(157)	479	2,292
Income from management fees	277	229	13	76	389
Payments and changes in liabilities for
insurance contracts and investment
contracts in retention	3,405	3,253	758	1,524	5,729
Commission, marketing, and other
purchasing expenses	240	205	116	102	432
General and administrative expenses	155	146	78	73	286
Profit (loss) before taxes on income	(76)	(5)	(34)	(94)	76
Other comprehensive income (loss)
before income tax	(6)	3	(53)	(17)	(5)
Comprehensive Income (loss) before
income tax	(82)	(2)	(87)	(111)	71

Annual Comparison

Gains on investments materially affect the profitability of segment operations, which are characterized by a long-term accrual of significant reserves. Gains on investments are affected by capital market fluctuations, as well as changes in interest rates and the Israeli CPI, which affect the yields on marketable financial asset portfolios held against insurance reserves and contingent claims.

— 471 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

It is noted that a significant part of investment income is attributable to investment profit-sharing policies and did not directly influence Phoenix Holdings’ results. For information concerning investment gains attributed to policyholders after management fees, see also the information concerning the weighted returns on profit-sharing policies, as detailed below.

Results for 2014 were materially affected by lower market interest rates. Due to lower interest rates, Phoenix Holdings recognized an expense in 2014 following an increase in its insurance liabilities to the amount of NIS 158 million pre-tax, and NIS 98 million post-tax.

Total variable management fees recorded in 2014 amounted to NIS 138 million, as compared to NIS 220 million in the same period of last year. This decrease was due to the decrease in the real yield in 2014, as compared to the same period of last year. In this context, it is noted that had it not been for the cumulative negative real yield on these policies as of December 31, 2012, variable management fees in the comparative period would have increased by an additional NIS 62 million.

Total fixed management fees in 2014 amounted to NIS 251 million, as compared to fixed management fees of NIS 212 million in the same period of last year. This increase was attributable to growth in the portfolio itself.

Redemptions from the average reserve of insurance policies (in annualized terms) amounted to 2.4% in 2014, similar to their rate in the same period of last year. It is noted that economic conditions, employment rates, worker salaries and market competition affect this ratio. The ratio is further affected by the prohibition, starting January 2013, on offering insurance policies with a savings component and guaranteed annuity factors to persons under 60 at the sale date.

In 2014, commissions, marketing and other purchasing expenses totaled 11.2% of the gross premiums earned, as compared to 10.3% and 10% in 2013 and 2012, respectively. The increase as compared to 2013 and 2012 was due, inter alia, to an increase in the weight of the individual insurance and risk items in the PH Group’s sales mix. These insurance products are characterized by higher commissions.

In the reporting year, general and administrative expenses totaled 7.4% of the gross premiums earned, as compared to 6.2% and 5.8% in 2013 and 2012, respectively.

The year-on-year decrease in comprehensive income in 2014 was mainly due to lower market interest rates, and a decrease in variable management fees as detailed above, coupled with higher profits on risk.

Half Year Comparison

Variable management fees totaled NIS 139 million (pre-tax) in the first six months of 2015, compared with NIS 107 million (pre-tax) in the same period of last year. This growth was due to higher real yields, year-on-year.

— 472 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

In the second quarter of 2015, Phoenix Holdings refunded NIS 57 million in management fees, as compared to a positive figure of NIS 13 million recorded in the same period of last year. This decrease was due to negative real yields recorded by Phoenix Holdings in the second quarter of the year, as compared to positive yields recorded in the same period of last year.

Results for the first six months of 2015 and second quarter were materially affected by fluctuations on the risk-free interest rate, a Commissioner circular issued in August 2015, and changes in assumptions concerning pension exercise rates based on Phoenix Holdings’ accumulated experience. The overall effect of these changes resulted in an increase of NIS 281 million and a decrease of NIS 15 million in reserves in life insurance operations in the six and three month periods ended June 30, 2015, respectively. In this context, it is noted that results for the corresponding six and three month periods of last year were materially affected by the lower market interest rates seen in those periods. These lower interest rates increased insurance liabilities by NIS 202 million and NIS 174 million in the first half and second quarter of 2014, respectively.

Redemptions from the average reserve (in annualized terms) amounted to 2.19% in the first six months of 2015, as compared to 2.16% in the same period of last year. It is noted that economic conditions, employment rates, worker salaries and market competition affect this ratio.

Year-on-year, gains from risk were up in the first six months of 2015, mainly during the first quarter. In the second quarter of 2015, gains from risk were lower than in the same period of last year.

In the first six months of 2015, commissions, marketing and other purchasing expenses totaled 11.8% of gross premiums earned, as compared to 10.1% in the same period of last year. In the present quarter, commissions, marketing and other purchasing expenses totaled 11% of gross premiums earned, as compared to 9.7% in the same quarter of last year. The increase in the first six months of 2015 and second quarter was due, inter alia, to the composition of the sales mix, which saw a lower percentage of executive insurance policies.

In the first six months of 2015, general and administrative expenses totaled 7.6% of the gross premiums earned, as compared to 7.2% in the same period of last year. In the second quarter, general and administrative expenses totaled 7.3% of the gross premiums earned, as compared to 6.9% in the same quarter of last year.

Weighted returns on profit-sharing policies

Details concerning estimated net investment earnings attributed to profit-sharing policyholders and management fees calculated according to the Supervisor of Insurance’s directives, based on insurance reserve balances and returns (NIS million):

	2014	2013	2012	10-12/2014	10-12/2013
Investment gains (losses) attributed to
policyholders after management fees	1,396	2,689	2,184	(153)	782
Management fees	389	432	178	46	156
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Investment gains (losses) attributed to
policyholders after management fees	912	868	(375)	229	1,396
Management fees	277	229	13	76	389

— 473 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Nominal returns on profit-sharing policies for policies issued from 1992 to 2003 were as follows:

	Policies issued	Policies issued	up to 2004	(J Fund)
	2014	2013	2012 10-12/2014		10-12/2013
Nominal returns before management
fees	5.10%	13.21%	11.30%	(0.61%)	3.45%
Nominal returns after management fees	3.84%	11.37%	10.61%	(0.69%)	2.82%
Real returns before management fees	5.20%	11.09%	9.72%	(0.42%)	3.55%
Real returns after management fees	3.94%	9.28%	9.04%	(0.50%)	2.92%
	Policies issued up to 2004			(J Fund)
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Nominal returns before management
fees	4.22%	3.67%	(0.47%)	1.08%	5.10%
Nominal returns after management fees	3.29%	2.86%	(0.38%)	0.87%	3.84%
Real returns before management fees	4.74%	3.87%	(1.57%)	0.58%	5.20%
Real returns after management fees	3.81%	3.06%	(1.48%)	0.38%	3.94%

Fluctuations in these returns derives from capital market returns in Israel and abroad, changes in the CPI, and changes in the NIS exchange rates against the key currencies.

Nominal returns on profit-sharing policies for policies issued from 2004 were as follows:

		Policies	issued since	2004
	2014	2013	2012 10-12/2014		10-12/2013
Nominal returns before management
fees	4.82%	12.17%	10.52%	(0.72%)	3.39%
Nominal returns after management fees	3.52%	10.79%	9.13%	(1.01%)	3.08%
Real returns before management fees	4.92%	10.07%	8.95%	(0.53%)	3.49%
Real returns after management fees	3.62%	8.71%	7.58%	(0.82%)	3.18%
		Policies	issued since	2004
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Nominal returns before management
fees	3.56%	3.30%	(0.93%)	0.85%	4.82%
Nominal returns after management fees	2.94%	2.65%	(1.23%)	0.53%	3.52%
Real returns before management fees	4.08%	3.50%	(2.02%)	0.36%	4.92%
Real returns after management fees	3.45%	2.85%	(2.32%)	0.04%	3.62%

2.4.1.2 Provident fund segment

The PH Group manages provident funds and study funds, mainly through Excellence Provident, which manages pension and compensation funds, study funds, and central compensation funds. The PH Group also operates in this segment through The Phoenix Pension, a subsidiary of The Phoenix Insurance.

— 474 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Key data from the financial results of the provident fund segment, as included in Phoenix Holdings’ financial statements in the three years (NIS million):

			Provident Funds	Provident Funds	Provident Funds
			2014	2013	2012
Income from management fees			190	196	220
Commission, marketing, and other purchasing expenses			39	36	33
General and administrative expenses			114	117	115
Other expenses			12	15	16
Finance expenses			—	1	7
Profit before write-down of goodwill			25	28	49
Write-down of goodwill (*)			7	36	0
Profit (loss) before taxes on income and	comprehensive
income			18	(8)	49
		Provident Funds
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Income from management fees	99	96	47	47	190
Commission, marketing, and other
purchasing expenses	22	18	11	9	39
General and administrative expenses	58	61	29	33	114
Other expenses	6	5	3	2	12
Profit before write-down of goodwill	12	11	5	3	25
Write-down of goodwill	—	—	—	—	7
Profit before taxes on income and
comprehensive income	12	11	5	3	18

(*) Included under the ‘Other expenses’ item in the financial statements.

Annual Comparison

In June 2012, the Supervision of Financial Services Regulations (Provident Funds) (Management Fees), 2012 were published in the Official Gazette (“the Regulations”). The Regulations stated that, as of January 2013, the maximum management fee that a provident fund management company may charge will decrease from 2% of the amount accrued for royalties in the provident fund, to 1.1%, and to only 1.05% from January 2014 onwards.

Benefit contributions collected by the provident funds managed by the PH Group in 2014, 2013, and 2012 amounted to NIS 1,568 million, NIS 1,489 million, and NIS 1,698 million, respectively.

Assets under management by the provident funds managed by the PH Group in 2014, 2013, and 2012 amounted to NIS 23 billion, NIS 22 billion, and NIS 21 billion, respectively.

Based on Ministry of Finance data[1] , as of December 31, 2014, aggregate assets under management in the provident fund market amounted to a total of NIS 369 billion, as compared to NIS 347 billion on December 31, 2013, an increase of 6.3%. Growth in the provident fund segment in 2014 was due to higher capital market returns.

1 Based on Pension Net data.

— 475 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Revenues from management fees in the 2014 amounted to NIS 190 million, as compared to NIS 196 million in 2013, and NIS 220 million in 2012. The year-on-year decrease in revenues was mainly attributable to lower average management fees, due to the above legislation and increased market competition.

Following the aforesaid, in the fourth quarter of 2014, a write-down was made in goodwill attributable to provident fund operations, to the amount of NIS 7 million (in 2013 - a write-down of NIS 36 million).

The decrease in finance expenses in this segment in 2014 and 2013, as compared to 2012, was mainly attributable to settlement of liabilities.

Comprehensive income in 2014 was mainly affected by the decrease in revenues from management fees and the write-down of goodwill attributable to pension fund operations as aforesaid. Comprehensive income was also affected by a provision made following the Decision Circular.

Half Year Comparison

Contributions collected by group-managed provident funds in the first six months of 2015 amounted to NIS 1,172 million, as compared with NIS 660 million in the same period of last year, an increase of 77.6%. The increase was materially affected by one-time deposits.

Contributions collected by group-managed provident funds in the second quarter of 2015 amounted to NIS 725 million, as compared with NIS 342 million in the same period of last year, an increase of 112%. The increase was materially affected by one-time deposits.

Assets under management by group-managed provident funds amounted to NIS 24 billion as of June 30, 2015, as compared to NIS 23 billion as of December 31, 2014, an increase of 4%.

According to Ministry of Finance data, as of June 30, 2015, aggregate assets under management in the provident fund market amounted to a total of NIS 378 billion, as compared with NIS 369 billion on December 31, 2014, an increase of 2.4%.

2.4.1.3 Pension funds

The PH Group’s pension fund operations are carried out through The Phoenix Pension, and The Phoenix Old Balanced Pension Funds, both subsidiaries of The Phoenix Insurance.

Key data from the financial results of the pension fund segment, as included in Phoenix Holdings’ financial statements in the three years (NIS million):

		Pension
	2014	2013	2012
Revenues from management fees	123	97	86
Commission, marketing, and other purchasing expenses	76	60	52
General and administrative expenses	39	33	29
Profit before taxes on income and comprehensive income	9	6	7

— 476 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

			Pension
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Income from management fees	67	56	35	30	123
Commission, marketing, and other
purchasing expenses	41	35	21	18	76
General and administrative expenses	23	18	13	9	39
Profit before taxes on income and
comprehensive income	5	5	1	3	9

Annual Comparison

Based on data of Ministry of Finance,[2] aggregate benefit contributions in the new pension fund market in 2014 amounted to a total of NIS 24,479 million, as compared to NIS 21,184 million in the same period of last year, an increase of 16%.

Benefit contributions collected by the pension funds managed by the PH Group in 2014, 2013, and 2012 amounted to NIS 2,058 million, NIS 1,617 million, and NIS 1,393 million, respectively.

Based on Ministry of Finance data[3] , as of December 31, 2014, aggregate assets under management in the new pension fund market amounted to a total of NIS 188 billion, as compared to NIS 158 billion on December 31, 2013, an increase of 19%.

Assets under management by the PH Group’s pension funds, as of December 31, 2014, amounted to NIS 11 billion, as compared to NIS 9 billion on December 31, 2013, an increase of 22%.

Revenues from management fees in 2014 amounted to NIS 123 million, as compared to NIS 97 million and NIS 86 million in 2013 and 2012, respectively. Management fees were up mainly due to growth in the volume of operations.

The growth in commissions and expenses in 2014 and 2013 as compared to 2012 was attributable to a general growth in operations.

Half Year Comparison

Based on Ministry of Finance data, aggregate contributions in the new pension fund market in the first six months of 2015 amounted to a total of NIS 12,937 million, as compared to NIS 11,450 million in the same period of last year, an increase of 13%.

Contributions collected by group-managed pension funds in the first six months of 2015, amounted to NIS 1,147 million, as compared to NIS 932 million in the same period of last year, an increase of 23%. Contributions collected by group-managed pension funds in the second quarter of 2015, amounted to NIS 589 million, as compared to NIS 499 million in the same period of last year, an increase of 18%.

According to Ministry of Finance data[4] , as of June 30, 2015, aggregate assets under management in the new pension fund market amounted to a total of NIS 204 billion, as compared with NIS 188 billion on December 31, 2014, an increase of 8.5%.

2 Based on Pension Net data.

3 Based on Pension Net data.

4 Based on Pension Net data.

— 477 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Assets under management by the PH Group’s pension funds, as of June 30, 2015, amounted to NIS 12 billion, as compared to NIS 11 billion on December 31, 2014, an increase of 9%.

Income from management fees in the first six- and three-month periods of 2015 amounted to NIS 67 million and NIS 35 million, respectively, as compared to NIS 56 million and NIS 30 million, respectively, in the same periods of last year. Management fees were up due to growth in the PH Group’s operations.

Year-on-year, commissions and expenses were up in the first six- and three-month periods of 2015, due to growth in the PH Group’s operations.

2.4.2 Healthcare insurance segment

Key data from the financial results of the healthcare insurance segment, as included in Phoenix Holdings’ financial statements in the three years (NIS million):

	Healthcare Insurance	Healthcare Insurance	Healthcare Insurance
	2014	2013	2012
Gross premiums	1,559	1,407	1,273
Gross premiums earned	1,555	1,410	1,288
Premiums earned in retention	1,423	1,284	1,129
Investment income, net	75	113	61
Revenues from commissions	23	25	26
Payments and changes in liabilities for insurance contracts	1,205	1,033	987
Less reinsurance	137	177	172
Payments and changes in liabilities for insurance contracts and
investment contracts in retention	1,068	856	815
Commission, marketing, and other purchasing expenses	313	261	234
General and administrative expenses	89	86	76
Profit before taxes on income	50	219	92
Other comprehensive income (loss) before income tax	(9)	0	24
Comprehensive income before income tax	41	219	116

		Healthcare Insurance	Healthcare Insurance	Healthcare Insurance
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Gross premiums earned	816	747	413	376	1,555
Premiums earned in retention	754	690	383	349	1,423
Investment income, net	50	46	22	22	75
Revenues from commissions	11	11	5	6	23
Payments and changes in liabilities for
insurance contracts and investment
contracts	800	577	283	297	1,205
Less reinsurance	62	68	36	43	138
Payments and changes in liabilities for
insurance contracts and investment
contracts in retention	738	510	247	255	1,068
Commission, marketing, and other
purchasing expenses	177	143	92	78	313
General and administrative expenses	52	46	27	23	89
Profit (loss) before taxes on income	(151)	48	44	22	50
Other comprehensive income (loss)
before income tax	(6)	—	(23)	(7)	(9)
Comprehensive Income (loss) before
income tax	(157)	48	21	15	41

— 478 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

Annual Comparison

In the healthcare insurance segment, gross premiums grew 10.8% year-on-year, following year-on-year growth of 10.5% in 2013. Premiums were up due to growth in premiums on personal insurance policies, continued growth in new sales, coupled with more moderate growth in premiums on collective policies. The upward trend in premiums on individual insurance policies is evident in most of the individual products offered by the PH Group.

Gains on investments affect the profitability of segment operations, where certain products (such as long-term care) are characterized by a long-term accrual of significant reserves. Gains on investments are affected by capital market fluctuations, as well as changes in interest rates and the Israeli CPI, which affect the yields on marketable financial asset portfolios held against insurance reserves and contingent claims.

Investment income including other comprehensive income amounted to NIS 66 million in the reporting year, as compared to NIS 113 million in 2013 and NIS 85 million in 2012.

Results in 2014 were affected by lower year-on-year yields as aforesaid, and Phoenix Holdings’ provision following a liability adequacy test (“LAT”) in individual long-term care insurance operations, to the amount of NIS 25 million in the fourth quarter of 2014, mainly driven by lower market interest rates, an increase in long-term care insurance claims, a NIS 24 million provision (mainly in the fourth quarter of 2014) following an update of morbidity assumptions in healthcare policies, and provisions made by Phoenix Holdings for several collective policies.

Results for the corresponding period of 2013 were materially affected by a cut-off agreement signed in the first quarter of 2013 between the PH Group and a reinsurer, and a reinsurance contract with another reinsurer who will serve as a reinsurer for insurance operations included under the Reinsurer Swap Agreement. Following these activities, Phoenix Holdings recorded gains of NIS 72 million (pre-tax) in the first quarter of 2013.

In 2014, commissions, marketing and other purchasing expenses totaled 20.1% of the gross premiums earned, as compared to 18.6% and 18.3% in 2013 and 2012, respectively. This increase was due to an increase in the individual policy sales mix.

In 2014, general and administrative expenses totaled 5.7% of the gross premiums earned, as compared to 6.1% and 6% in 2013 and 2012, respectively.

Half Year Comparison

In the healthcare insurance segment, gross premiums earned in the first six months of 2015 grew 9.3% as compared to the same period of last year. Year-on-year, gross premiums grew 9.7% in the second quarter. Premiums were up primarily due to growth in premiums on personal insurance contracts, continued growth in new sales, coupled with more moderate growth in premiums on collective contracts. The upward trend in premiums on individual insurance policies is evident in most of the individual products offered by the PH Group.

Results for the first six months of 2015 and the second quarter of 2015 in individual long-term care operations were materially affected by fluctuations of the risk-free interest rate curve, a Commissioner circular issued in August 2015 on LAT, and updates to assumptions concerning cancellation rates. The overall effect of these changes resulted in an increase of NIS 125 million and a decrease of NIS 57 million in reserves in healthcare insurance operations in the 6 and 3 month periods ended June 30, 2015, respectively.

— 479 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Results for the first six months of 2015 and the second quarter of 2015 were also affected by weaker performance in collective operations.

Investment income including other comprehensive income amounted to NIS 44 million in the first six months of 2015, similar to NIS 46 million recorded in the same period of last year.

In the second quarter of 2015, investment income including other comprehensive income amounted to an overall loss of NIS 1 million, as compared to an overall income of NIS 15 million in the same period of last year.

In the first six months of 2015, commissions, marketing and other purchasing expenses totaled 21.6% of the gross premiums earned, as compared to 19.1% in the same period of last year. In the second quarter of 2015, commissions, marketing and other purchasing expenses totaled 22.3% of the gross premiums earned, as compared to 20.6% in the same quarter of last year.

In the first six months of 2015, general and administrative expenses totaled 6.4% of the gross premiums earned, as compared to 6.2% in the same period of last year. In the second quarter, general and administrative expenses totaled 6.4% of the gross premiums earned, as compared to 6.2% in the same quarter of last year.

2.4.3 General insurance segment

Annual Comparison

In the general insurance segment, gross premiums were up 2.7% in 2014, following year-on-year growth of 6.8% in 2013. This increase was attributable to most sectors in which the PH Group operates.

In 2014, commissions, marketing and other purchasing expenses totaled 20% of the gross premiums earned, similar to their rate in 2013, and as compared to 20.7% in 2012.

In 2014, general and administrative expenses totaled 5.3% of the gross premiums earned, as compared to 5.5% and 5.2% in 2013 and 2012, respectively.

Comprehensive income from general insurance operations amounted to NIS 286 million in 2014, as compared to NIS 366 million in 2013, and NIS 234 million in 2012.

This year-on-year decrease in comprehensive income in 2014 was mainly attributable to a decrease in investment income; a decrease in the risk-free interest rate in 2014, which led to an increase in insurance liabilities; and updates to estimates for contingent claims in liability insurance operations in the same period of 2013.

These were partially offset by improved underwriting results in auto property operations and other auto operations, mainly following inclement weather events in January and December of 2013

— 480 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

Half Year Comparison

Gross premiums earned in general insurance operations in the first six months of 2015 amounted to NIS 1,286 million, as compared to NIS 1,262 million in the same period of last year, an increase of 1.9%. In the second quarter of 2015, gross premiums totaled NIS 524 million, as compared to NIS 528 million in the same quarter of last year, a decrease of 0.7%.

Gross premiums earned in general insurance operations in the first six months of 2014 amounted to NIS 1,176 million, as compared to NIS 1,116 million in the same period of last year, an increase of 5.3%. In the second quarter of 2014, gross premiums totaled NIS 593 million, as compared to NIS 567 million in the same quarter of last year, an increase of 4.5%.

In the first six months of 2015, commissions, marketing and other purchasing expenses totaled 18.4% of the gross premiums earned, as compared to 17.9% in the same period of last year. In the second quarter of 2015, commissions, marketing and other purchasing expenses totaled 24% of the gross premiums earned, as compared to 22.3% in the same period of last year.

In the first six months of 2015, general and administrative expenses totaled 4.6% of the gross premiums earned, as compared to 4.8% in the same period of last year. In the second quarter of 2015, general and administrative expenses totaled 5.9% of the gross premiums earned, as compared to 5.3% in the same quarter of last year.

Comprehensive income from general insurance operations in the first six months of 2015 amounted to NIS 102 million, as compared to comprehensive income of NIS 158 million in the same period of last year. In the second quarter of 2015, comprehensive income from general insurance operations amounted to NIS 5 million, as compared to an income of NIS 64 million in the same quarter of last year.

Results from compulsory auto insurance and liability insurance operations in the first six months of 2015 and second quarter were materially affected by fluctuations of the risk-free interest rate curve. As a result, insurance liabilities in these segments increased by NIS 9 million in the first six months of 2015, and decreased by NIS 20 million in the second quarter.

It is noted that in the first six months of 2014 and in the second quarter of 2014, a decrease in the risk-free interest rate increased insurance liabilities in compulsory auto insurance and liability insurance operations by NIS 25 million and by NIS 9 million, respectively.

The year-on-year decrease in comprehensive income recorded in the first six months and in the second quarter of 2015 was mainly due to a decrease in investment income in the first six months of 2015, and weaker underwriting results in auto property insurance operations.

— 481 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

2.4.3.1 Compulsory auto insurance segment

Key data from the financial results of the compulsory auto insurance segment, as included in Phoenix Holdings’ financial statements in the three years (NIS million):

	Compulsory auto	Compulsory auto	insurance
	2014	2013	2012
Gross premiums	448	425	384
Retained premiums	439	416	370
Premiums earned in retention	425	393	361
Investment income, net	100	141	68
Payments and changes in liabilities for insurance contracts in
retention	324	338	268
Commission, marketing, and other purchasing expenses	45	42	40
General and administrative expenses	24	24	21
Profit before income tax	127	135	99
Other comprehensive income (loss) before income tax	(27)	6	51
Comprehensive income for the period before income tax	100	141	150

		Compulsory auto	Compulsory auto	insurance
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Gross premiums	261	247	103	100	448
Retained premiums	256	242	101	98	439
Premiums earned in retention	223	206	113	105	425
Investment income, net	34	57	24	30	100
Payments and changes in liabilities for
insurance contracts in retention	176	173	86	87	324
Commission, marketing, and other
purchasing expenses	22	21	13	12	45
General and administrative expenses	12	12	6	6	24
Profit before income tax	49	58	35	31	127
Other comprehensive income (loss)
before income tax	(4)	(3)	(35)	(12)	(27)
Comprehensive income for the period
before income tax	45	55	—	19	100

Annual Comparison

Gross premiums were up 5.5% in 2014, following growth of 10.5% in 2013. This increase in gross premiums was mainly attributable to an increase in Phoenix Holdings’ sales volumes along with lower rates.

In the compulsory auto insurance segment, excess income over expenses is not recognized as profit in the first three years (the “open” years) but rather is attributed to contingent claims (“accrual”). As a result, profit in this segment mainly reflects the profitability of the underwriting year that ended three years prior to the reporting year, along with accrued gains on investment, adjustments for the underwriting years released in the previous years (the “closed” years), any losses on “open” years, and operations not included in the calculation of reserves.

— 482 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

This segment is characterized by a relatively high level of reserves, due to the considerable time difference between receipt of the premiums and conclusion of the claim process and the accounting method of creating accruals which are included in the contingent claims item as aforesaid. Thus, returns on investments have a significant effect on the profit of these operations.

The results of the PH Group’s compulsory auto insurance operations in 2014 amounted to a comprehensive income of NIS 100 million, as compared to NIS 141 million in 2013, and NIS 150 million in 2012.

“Pool” losses reduced the profits reported in 2014, 2013, and 2012 by a total of NIS 24 million, NIS 20 million, and NIS 24 million, respectively.

The year-on-year decrease in comprehensive income in 2014 was mainly attributable to a decrease in investment income, lower accruals recognized as profit for the released underwriting year as compared to last year, and a decrease in the risk-free interest rate in 2014 which led to an increase in insurance liabilities.

Half Year Comparison

Gross premiums earned in the first six months of 2015 amounted to NIS 261 million, compared with NIS 247 million in the same period of last year, an increase of 5.8%. Gross premiums earned in the second quarter of 2015 amounted to NIS 103 million, compared with NIS 100 million in the same quarter of last year, an increase of 3%. This increase was attributable to growth in Phoenix Holdings’ sales.

In the compulsory auto insurance segment, excess income over expenses is not recognized as profit in the first three years (the “ open ” years) but rather is attributed to contingent claims (“accrual”). As a result, profit in this segment mainly reflects the profitability of the underwriting year that ended three years prior to the reporting year, along with accrued gains on investments, adjustments for the underwriting years released in the previous years (the “ earlier ” years), any losses on “open” years, and operations not included in the calculation of reserves.

The year-on-year decrease in comprehensive income recorded in the first six months of 2015 and in the second quarter of 2015 was mainly due to a decrease in investment income in the first six months of 2015.

— 483 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

2.4.3.2 Auto property insurance segment

Key data from the financial results of the auto property insurance segment, as included in Phoenix Holdings’ financial statements in the three years (NIS million):

	Auto	property insurance	property insurance
	2014	2013	2012
Gross premiums	832	821	763
Retained premiums	832	821	763
Premiums earned in retention	823	792	760
Investment income, net	21	33	15
Payments and changes in liabilities for insurance contracts in
retention	563	561	570
Commission, marketing, and other purchasing expenses	194	187	181
General and administrative expenses	45	45	41
Profit (loss) before income tax	42	33	(18)
Other comprehensive income (loss) before income tax	(6)	1	11
Comprehensive income (loss) for the period before income
tax	36	34	(7)

		Auto	property insurance	property insurance
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Gross premiums	459	445	194	195	832
Retained premiums	459	445	194	195	832
Premiums earned in retention	419	405	212	205	823
Investment income, net	8	14	6	7	21
Payments and changes in liabilities for
insurance contracts in retention	308	281	158	143	563
Commission, marketing, and other
purchasing expenses	98	93	52	49	194
General and administrative expenses	22	22	12	10	45
Profit (loss) before income tax	—	23	(3)	9	42
Other comprehensive income (loss)
before income tax	(1)	(1)	(9)	(3)	(6)
Comprehensive income (loss) for the
period before income tax	(1)	22	(12)	6	36

Annual Comparison

Gross premiums and premiums in retention grew by 1.3% in 2014, and by 7.6% in 2013. These increases were due to an increase in the number of policies issued by the PH Group.

Gross and retained loss ratio (“LR”) amounted to 68% in 2014, as compared to an LR of 71% in 2013, and an LR of 75% in 2012.

Gross and retained combined loss ratio (“CLR”) amounted to 98% in 2014, as compared to CLR of 100% in 2013, and CLR of 104% in 2012.

It is noted that, in 2013, LR and CLR were affected by flood damages incurred in that year.

— 484 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Comprehensive income totaled NIS 36 million in 2014, as compared to NIS 34 million in 2013, and a loss of NIS 7 million in 2012.

Results for 2014 were mainly affected by improved underwriting results, coupled with a year-on-year decrease in investment gains.

The year-on-year improvement in comprehensive income in 2013 was attributable to growth in investment income and improved underwriting results, despite flood damage incurred in 2013.

Half Year Comparison

Gross and retained premiums earned in the first six months of 2015 amounted to NIS 459 million, as compared to NIS 445 million in the same period of last year, an increase of 3.3%. In the second quarter of 2015, gross premiums amounted to NIS 194 million, as compared to NIS 195 million in the same quarter of last year, a decrease of 0.3%.

The year-on-year decrease in comprehensive income recorded in the first six months of 2015 and the second quarter of 2015 was due to an increase in claims and a decrease in investment income.

Gross and retained LR in the first six months of 2015 amounted to 73.5%, as compared to 69.4% in the same period of last year.

Gross and retained LR in the second quarter of 2015 amounted to 74.4%, as compared to 70.1% in the same quarter of last year.

Gross and retained CLR in the first six months of 2015 amounted to 102%, as compared to 97.7% in the same period of last year.

Gross and retained CLR in the second quarter of 2015 amounted to 104.4%, as compared to 99.2% in the same quarter of last year.

LR and CLR were up due to an increase in claim payments.

— 485 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

2.4.3.3 Other (non-auto) property insurance segments

Key data from the financial results of the other general insurance segment, as included in Phoenix Holdings’ financial statements in the three years (NIS million):

	Property and Other	Property and Other	Property and Other
		Insurance
	2014	2013	2012
Gross premiums	669	663	623
Retained premiums	298	297	285
Premiums earned in retention	297	288	277
Investment income, net	11	3	7
Payments and changes in liabilities for insurance contracts in
retention	96	144	123
Commission, marketing, and other purchasing expenses	153	152	146
General and administrative expenses	33	36	31
Profit before income tax	87	24	43
Other comprehensive income (loss) before income tax	(3)	1	5
Comprehensive income for the period before income tax	84	25	48

		Property	and Other	Insurance
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Gross premiums	358	372	147	155	669
Retained premiums	162	160	64	62	298
Premiums earned in retention	150	151	74	74	297
Investment income, net	3	6	2	3	11
Payments and changes in liabilities for
insurance contracts in retention	58	40	27	19	96
Commission, marketing, and other
purchasing expenses	78	74	40	38	153
General and administrative expenses	16	17	8	8	33
Profit before income tax	43	45	23	22	87
Other comprehensive income (loss)
before income tax	(1)	(1)	(3)	(1)	(3)
Comprehensive income for the period
before income tax	42	44	20	21	84

Annual Comparison

Gross premiums in the property and other insurance segment grew 1%, and 6.4% in 2013.

Comprehensive income was up in 2014, as compared to 2013, mainly due to improved underwriting results, primarily in the comprehensive apartment and business insurance segment. It is noted that results for the same period of 2013 were affected by flood damage incurred in 2013.

Gross LR amounted to 56% in 2014, as compared to LR of 61% in 2013, and LR of 46% in 2012.

Gross CLR amounted to 84% in 2014, as compared to CLR of 90% in 2013, and CLR of 75% in 2012.

— 486 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Retained LR amounted to 32% in 2014, as compared to LR of 50% in 2013, and LR of 44% in 2012.

Retained CLR amounted to 74% in 2014, as compared to CLR of 93% in 2013, and CLR of 87% in 2012.

It is noted that, in 2013, LR and CLR were affected by flood damages incurred in that year.

Half Year Comparison

Gross premiums earned in the first six months of 2015 amounted to NIS 358 million, compared with NIS 372 million in the same period of last year, a decrease of 3.7%. In the second quarter of 2015, gross premiums amounted to NIS 147 million, compared with NIS 155 million in the same quarter of last year, a decrease of 5.4%. The decrease in premiums was mainly attributable to property loss operations.

Gross LR in the first six months of 2015 amounted to 53.3%, as compared to 39.2% in the same period of last year.

Gross LR in the second quarter of 2015 amounted to 59.3%, as compared to 29.9% in the same quarter of last year.

Gross CLR in the first six months of 2015 amounted to 81.5%, as compared to 67.7% in the same period of last year.

Gross CLR in the second quarter of 2015 amounted to 88.2%, as compared to 58% in the same quarter of last year.

Retained LR in the first six months of 2015 amounted to 38.7%, as compared to 26.4% in the same period of last year.

Retained LR in the second quarter of 2015 amounted to 36.9%, as compared to 26.2% in the same quarter of last year.

— 487 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

2.4.3.4 Liability and other insurance segments

Key data from the financial results of the liability and other insurance segments, as included in Phoenix Holdings’ financial statements in the three years (NIS million):

	Liability and Other	Liability and Other	Liability and Other
		Insurance
	2014	2013	2012
Gross premiums	381	360	354
Retained premiums	289	273	265
Premiums earned in retention	281	271	266
Investment income, net	63	97	46
Payments and changes in liabilities for insurance contracts in
retention	166	121	220
Commission, marketing, and other purchasing expenses	74	73	72
General and administrative expenses	20	20	19
Profit before income tax	84	162	8
Other comprehensive income (loss) before income tax	(18)	4	35
Comprehensive income for the period before income tax	66	166	43

		Liability	and Other	Insurance
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Gross premiums	207	199	80	78	381
Retained premiums	164	161	61	57	289
Premiums earned in retention	143	138	75	72	281
Investment income, net	21	37	15	19	63
Payments and changes in liabilities for
insurance contracts in retention	105	91	52	42	166
Commission, marketing, and other
purchasing expenses	40	37	20	19	74
General and administrative expenses	10	10	5	4	20
Profit (loss) before income tax	18	39	20	26	84
Other comprehensive income (loss)
before income tax	(2)	(3)	(22)	(8)	(18)
Comprehensive income (loss) for the
period before income tax	16	36	(2)	18	66

Annual Comparison

Gross premiums in the liability insurance segments grew 5.7% in 2014, and 1.8% in 2013. This increase in gross premiums was mainly attributable to growth in the PH Group’s operations.

The year-on-year decrease in comprehensive income in 2014 was mainly attributable to lower investment income, an update to Phoenix Holdings’ assessments of insurance liabilities in the corresponding period of 2013, and a decrease in the risk-free interest rate in 2014 which increased insurance liabilities.

— 488 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

Half Year Comparison

Gross premiums earned in the first six months of 2015 amounted to NIS 207 million, as compared to NIS 199 million in the same period of last year, an increase of 4.3%. In the second quarter of 2015, gross premiums amounted to NIS 80 million, as compared to NIS 78 million in the same quarter of last year, an increase of 3%.

The year-on-year decrease in comprehensive income in the first six months of 2015 was mainly due to a decrease in investment income and lower margins on third party insurance operations.

The year-on-year decrease in comprehensive income in the second quarter of 2015 was mainly due to lower investment.

2.4.4 Financial services segment

Operations in this segment are carried out through Excellence.

Key data from the financial results of the financial services segment, as included in Phoenix Holdings’ financial statements in the three years (NIS million):

		Financial Services	Financial Services
	2014	2013	2012
Investment income (expenses), net	4	(3)	10
Income from management fees	154	148	152
Income from other financial services	203	179	178
Other income	0	0	0
Total revenues	361	324	340
Commission, marketing, and other purchasing expenses	63	54	60
General and administrative expenses	177	185	170
Other expenses	2	4	4
Finance expenses	3	11	27
Total expenses	245	254	261
Company’s share in the net results of an investee	3	2	(1)
Profit before taxes on income and comprehensive income	119	73	78

			Financial Services	Financial Services
	1-6/2015	1-6/2014	4-6/2015	4-6/2014	1-12/2014
Investment income, net	3	—	1	—	4
Income from management fees	80	76	40	39	154
Income from other financial services	101	94	53	53	203
Total revenues	184	170	94	92	361
Commission, marketing, and other
purchasing expenses	34	29	18	16	63
General and administrative expenses	101	87	48	42	177
Other expenses	1	1	—	—	2
Finance expenses	1	2	1	1	3
Total expenses	137	119	67	59	245
Company’s share in the net results of an
investee	2	1	1	—	3
Other comprehensive income (loss)
before income tax	(1)	—	(1)	—	—
Comprehensive income before income
tax	48	52	26	33	119

— 489 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

Annual Comparison

According to Excellence’s financial statements, total assets under management by Excellence in the financial services segment, as of December 31, 2014, amounted to NIS 71 billion, as compared to NIS 65 billion and NIS 49 billion on December 31, 2013 and 2012, respectively.

Income from financial service operations amounted to NIS 361 million in 2014, as compared to NIS 324 million and NIS 340 million in 2013 and 2012, respectively.

Finance expenses amounted to NIS 3 million in 2014, as compared to NIS 11 million and NIS 27 million in 2013 and 2012, respectively. Finance expenses were down mainly due to a reduction in Excellence’s external debt balance.

Income was up mainly due to growth in revenues from mutual funds, ETF and deposit certificate operations, and improved accounting results on ETFs as reflected in Phoenix Holdings’ financial statements.

The year-on-year improvement in results in 2014 was attributable to profits from mutual fund and ETF operations, coupled with lower finance expenses as aforesaid and improved accounting results on ETFs as reflected in Phoenix Holdings’ financial statements.

Half Year Comparison

Revenues from financial services totaled NIS 184 million in the first six months of 2015, compared with NIS 170 million in the same period of last year. Revenues were up across most operating segments.

Revenues totaled NIS 94 million in the first six months of 2015, compared with NIS 92 million in the same period of last year.

General and administrative expenses in the first six months of 2015 and second quarter of 2015 amounted to NIS 101 million and NIS 48 million, respectively, as compared to NIS 87 million and NIS 42 million, respectively, in the same periods of last year. This increase was due, inter alia, to higher expenses caused directly by growth in assets under management, one-time effect and expenses related to new operations.

INVESTMENT ACTIVITY

The following table sets forth the selected financial indicators of the PH Group for the relevant periods (NIS million):

OVERALL RESULTS

	H1/15	H1/14	2014	2013	2012
Profit before tax	30	356	783	1,178	418
Income (expense) tax	11	(111)	(252)	(418)	(138)
Income for the period	41	244	531	760	280
Non-controlling interests	(8)	(10)	(27)	(21)	(30)
Profit attributable to the shareholder	33	234	504	739	250

— 490 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

Annual comparison

As a result of the foregoing, the PH Group’s profit before taxes was NIS 783 million in 2014, representing a decrease of NIS 395 million from NIS 1,178 million in 2013 and an increase of NIS 365 million from NIS 418 million in 2012.

The PH Group’s income tax expense was NIS 252 million in 2014, representing a decrease of NIS 166 million from NIS 418 million in 2013.

Half year comparison

As a result of the foregoing, the PH Group’s profit before taxes for the six months ended 30 June 2015 was NIS 30 million, representing a decrease of NIS 326 million from NIS 356 million for the six months ended 30 June 2014.

The PH Group’s income tax for the six months ended 30 June 2015 was NIS 11 million, representing an increase of NIS 122 million from an expense tax of NIS 111 million for the six months ended 30 June 2014.

CASH FLOWS

		Unit:	NIS million
	H1/15	H1/14	2014	2013	2012
Net cash flows from/(used in) operating
activities	1,787	1,019	693	998	814
Net cash flows from/(used in) investing
activities	(69)	(104)	(281)	(191)	(208)
Net cash flows from/(used in) financing
activities	(66)	(209)	90	(646)	(352)
Net increase/(decrease) in cash and
cash equivalents	1,062	706	502	161	254

Annual comparison

In 2014, the net cash flows used in operating activities of the PH Group amounted to NIS 693 million, decreased of NIS 305 million from NIS 998 million in 2013 and of NIS 121 million from NIS 814 million in 2012.

In 2014, the net cash flows used in investing activities of the PH Group were NIS 281 million, increased of NIS 90 million compared to 2013 and of NIS 73 million compared to 2012.

In 2014, the net cash flows from financing activities of the PH Group were NIS 90 million, representing positive evolutions of NIS 736 million compared to 2013 and of NIS 442 million compared to 2012.

The PH Group’s cash and cash equivalents balances increased from NIS 2,666 million at the start of 2013, NIS 2,827 million at the start of 2014, and to NIS 3,329 million at the end of 2014.

— 491 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Half year comparison

The consolidated cash flows from operating activities in the first six months of 2015 amounted to NIS 1,787 million.

Consolidated cash flows used in investing activities in the first six months of 2015 amounted to NIS 69 million and included, among other things, an amount of NIS 85 million mainly used in software development and purchases, NIS 15 million used for the purchase of property, plant and equipment, NIS 7 million used for investment in associated companies, and NIS 38 million in dividends received from associates.

Consolidated cash flows from financing activities amounted to NIS 66 million in the first six months of 2015 and included, among other things, NIS 95 million used for settling financial liabilities, and NIS 126 million from receipt of financial liabilities.

The PH Group’s cash and cash equivalents balances increased from NIS 3,329 million at the start of the first six months of 2015, to NIS 4,981 million at the end of the first six months of 2015.

LIQUIDITY

The PH Group’s investments are subject to policies established by the board of directors and implemented by the various investment committees, subject to investment regulations.

The PH Group implemented systems to monitor its market risks. Controls are based on value at risk (“VAR”) calculations and stress scenarios defined by the PH Group, using accepted methods for their implementation. The risk is measured for assets and liabilities (ALM) using accepted methodologies based on VAR calculations and stress scenarios, which are performed according to a scenario defined as the result of extreme and simultaneous changes in the main parameters of the market risks, including interest rates, exchange rates and inflation, taking into account the correlation between the various risk factors. The board of directors set limits for the risk values and receives a report on compliance with them. Routine reports summarizing the information are submitted for review to the investment committees, which convene regularly.

The investment committees examine the cash balances of the PH Group, with an overview of the PH Group’s liquidity requirements and the situation in the financial markets.

SOLVENCY MARGIN REQUIREMENT

The PH Group is subject to a number of laws and regulations regarding financial operations, including the regulatory requirements for maintaining a stipulated solvency margin and providing for certain funds and reserves.

— 492 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

GEARING RATIO

The gearing ratio (Note) of the PH Group was 94.3%, 94.6%, 94.4% and 94.3% as of 31 December 2012, 2013 and 2014 and 30 June 2015, respectively.

Note: Gearing ratio is represented by total liabilities (excluding subordinated term certificates) divided by total assets.

CHARGES ON THE PH GROUP ASSETS

There was no charge created on the assets of the PH Group’s companies during the first six months ended 30 June 2015 as well as the financial year ended 31 December 2012, 2013 and 2014, respectively.

MATERIAL ACQUISITION AND DISPOSALS

There was no material acquisition or disposal of subsidiaries and associated companies of the PH Group companies during the first six months ended 30 June 2015 as well as the financial year ended 31 December 2012, 2013 and 2014, respectively.

CONTINGENT EVENTS

Owing to the nature of the insurance business, there are contingent claims and motions for certification of class actions against the PH Group. When assessing the possible outcomes of legal claims that were filed against Phoenix Holdings and its investees, the PH Group companies relied on the opinions of their legal counsel. These opinions are based on the best of their professional judgement, and take into consideration the current stage of the proceedings and the legal precedents for various matters. Since the outcomes of the claims will ultimately be determined in the courts, these outcomes could differ from the assessments.

In addition to these claims, Phoenix Holdings is exposed to unasserted legal claims, inter alia, where there is any doubt as to the interpretation of the agreement and/or the provisions of the law and/or their implementation. This exposure is brought to the attention of Phoenix Holdings and its investees in several ways, including through customer applications to PH Group entities, in particular to the PH Group’s public complaints officer, through customer complaints to the public inquiries unit in the supervisor’s office, and through claims (other than class action suits) filed at the court. These issues are brought to the attention of the PH Group’s management insofar as the relevant entities identify that the claims could have widespread implications. When assessing the risk arising from these unasserted allegations/claims, the PH Group companies rely on internal assessments of the relevant parties and the management, which assess the prospects of a claim being filed and the chances for its success, if filed. The assessment is based on experience gained with respect to filing claims and the analysis of each claim. Most of such legal proceedings involve claims concerning insurance policies, which are already provisioned, and some additional losses arising therefrom will be indemnified either by reinsurers or by other recoveries, like salvages.

EVENTS AFTER THE FIRST SIX MONTHS OF 2015

Following the first half of 2015, there are no events to be mentioned.

— 493 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

APPENDIX IV

CREDIT RISK

Credit risk is the risk of losses due to a borrower’s default on its liabilities, or as a result of changes in credit margins on the capital market. Credit risk applies to cash and corporate debts.

In the ordinary course of its business, Excellence provides clients with credit facilities. These credit facilities are backed by marketable securities, whose price could drop, so that the collateral will no longer cover the credit facility.

In case of high volatility in the prices of the assets underlying the aforesaid collateral, the value of the customers’ collateral may be compromised, significantly increasing the credit risk behind the credit facilities.

EXCHANGE RATE RISK

Currency risk is the risk that the fair value or future cash flows of a financial instrument will change as a result of changes in foreign currency exchange rates. Changes in foreign currency exchange rates will affect foreign currency-based assets included in the PH Group’s investment portfolio. Thus, a decrease in these currencies’ exchange rates would diminish the value of the foreign currency-based assets.

Excellence is exposed to changes in foreign currencies mainly through its special purpose company operations, inter alia, through the issue of foreign currency-linked bonds and/or the issue of ETF series linked to a foreign index which may then also be affected by changes in foreign currency exchange rates.

However, since the special purpose companies invest the proceeds from the issue of the above products in backing assets which track the index (including the foreign currency) and/or with the same linkage as the issued products, any net exposure to foreign currencies is minimal and does not materially affect the results of Excellence’s operations.

INTEREST RATE RISK

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will change as a result of changes in market interest rates. The PH Group has issued linked and NIS-based bonds and received credit facilities, whose absolute value will increase if interest rates go down. On the other hand, as part of its investment activities, the PH Group holds assets such as CPI-linked, NIS-based and foreign currency-based bonds and loans, which offset the effect of a decrease in interest rates.

As part of its financial instrument issue operations, the PH Group is exposed to interest rate risk in the period between its commitment to third parties and until the issue of the security.

EMPLOYEES

As at the end of 2014, the PH Group had 3,569 employees, an increase of 81 employees compared to 2013 and an increase of 386 employees compared to 2012. Excluding Excellence and agency employees, the PH Group’s headcount increased from 1,969 employees of 2012 to 2,241 employees of 2013 and increased to 2,344 employees of 2014. There is no material change for the first half of 2015.

— 494 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

The additional employees were primarily intended to improve the standard of service provided for Phoenix Holdings’ insurers and agencies, inter alia owing to the increase in the volume of sales and activities. The increase also stemmed from the need to provide a response to regulatory requirements and to enhance control processes. The reduction in the number of insurance agency employees, notwithstanding the increased premiums collected by those agencies, stems mainly from the operational streamlining introduced by some of the agencies.

Phoenix Holdings is a holding company and does not employ salaried workers. Most of the PH Group’s employees are hired by The Phoenix Insurance and some by the other consolidated companies. The CEO of Phoenix Holdings serves also as CEO of The Phoenix Insurance and of other subsidiaries in the PH Group, and he answers to the board of directors of Phoenix Holdings.

Benefits and the nature of employment agreements

Under Phoenix Holdings’s former policy, Phoenix Holdings’s veteran employees did not have signed employment contracts. Commencing 2002, after legislation of the Notice to a Worker (Terms of employment) Law, 2002, new employees are given a form describing the terms of their employment, as the law requires. From 2004 onwards, labor relations were written into personal employment agreements in which the terms of employment were described, as well as associated terms, including social benefits and the rights and obligations of the employee.

Phoenix Holdings employees are entitled to provision for social benefits which are usually deposited in various policies and in pension, study and provident funds.

At The Phoenix Insurance and The Phoenix Pension, there are some positions (such as sales managers, portfolio managers, portfolio retention employees) that are entitled, in addition to the base salary, to a variable component based on the volume of the activity for which they are responsible. This variable component includes full pension contributions as well as partial contributions to a study fund.

About 32% of Phoenix Holdings’s employees receive a holiday bonus (about half of the monthly salary), which is paid twice a year, for the New Year and the Passover holidays. Some employees are entitled to a company car. Salary increments and employee compensations are derived from the Phoenix Holdings’s overall compensation policy, which is set by the board of directors of Phoenix Holdings.

The Phoenix Insurance is a member of the Association of Life Insurance Companies Ltd., which is a member of the Coordination Bureau of Economic Organizations, and accordingly, is subject to all the collective agreements signed by the Coordination Bureau.

The Phoenix Insurance makes agreements from time to time with sub-contractors for projects. The Phoenix Insurance also makes agreements (mainly for projects in information systems) with external companies for the provisions of various services, such as software development.

The senior managers in the PH Group are employed under personal agreement which set out the terms of their employment. Furthermore, the senior managers and other PH Group officers who are not directors receive a variable annual bonus and other benefits as provided in the personal agreements signed with them. Senior managers are also entitled to variable compensation according to the compensation policy of Phoenix Holdings and/or The Phoenix Insurance. Senior and other officers in the investment sector have a special compensation plan, as provided in Section 4.6.5 below.

— 495 —

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Compensation Policy

A. On November 9, 2014, the general shareholders meeting of Phoenix Holdings had revised Phoenix Holdings’s compensation policy for officers (based, inter alia, on the Companies Law (Amendment No. 20), 2012 and the Circular on Compensation Policies in Institutional Entities of April 2014 (“the Compensation Circular”), which includes provisions for the formulation of compensation policies that apply to officers, senior position holders and other employees of institutional entities).
B. In accordance with the Compensation Circular, Phoenix Holdings and The Phoenix Insurance maintain a compensation plan for officers and senior employees. The compensation policy is primarily based on multi-annual results, the return on capital which will be attained by Phoenix Holdings, and a series of individual parameters that are adapted to the officers and based on the work plans determined by the board every year.
C. Options plan for employees and officers: Phoenix Holdings adopted a compensation plan for employees and officers in which Phoenix Holdings may grant stock options for no payment to its employees and officers and to companies in its control.
D. Incentive plan for investment workers: In accordance with the Circular of the Commissioner of the Capital Market, which stipulated that a compensation policy is to be determined for investment workers, and in accordance with the Compensation Policy, Phoenix Holdings and The Phoenix Insurance have a multi-year compensation plan for investment workers that is designed to balance the fixed and variable compensation components and to reflect the level of risk at which the rates of return were attained with respect to each investment channel. The plan is based on a series of parameters and profitability based on cumulative results for three consecutive years, the results in the various investment channels compared to competitors, noting also the level of risk in the various channels relative to a series of parameters, and the relative level of risk.

Training Programs

Training programs are designed to maintain the professional level of Phoenix Holdings employees by providing instruction and regular updates on subjects such as changes in legislation and standardization, new laws and regulations, Phoenix Holdings’s adopted enforcement scheme, enhanced service mentality and skills, changes in internal procedures, etc. In addition, Phoenix Holdings implements managerial training designed to improve the quality of management and the use of managerial tools.

LOOKING FORWARD

Long Term Savings

The PH Group wishes to increase Phoenix Holdings’ market share in new sales of pension and life insurance policies, while focusing on individual products and risk by developing new products, expanding the distribution network, and expanding marketing efforts for existing products, while focusing on more profitable products.

In light of increasing demand for pension products, Phoenix Holdings focuses on increasing its pension portfolio and expanding its sales circle to include self-employed individuals;

— 496 —

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE PH GROUP

Retaining and growing the customer base and the PH Group’s share in the life insurance, pension and provident fund market (in provident fund operations - while focusing on the study fund market), in light of regulatory changes and possible further changes which may increase competition in this market;
Preventing redemptions and cancellations by strengthening the customer retention unit and developing products encouraging customers to choose to continue managing their funds through the PH Group;
Strengthening ties with Phoenix Holdings’ customers and building long-term commitments, focusing on customer’s financial needs and providing financial solutions to these customers even after retirement.

Health

The PH Group views its health insurance operations as a significant growth driver, since the PH Group believes that there are untapped segments in this market and demand for insurance products is gradually growing. The PH Group is set on positioning itself as a leader in the health insurance market, inter alia in terms of innovation and service, and on expanding its operations and increasing profitability while focusing on individual health insurance products. The PH Group is acting to achieve its aforesaid objective in the health insurance segment, inter alia, by launching new and attractive products, properly pricing its products, analyzing data on insurance risks, using reinsurers intelligently to transfer risk, expanding its marketing activities, diversifying and strengthening its various distribution channels, etc.

General Insurance

Phoenix Holdings is acting to increase its share of the general insurance market, while focusing on portfolio quality and profitability, and by implementing controls for improving and strengthening its underwriting systems.

Excellence

In order to achieve its goals, Excellence continues to act, inter alia, to increase the number of clients using its services, to introduce new financial products and services, and works to develop activities in financial sectors that are linked to and supplement its operations. Regulatory reforms are expected in most of Excellence’s operating segments. Excellence’s preparations for meeting these changes will require allocation of financial and managerial resources. Excellence may also be required to make significant investments, inter alia, in marketing, client retention, advertising and sales activities, and technological infrastructure, due to increasing competition in its various segments.

In 2015, Excellence intends to invest efforts in strengthening its activities with existing clients, secure its leadership position in its various distribution channels, and expanding its product and service offerings. The recent downward trend in management fees collected by Excellence for the various products it issues and/or manages - whether due to regulatory changes or as a result of increasing competition - is expected to level off, and may continue to erode the margins on the said products.

In 2015, Excellence will continue investing managerial resources and efforts in laying an adequate foundation for regulation, compliance and enforcement issues, including implementing an enforcement program across all the PH Group companies.

— 497 —

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors having made all reasonable inquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS OF DIRECTORS

As at the Latest Practicable Date, the interests or short positions of the Directors or chief executive of the Company in the Shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept under section 352 of the SFO or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code were as follows:

(1) Long positions in the Shares, underlying shares and debentures of the Company

				Approximate
				percentage of
Name of Director/		Number of		Shares in
chief executive	Class of Shares	Shares	Type of interests	issue
Guo Guangchang	Ordinary	6,145,213,473(1)	Corporate	71.37%
Ding Guoqi	Ordinary	14,259,320	Individual	0.17%
Qin Xuetang	Ordinary	4,472,640	Individual	0.05%
Chen Qiyu	Ordinary	4,023,000	Individual	0.05%
Xu Xiaoliang	Ordinary	190,000	Individual	0.00%
Zhang Shengman	Ordinary	160,000	Individual	0.00%
Zhang Huaqiao	Ordinary	10,000	Individual	0.00%
David T. Zhang	Ordinary	10,000	Individual	0.00%

(2) Long positions in the shares, underlying shares and debentures of the associated corporations (within the meaning of Part XV of the SFO) of the Company

					Approximate
Name of	Name of				percentage
Director/chief	associated	Class of	Number of	Type of	of shares
executive	corporation	shares	shares	interests	in issue
Guo Guangchang	Fosun Holdings	Ordinary	1	Corporate	100.00%
	Fosun	Ordinary	32,225	Individual	64.45%
	International
	Holdings Fosun Pharma	A Shares(2)	114,075	Individual	0.01%
			920,641,314	Corporate	48.18%
Liang Xinjun	Fosun	Ordinary	12,220	Individual	24.44%
	International
	Holdings
Wang Qunbin	Fosun	Ordinary	5,555	Individual	11.11%
	International
	Holdings Fosun Pharma	A Shares(2)	114,075	Individual	0.01%
Qin Xuetang Chen Qiyu	Fosun Pharma Fosun Pharma	A Shares(2) A Shares(2)	114,075 114,075	Individual Individual	0.01% 0.01%

Notes:

(1) Pursuant to Division 7 of Part XV of the SFO, 6,145,213,473 Shares held by Mr. Guo Guangchang are deemed corporate interests held through Fosun Holdings and Fosun International Holdings.

(2) A Shares mean the equity securities listed on the Shanghai Stock Exchange.

— 498 —

GENERAL INFORMATION

APPENDIX V

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company and their respective associates had interests or short positions in the shares, underlying shares and/or debentures (as the case may be) of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of SFO (including interests or short positions which are taken or deemed to have under such provisions of the SFO), or recorded in the register maintained by the Company pursuant to Section 352 of the SFO or which were notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code.

3. DIRECTORS’ INTERESTS

(a) None of the Directors has any direct or indirect interest in any assets which have been, since 31 December 2014, being the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to, or which are proposed to be acquired or disposed of by or leased to any member of the Group.
(b) None of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date and which was significant in relation to the business of the Group.
(c) None of the Directors or chief executive of the Company and their respective associates has any competing interests which would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them was a controlling Shareholder of the Company.

4. SERVICE CONTRACTS

None of the Directors has any existing or proposed service contract with any member of the Group which is not determinable by the Group within one year without payment of compensation (other than statutory compensation).

5. DISCLOSURE OF INTERESTS OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors, the persons or entities, other than a Director or chief executive of the Company, who had an interest or a short position in the Shares or the underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were recorded in the register required to be kept by the Company under Section 336 of the SFO were as follows:

		Number of Shares	Approximate percentage
Name	of substantial Shareholder	directly or indirectly held	of Shares in issue
Fosun	Holdings	6,145,213,473(2)	71.37%
Fosun	International Holdings(1)	6,145,213,473(2)	71.37%

Notes:

(1) Fosun International Holdings is owned as to 64.45%, 24.44% and 11.11% by Messrs. Guo Guangchang, Liang Xinjun and Wang Qunbin, respectively.

(2) Fosun International Holdings is the beneficial owner of all the issued shares in Fosun Holdings and, therefore, Fosun International Holdings is deemed, or taken to be interested in the Shares owned by Fosun Holdings for the purpose of the SFO.

(3) Mr. Guo Guangchang is the sole director of Fosun Holdings and Fosun International Holdings. Mr. Guo, by virtue of his ownership of shares in Fosun International Holdings as to 64.45%, is deemed or taken to be interested in the Shares owned by Fosun Holdings for the purpose of the SFO.

— 499 —

GENERAL INFORMATION

APPENDIX V

Save as disclosed above, as at the Latest Practicable Date, so far as was known to the Directors, the Company has not been notified by any persons (other than a Director or chief executive of the Company) who had an interest or a short position in the Shares or the underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were recorded in the register required to be kept by the Company under Section 336 of the SFO.

6. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirmed that there were not any material adverse changes in the financial or trading position of the Group since 31 December 2014, the date to which the latest published audited consolidated accounts of the Group were made up.

7. MATERIAL LITIGATION

No member of the Enlarged Group was engaged in any litigation or claims of material importance, and no such litigation or claim of material importance was known to the Directors to be pending or threatened by or against any members of the Enlarged Group, as at the Latest Practicable Date.

8. QUALIFICATION AND CONSENT OF EXPERT

The following is the qualification of the expert who has given opinion or advice, which are contained or referred to in this circular:

Name Qualification Ernst & Young Certified Public Accountants

As at the Latest Practicable Date, Ernst & Young had no shareholding interest in any member of the Group or right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities of any member of the Group.

As at the Latest Practicable Date, Ernst & Young was not interested, directly or indirectly, in any assets which had since 31 December 2014 (being the date to which the latest published audited accounts of the Company were made up) been acquired or disposed of by or leased to any member of the Group or which are proposed to be acquired or disposed of by or leased to any member of the Group.

Ernst & Young has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and references to its name in the form and context in which it appears.

— 500 —

GENERAL INFORMATION

APPENDIX V

9. MATERIAL CONTRACTS

The following material contracts have been entered into by the Group (not being a contract entered into in the ordinary course of business) within the two years immediately preceding the date of this circular:

(a) the underwriting agreement dated 9 April 2014 entered into between the Company and Fosun Holdings in relation to the underwriting and certain other arrangements in respect of the rights issue. Further details are set out in the prospectus of the Company dated 25 April 2014;
(b) the placing and subscription agreement dated 12 May 2015 in relation to the placing. Further details are set out in the announcement of the Company dated 12 May 2015;
(c) the Share Purchase Agreement; and
(d) the underwriting agreement dated 10 September 2015 entered into between the Company, CMB International Capital Limited and Fosun Holdings in relation to the underwriting and certain other arrangements in respect of the rights issue. Further details are set out in the prospectus of the Company dated 5 October 2015.

Save as disclosed above, no other material contract had been entered into by the Group within the two years immediately preceding the date of this circular.

10. MISCELLANEOUS

(a) The company secretary of the Company is Ms. Sze Mei Ming. Ms. Sze is a fellow member of the Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Chartered Secretaries.
(b) The registered address of the Company is at Room 808, ICBC Tower, 3 Garden Road, Central, Hong Kong.
(c) The share registrar of the Company is Computershare Hong Kong Investor Services Limited of Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(d) The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the registered office address of the Company in Hong Kong at Room 808, ICBC Tower, 3 Garden Road, Central, Hong Kong for a period of 14 days from the date of this circular:

(a) the articles of association of the Company;
(b) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix;

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GENERAL INFORMATION

APPENDIX V

(c) the PH Group’s audited consolidated financial statements for the financial years ended 31 December 2013 and 2014 prepared in accordance with IFRS, and the PH Group’s unaudited consolidated interim financial statements for the six months ended 30 June 2015 prepared in accordance with IFRS as set out in Appendix II to this circular;
(d) the report from Ernst & Young on the unaudited pro forma financial information of the Enlarged Group, the full text of which is set out in Appendix III;
(e) the report from Ernst & Young on the unaudited pro forma financial information of the PH Group, the full text of which is set out in Appendix II (C). The unaudited pro forma financial information of the PH Group includes the unaudited pro forma adjustment to demonstrate the significant effects to relevant financial statements of the PH Group as if the HKFRS and the accounting policies adopted by the Company had been adopted by the PH Group;
(f) the annual reports of the Company for each of the two financial years ended 31 December 2013 and 2014;
(g) the interim report of the Company for the six months ended 30 June 2015;
(h) the written consent from the expert referred to under the section headed “Qualification and Consent of Expert” in this appendix; and
(i) the circular of the Company dated 24 April 2015.

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AI assistant

Fosun International Limited — Proxy Solicitation & Information Statement 2015

49369_rns_2015-12-30_223c745b-9551-4a0d-a34c-43bf00a0c5f5.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

MAJOR TRANSACTION

ACQUISITION OF PHOENIX HOLDINGS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

Directors: Executive Directors:

Registered address:

Independent Non-Executive Directors:

MAJOR TRANSACTION

ACQUISITION OF PHOENIX HOLDINGS

1. INTRODUCTION

LETTER FROM THE BOARD

2. THE SHARE PURCHASE AGREEMENT

LETTER FROM THE BOARD

LETTER FROM THE BOARD

3. REASONS FOR AND BENEFITS OF THE ACQUISITION

4. FINANCIAL EFFECTS OF THE ACQUISITION

LETTER FROM THE BOARD

a. Assets

b. Liabilities

c. Total equity

d. Earnings

5. INFORMATION ON THE PARTIES

The Company

The Purchaser

The Seller

Phoenix Holdings

6. LISTING RULES IMPLICATIONS

7. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

LETTER FROM THE BOARD

8. WAIVERS FROM STRICT COMPLIANCE WITH RULE 14.67(6)(a)(i) AND CHAPTER 4 OF THE LISTING RULES

Background

Waiver Sought

LETTER FROM THE BOARD

LETTER FROM THE BOARD

ALTERNATIVE DISCLOSURE

9. RECOMMENDATION

10. ADDITIONAL INFORMATION

1. FINANCIAL INFORMATION OF THE GROUP

2. INDEBTEDNESS

Contingent Liabilities:

3. WORKING CAPITAL

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Auditors’ report to the shareholders of The Phoenix Holdings Ltd.

Auditor's report to the shareholders of The Phoenix Holdings Ltd.

APPENDIX II

Consolidated Statement of Financial Position

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statement of Financial Position

(*) Restated, see Note 2 (AA)

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statements of Income

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statements of Comprehensive Income

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statements of Cash Flows

(*)Restated, see Note 2(AA)

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statements of Cash Flows

(*)Restated, see Note 2(AA)

APPENDIX II

FINANCIAL INFORMATION OF THE PH GROUP

Consolidated Statements of Cash Flows

(*) Restated, see Note 2(AA)

Notes to the Consolidated Financial Statements

NOTE 1 – GENERAL

A. Reporting Entity

B. Definitions

Notes to the Consolidated Financial Statements

Fosun International Limited Proxy Solicitation & Information Statement 2015

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