National Economic ConferenceClal Insurance CEO: "The government cannot take institutional investors in Israel for granted"
National Economic Conference
Clal Insurance CEO: "The government cannot take institutional investors in Israel for granted"
Yoram Naveh, the CEO of Clal Insurance, spoke at Calcalist and Bank Leumi’s National Economic Conference about why the government needs support from Israeli institutional investors like Clal.
"The government cannot take institutional investors in Israel for granted, and it must formulate a plan to win the hearts of these institutions, both domestically and globally. We have a duty to be here for our country, and this is true for investments as well," said CEO of Clal Insurance, Yoram Naveh, at Calcalist and Bank Leumi’s National Economic Conference, in conversation with Calcalist reporter Irit Avisar.
The Israeli market is in a state of chaos; upon reports of progress in a hostage deal, the market jumps, and the next day after an escalation in the North, the market falls. Foreign investors have reduced their exposure to Israel, and so have institutional investors. How do you view investment in Israel? Is there an opportunity to increase investment here or are the risks increasing?
“Historically, over 90% of [our] investment was in Israel, and the trend of reducing exposure to Israel was positive. It's good that we have greater diversification than in the past,” said Naveh.
He also addressed the possibility of increasing exposure to Israeli government bonds: "In late 2020, I said that the rally on government bonds was ending. The real interest rate was negative, and there was a very high risk. Immediately after that, after COVID-19, interest rates started to rise, and today the trend is global. The yields on bonds are not unique to Israel, but also to the U.S. In the long-term, it makes more sense in my opinion to invest in both American and Israeli government bonds and get a yield of 4.5%. We still believe in the country, and this is an opportunity that needs to be considered more than before."
Institutional investors have become a key actor through which the state raises debt. This month, the treasury plans to raise NIS 17.5 billion ($4.8 billion) while the deficit continues to rise, and the Governor of the Bank of Israel is concerned about the budget. Will you continue to finance this?
"It should be remembered that the primary duty of institutional investors is to generate returns for their clients in Israel. Therefore, one important message to the state is not to take institutional investors in Israel for granted," said Naveh, adding that, "We see independent committees in institutions deciding to invest in Israel and abroad based on opportunities. Israel needs a forward-looking plan on how to win the hearts of institutional investors both domestically and globally."
According to Naveh, "In recent years, after the yield on government bonds fell significantly, we turned to other avenues such as alternative investments, so our portfolios are much more exposed to infrastructure and alternative investments, and they contain fewer government bonds. The more correct actions are taken, the more we have a duty to be here for our country."
A few months ago, Slice’s pension fund collapsed. There is a big question about several hundred million shekels worth of savers' money. Can we guarantee that this won’t happen with major institutions?
"It’s an unfortunate affair and some have compared it to the Bank of Commerce affair. It was a catalyst to understand that there is an advantage to large entities."
According to Naveh, "There is no doubt that what happened in that case cannot occur with the large entities. There is comprehensive regulation and significant presence of the regulator. We don’t invest without a very orderly process. There is also equity here and all those advantages that large entities in the economy have. Large banks didn’t experience what happened to small banks, and even if something happens, people aren’t left without their money. They have a completely different responsibility."
One of the hottest trends in recent years is investing in S&P 500 tracks, with more than NIS 100 billion ($27 billion) flowing into them. Do you support this trend?
"We also invest in these indices in the investment committees, and it is very legitimate. But it should be remembered that while transitioning to these tracks has potential, it also carries risk. More needs to be done to implement checks and balances when transitioning to these tracks. The reform states that a person can transfer their money to a track that is 100% stocks and 100% in the S&P - this index has done great in the last two years, but there is no way to know what it will do in the coming year. Recently, an article was published questioning whether it is a bubble and whether some of the stocks are expected to crash."
Naveh added, "There has not been enough supervision of consultants and marketers because some of them encourage investment in these indices based on past returns. On this issue, the Capital Market Authority doesn’t have the necessary resources to truly supervise them. There needs to be appropriate balance. Right now, this trend carries many risks."
How will this end?
"We also see older people hopping on the trend and transferring all of their money to stock-oriented tracks. It must be remembered that this volatility can affect a person just before retirement, which is why the regulation has set limits. There are risks that need to be considered."
Let's talk about car insurance. Everyone has noticed that car insurance prices have risen by tens of percent. You are making profits again. Under the guise of this trend, haven't you raised prices too much? Will we continue to see price increases?
"It should be remembered that since 2018 there has been a dramatic drop in prices. With COVID-19, there was a halt in driving and fewer accidents. Additionally, because interest rates were very low, reinsurers entered with very aggressive pricing for small companies. The market is very competitive, and we saw that the competition led to very significant price drops.
“When we emerged from COVID-19, the rate of accidents increased. Ultimately, there were problems in the supply chain, the cost of capital skyrocketed, and reinsurers suffered losses, so there was a correction. When prices drop, they need to rise to return to where we were. I don't think everyone has returned to profitability as much as people think, but there is no doubt that with the stabilization of profitability, we will see price reductions again."
