UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

OR

For the fiscal year ended December 31, 20132016

OR

For the transition period from ____________ to _______________

OR

Date of event requiring this shell company report. . . . . .. . . . .. . .

Commission file number000-20181

SAPIENS INTERNATIONAL CORPORATION N.V.

(Exact name of Registrant as specified in its charter)

Curaçao

(Jurisdiction of incorporation or organization)

Landhuis JoonchiAzrieli Center

Kaya Richard J. Beaujon z/n26 Harukmim St.

P.O. Box 837

CuraçaoHolon, 5885800 Israel

(Address of principal executive offices)

Roni Giladi, Chief Financial Officer

Tel: +972-3-790-2000

Fax+972-3-790 2942

Azrieli Center

26 Harukmim St.

Holon, 5885800 Israel

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report

As of December 31, 2013,2016, the issuer had 46,014,982 49,035,951Common Shares, par value € 0.01 per share, outstanding.outstanding (which excludes 2,328,296 Common Shares held in treasury).

Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes¨                 Nox

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes¨                 Nox

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx                 No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yesx                 No¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer or an emerging growth company. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer:¨Accelerated filer:x

Non-accelerated filer:¨Emerging growth company¨

If an emerging growth company that prepares its financial statements in accordance with US GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

x U.S. GAAP¨ International Financial Reporting Standards as issued¨ Other

by the International Accounting Standards Board

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17¨                  Item 18¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes¨                 Nox

TABLE OF CONTENTS

INTRODUCTION

Definitions

In this annual report, unless the context otherwise requires:

References to “Sapiens,” the “Company,” the “Registrant,” “us,” “we” and “our” refer to Sapiens International Corporation N.V., a Curaçao company, and its consolidated subsidiaries.

References to “our shares,” “Common Shares” and similar expressions refer to the Registrant’s Common Shares, par value € 0.01 per share.

References to “dollars”, “US dollars” or “$” are to United States Dollars.

References to “GBP” are to Great British Pound.

References to “NIS” are to New Israeli Shekels, the Israeli currency.

Cautionary StatementNote Regarding Forward-Looking Statements

Certain matters discussed in this annual report are forward-looking statements within the meaning of Section 27A of the Securities Act, of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our beliefs and assumptions as well as information currently available to us. Such forward-looking statements may be identified by the use of the words “anticipate,” “believe,” “estimate,” “expect,” “may,” “will,” “plan” and similar expressions. Such statements reflect our current views with respect to future events and are subject to certain risks and uncertainties. While we believe such forward-looking statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties materialize, our actual results may differ materially from those expressed or implied by the forward-looking statements. Please read the risks discussed in Item 3 – “Key Information” under the caption “Risk Factors” and cautionary statements appearing elsewhere in this annual report in order to review conditions that we believe could cause actual results to differ materially from those contemplated by the forward-looking statements.

We undertake no obligation publicly to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this annual report might not occur.

PART I

Item 1.          Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.          Offer Statistics and Expected Timetable

Not applicable.

Item 3.          Key Information

A.           Selected Financial Data.

The following tables summarize certain selected consolidated financial data for the periods and as of the dates indicated. We derived the statement of operations financial data for the years ended December 31, 2011, 20122014, 2015 and 20132016 and the balance sheet data as of December 31, 20122015 and 20132016 from our audited consolidated financial statements included elsewhere in this annual report. The selected consolidated statement of operationsincome financial data for the years ended December 31, 20092012 and 20102013 and the balance sheet data as of December 31, 2009, 20102012, 2013 and 20112014 are derived from our audited financial statements not included in this annual report. Our historical consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, (“or U.S. GAAP”)GAAP, and presented in U.S. dollars. You should read the information presented below in conjunction with those statements.

The summary consolidated balance sheet data as of December 31, 2014, as derived from our audited consolidated balance sheet as of that date that appears elsewhere herein, reflects the carrying amounts combination between Sapiens and Insseco as of that date, consistent with the pooling of interest accounting method that we accorded to our acquisition of Insseco. Also consistent with that accounting method, our consolidated statements of income data for the year ended December 31, 2015 includes the revenues and expenses of Insseco for the entire year (although the acquisition was actually consummated on August 18, 2015).See also Note 1(d)(2) to our consolidated financial statements contained elsewhere in this annual report.

The information presented below is qualified by the more detailed historical consolidated financial statements, the notes thereto and the discussion under “Operating and Financial Review and Prospects” included elsewhere in this annual report.

On January 15, 2013, April 22, 2015 and March 31, 2016, our Board of Directors determined, subject to shareholder approval, to declare and pay one-time cash interim dividends of $0.15, $0.15 and $0.20 per Common Share (or $5.8 million, $7.2 million and $10.0 million, in the aggregate, respectively), which were paid on February 22, 2013, June 1, 2015 and June 1, 2016, respectively.

OnNovember 19, 2013, we consummated an underwritten follow-on public offering of 5,650,000 of our Common Shares, plus an additional 847,400 Common Shares to cover over-allotments, pursuant to an underwriting agreement with Barclays Capital Inc., as representative of certain underwriters.

B.           Capitalization and Indebtedness.

Not applicable.

C.           Reasons for the Offer and Use of Proceeds.

Not applicable.

D.           Risk Factors.

Not applicable.

We operate globally in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. The following section lists some, but not all, of those risks and uncertainties that may have a material adverse effect on our business, financial position, results of operations or cash flows.

Risks Relating to Our Business, Our Industry and our Financing Activities

Our development cycles are lengthy, we may not have the resources available to complete development of new, enhanced or modified solutions and we may incur significant expenses before we generate revenues, if any, from our solutions.

Because our solutions are complex and require rigorous testing, development cycles can be lengthy, taking us up to two years to develop and introduce new, enhanced or modified solutions. Moreover, development projects can be technically challenging and expensive. The nature of these development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate revenues, if any, from such expenses. We may also not have sufficient funds or other resources to make the required investments in product development. Furthermore, we may invest substantial resources in the development of solutions that do not achieve market acceptance or commercial success. We may also not have sufficient funds or other resources to make the required investments in product development. Even where we succeed in our sales efforts and obtain new orders from customers, the complexity involved in delivering our solutions to such customers makes it more difficult for us to consummate delivery in a timely manner and to recognize revenue and maximize profitability. Failure to deliver our solutions in a timely manner could result in order cancellations, damage our reputations and require us to indemnify our customers. Any of these risks relating to our lengthy and expensive development cycle could have a material adverse effect on our business, financial conditions and results of operations.

Our sales cycle is variable and often lengthy, depends upon many factors outside our control, and could causerequires us to expend significant time and resources prior to earninggenerating associated revenues.

The typical sales cycle for our solutions and services is lengthy and unpredictable, requires pre-purchase evaluation by a significant number of persons in our customers’ organizations, and often involves a significant operational decision by our customers. Our sales efforts involve educating our customers and industry analysts and consultants about the use and benefits of our solutions, including the technical capabilities of our solutions and the efficiencies achievable by organizations deploying our solutions. Customers typically undertake a significant evaluation process, which frequently involves not only our solutions, but also those of our competitors and can result in a lengthy sales cycle. Our sales cycle for new customers is typically six to eighteen months and can extend even longer in some cases. We spend substantial time, effort and money in our sales efforts without any assurance that such efforts will produce any sales.

Investment in highly skilled research and development and customer support personnel is critical to our ability to develop and enhance our solutions and support our customers, but an increase in such investment may reduce our profitability.

As a provider of software solutions that rely upon technological advancements, we rely heavily on our research and development activities to remain competitive. We consequently depend in large part on the ability to attract, train, motivate and retain highly skilled information technology professionals for our research and development team, particularly individuals with knowledge and experience in the insurance industry. Because our software solutions are highly complex and are generally used by our customers to perform critical business functions, we also depend heavily on other skilled technology professionals.professionals to provide ongoing support to our customers. Skilled technology professionals are often in high demand and short supply. If we are unable to hire or retain qualified research and development personnel and other technology professionals to develop, implement and modify our solutions, we may be unable to meet the needs of our customers. Even if we succeed in retaining the necessary skilled personnel and in our research and development and customer support efforts, our investments in our personnel and product development efforts increase our costs of operations and thereby reduce our profitability, unless accompanied by increased revenues. Given the highly competitive industry in which we operate, we may not succeed in increasing our revenues in line with our increasing investments in our personnel and research and development efforts.

Furthermore, if we seek to expand the marketing and offering of our products into new territories, that requiresit would require the retention of new, additional skilled personnel with knowledge of the particular market and applicable regulatory regime. Such skilled personnel may not be available at a reasonable cost relative to the additional revenues that we expect to recognizegenerate in those territories, or may not be available at all.

If existing customers are not satisfied with our solutions and services and either do not make subsequent purchases from us andor do not continue using such solutions and services, or if our relationships with our largest customers are impaired, our revenue could be negatively affected.

Our existing customers are a key asset, and weWe depend heavily on repeat product and service revenues from our base of existing customers. Five of our customers accounted for, 33%in the aggregate, 32% and 30%34% of our revenues in the years ended December 31, 20122015 and 2013,2016, respectively. If our existing customers are not satisfied with our solutions and services, they may not enter into new project contracts with us or continue using our technologies. A significant decline in our revenue stream from existing customers would have a material adverse effect on our business, results of operations and financial condition.

The implementation of our M&A growth strategy, which requires the integration of our multiple acquired companies, including, most recently, StoneRiver, MaxPro, 4Sight, Insseco and IBEXI Solutions Private Limited, and their respective businesses, operations and employees with our own, involves significant risks, and the failure to integrate successfully may adversely affect our future results.

In the past six years we have completed eight acquisitions. Most recently, in 2017, we have acquired StoneRiver, after having acquired Maximum Processing Inc, or MaxPro, and 4Sight Business Intelligence, or 4Sight, in 2016, and IBEXI Solutions Private Limited, or IBEXI, and Insseco in 2015. These acquisitions are part of our integrated M&A growth strategy, which is centered on three key factors: growing our customer base, expanding geographically and adding complementary solutions to our portfolio— all while we seek to ensure our continued high quality of services and product delivery. Any failure to successfully integrate the business, operations and employees of our acquired companies, or to otherwise realize the anticipated benefits of these acquisitions, could harm our results of operations. Our ability to realize these benefits will depend on the timely integration and consolidation of organizations, operations, facilities, procedures, policies and technologies, and the harmonization of differences in the business cultures between these companies and their personnel. Integration of these businesses will be complex and time-consuming, will involve additional expense and could disrupt our business and divert management’s attention from ongoing business concerns. The challenges involved in integrating IBEXI, Insseco, MaxPro, 4Sight and StoneRiver include:

The benefits we expect to realize from these acquisitions are, necessarily, based on projections and assumptions about the combined businesses of our company, IBEXI, Insseco, MaxPro, 4Sight and StoneRiver, and assume, among other things, the successful integration of IBEXI, Insseco, MaxPro, 4Sight and StoneRiver into our business and operations.The acquisition of StoneRiver, in particular, is expected to significantly expand our presence and scale in the North American insurance industry, and to help us further accelerate our growing market footprint in the U.S. P&C space. Our projections and assumptions concerning our acquisitions may be inaccurate, however, and we may not successfully integrate the acquired companies and our operations in a timely manner, or at all. We may also be exposed to unexpected contingencies or liabilities of the acquired companies. If we do not realize the anticipated benefits of these transactions, our growth strategy and future profitability could be adversely affected.

Failure to manage our rapid growth effectively could harm our business.

We have recently experienced, and expect to continue to experience, rapid growth in our number of employees and in our international operations that has placed, and will continue to place, a significant strain on our operational and financial resources and our personnel. To manage our anticipated future growth effectively, we must continue to maintain and may need to enhance our information technology infrastructure, financial and accounting systems and controls and manage expanded operations and employees in geographically distributed locations. We also must attract, train and retain a significant number of additional qualified sales and marketing personnel, professional services personnel, software engineers, technical personnel and management personnel. Our failure to manage our rapid growth effectively could have a material adverse effect on our business, results of operations and financial condition. Our growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of new services or product enhancements. For example, since it may take as long as six months to hire and train a new member of our professional services staff, we make decisions regarding the size of our professional services staff based upon our expectations with respect to customer demand for our products and services. If these expectations are incorrect, and we increase the size of our professional services organization without experiencing an increase in sales of our products and services, we will experience reductions in our gross and operating margins and net income. If we are unable to effectively manage our growth, our expenses may increase more than expected, our revenues could decline or grow more slowly than expected and we may be unable to implement our business strategy. We also intend to continue to expand into additional international markets which, if not technologically or commercially successful, could harm our financial condition and prospects.

We may be liable to our clients for damages caused by a violation of intellectual property rights, the disclosure of other confidential information, including personally identifiable information, system failures, errors or unsatisfactory performance of services, and our insurance policies may not be sufficient to cover these damages.

We often have access to, and are required to collect and store, sensitive or confidential client information, including personally identifiable information. Some of our client agreements do not limit our potential liability for breaches of confidentiality, infringement indemnity and certain other matters. Furthermore, breaches of confidentiality may entitle the aggrieved party to equitable remedies, including injunctive relief. If any person, including any of our employees and subcontractors, penetrates our network security or misappropriates sensitive or confidential client information, including personally identifiable information, we could be subject to significant liability from our clients or from our clients’ customers for breaching contractual confidentiality provisions or privacy laws. Despite measures we take to protect the intellectual property and other confidential information or personally identifiable information of our clients, unauthorized parties, including our employees and subcontractors, may attempt to misappropriate certain intellectual property rights that are proprietary to our clients or otherwise breach our clients’ confidences. Unauthorized disclosure of sensitive or confidential client information, including personally identifiable information, or a violation of intellectual property rights, whether through employee misconduct, breach of our computer systems, systems failure or otherwise, may subject us to liabilities, damage our reputation and cause us to lose clients.

Many of our contracts involve projects that are critical to the operations of our clients’ businesses and provide benefits to our clients that may be difficult to quantify. Any failure in a client’s system or any breach of security could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Furthermore, any errors by our employees in the performance of services for a client, or poor execution of such services, could result in a client terminating our engagement and seeking damages from us.

In addition, while we have taken steps to protect the confidential information that we have access to, including confidential information we may obtain through usage of our cloud-based services, our security measures may be breached. If a cyber-attack or other security incident were to result in unauthorized access to or modification of our customers’ data or our own data or our IT systems or in disruption of the services we provide to our customers, or if our products or services are perceived as having security vulnerabilities, we could suffer significant damage to our business and reputation.

Although we attempt to limit our contractual liability for consequential damages in rendering our services, these limitations on liability may not apply in all circumstances, may be unenforceable in some cases, or may be insufficient to protect us from liability for damages. There may be instances when liabilities for damages are greater than the insurance coverage we hold and we will have to internalize those losses, damages and liabilities not covered by our insurance.

Changes in privacy regulations may impose additional costs and liabilities on us, limit our use of information, and adversely affect our business.

Personal privacy has become a significant issue in the United States, Europe, and many other countries where we operate. Many government agencies and industry regulators continue to impose new restrictions and modify existing requirements about the collection, use, and disclosure of personal information. Changes to laws or regulations affecting privacy and security may impose additional liability and costs on us and may limit our use of such information in providing our services to customers. If we were required to change our business activities, revise or eliminate services or products, or implement burdensome compliance measures, our business and results of operations may be harmed. Additionally, we may be subject to regulatory enforcement actions resulting in fines, penalties, and potential litigation if we fail to comply with applicable privacy laws and regulations.

Errors or defects in our software solutions could inevitably arise and would harm our profitability and our reputation with customers, and could even give rise to liability claims against us.

The quality of our solutions, including new, modified or enhanced versions thereof, is critical to our success. Since our software solutions are complex, they may contain errors that cannot be detected at any point in their testing phase. While we continually test our solutions for errors or defects and work with customers to identify and correct them, errors in our technology may be found in the future. Testing for errors or defects is complicated because it is difficult to simulate the breadth of operating systems, user applications and computing environments that our customers use and our solutions themselves are increasingly complex. Errors or defects in our technology have resulted in terminated work orders and could result in delayed or lost revenue, diversion of development resources and increased services, termination of work orders, damage to our brand and warranty and insurance costs in the future. In addition, time-consuming implementations may also increase the number of services personnel we must allocate to each customer, thereby increasing our costs and adversely affecting our business, results of operations and financial condition.

In addition, since our customers rely on our solutions to operate, monitor and improve the performance of their business processes, they are sensitive to potential disruptions that may be caused by the use of, or any defects in, our software. As a result, we may be subject to claims for damages related to software errors in the future. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. Regardless of whether we prevail, diversion of key employees’ time and attention from our business, the incurrence of substantial expenses and potential damage to our reputation might result. While the terms of our sales contracts typically limit our exposure to potential liability claims and we carry errors and omissions insurance against such claims, there can be no assurance that such insurance will continue to be available on acceptable terms, if at all, or that such insurance will provide us with adequate protection against any such claims. A significant liability claim against us could have a material adverse effect on our business, results of operations and financial position.

Failure to meet customer expectations with respect to the implementation and use of our solutions could result in negative publicity, reduced sales and diversion of resources.

We generally provide our customers with upfront estimates regarding the duration, budget and costs associated with the implementation of our products. Implementation of our solutions is complex and meeting the anticipated duration, budget and costs often depend on factors relating to our customers or their other vendors. We may not meet the upfront estimates and expectations of our customers for the implementation of our solutions or the provision of our services as a result of factors within our control such as issues or limitations with our solutions, or factors beyond our control such as issues related to our system integrator partners or our customers'customers’ IT employees.

If we fail to meet upfront estimates and the expectations of our customers for the implementation of our solutions, our reputation could be harmed, which could adversely affect our ability to attract new customers and sell additional solutions and services to existing customers.

Our business involves long-term, large projects, some of which are fixed-price projects that involve uncertainties, such as estimated project costs and profit margins, and which can therefore adversely affect our results of operations.

Our business is characterized by relatively large projects or engagements that can have a significant impact on our total revenue and cost of revenue from quarter to quarter. A high percentage of our expenses, particularly employee compensation, are relatively fixed. Therefore, a variation in the timing of the initiation, progress or completion of projects or engagements can cause significant variations in operating results from quarter to quarter.

This is particularly the case on fixed-price contracts. Some of our solutions and services are sold as fixed-price projects with delivery requirements spanning more than one year. As our projects can be highly complex, we may not be able to accurately estimate our actual costs of completing a fixed-price project. If our actual cost-to-completion of these projects exceeds significantly the estimated costs, we could experience a loss on the related contracts, which would have a material adverse effect on our results of operations, financial position and cash flow.

Similarly, delays in executing client contracts (whether fixed price or not) may affect our revenue and cause our operating results to vary widely. Our solutions are delivered over periods of time ranging from several months to a few years. Payment terms are generally based on periodic payments or on the achievement of milestones. Any delays in payment or in the achievement of milestones may have a material adverse effect on our results of operations, financial position or cash flows.

The market for software solutions and related services is highly competitive.

The market for software solutions and related services and for business solutions for the insurance and financial services industry in particular, is highly competitive. Many of our smaller competitors have been acquired by larger competitors, which provides such smaller competitors with greater resources and potentially a larger client base for which they can develop solutions. Our customers or potential customers may prefer suppliers that are larger than us, are better known in the market or that have a greater global reach. In addition, we and some of our competitors have developed systems to allow customers to outsource their core systems to external providers (known as BPO). We are seeking to partner with BPO providers, but there can be no assurance that such BPO providers will adopt our solutions rather than those of our competitors. Determinations by current and potential customers to use BPO providers that do not use our solutions may result in the loss of such customers and limit our ability to gain new customers.

Consolidation in the insurance industry in which some of our clients operate also increases competitiveness for us by reducing the number of potential clients for whose business we and our competitors compete. The high level of continuity with which insurance and other financial services clients remain with their providers of software-related services also increases general competitiveness by tying clients to their service providers and thereby shrinking the market of potential clients.

Incorrect or improper use of our products or our failure to properly train customers on how to implement or utilize our products could result in customer dissatisfaction and negatively affect our business, results of operations, financial condition and growth prospects.

Our products are complex and are deployed in a wide variety of network environments. The proper use of our solutions requires training of the customer. If our solutions are not used correctly or as intended, inadequate performance may result. Additionally, our customers or third-party partners may incorrectly implement or use our solutions. Our solutions may also be intentionally misused or abused by customers or their employees or third parties who are able to access or use our solutions. Similarly, our solutions are sometimes installed or maintained by customers or third parties with smaller or less qualified IT departments, potentially resulting in sub-optimal installation and, consequently, performance that is less than the level anticipated by the customer. Because our customers rely on our software, services and maintenance support to manage a wide range of operations, the incorrect or improper use of our solutions, our failure to properly train customers on how to efficiently and effectively use our solutions, or our failure to properly provide implementation or maintenance services to our customers has resulted in terminated work orders and may result in termination of work orders, negative publicity or legal claims against us in the future. Also, as we continue to expand our customer base, any failure by us to properly provide these services will likely result in lost opportunities for follow-on sales of our software and services.

In addition, if there is substantial turnover of customer personnel responsible for implementation and use of our products, or if customer personnel are not well trained in the use of our products, customers may defer the deployment of our products, may deploy them in a more limited manner than originally anticipated or may not deploy them at all. Further, if there is substantial turnover of the customer personnel responsible for implementation and use of our products, our ability to make additional sales may be substantially limited.

Assertions by third parties of infringement or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and results of operations.

The software industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patents and other intellectual property rights. In particular, leading companies in the software industry own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims against us. From time to time, third parties, including certain of these leading companies, may assert patent, copyright, trademark or other intellectual property claims against us, our customers and partners, and those from whom we license technology and intellectual property.

Although we believe that our products and services do not infringe upon the intellectual property rights of third parties, we cannot assure you that third parties will not assert infringement or misappropriation claims against us with respect to current or future products or services, or that any such assertions will not require us to enter into royalty arrangements or result in costly litigation, or result in us being unable to use certain intellectual property. We cannot assure you that we are not infringing or otherwise violating any third party intellectual property rights. Infringement assertions from third parties may involve patent holding companies or other patent owners who have no relevant product revenues, and therefore our own issued and pending patents may provide little or no deterrence to these patent owners in bringing intellectual property rights claims against us.

Any intellectual property infringement or misappropriation claim or assertion against us, our customers or partners, and those from whom we license technology and intellectual property could have a material adverse effect on our business, financial condition, reputation and competitive position regardless of the validity or outcome. If we are forced to defend against any infringement or misappropriation claims, whether they are with or without merit, are settled out of court, or are determined in our favor, we may be required to expend significant time and financial resources on the defense of such claims. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed on a party’s intellectual property; cease making, licensing or using our products or services that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our products or services; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies or works; and to indemnify our partners, customers, and other third parties. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. Any of these events could seriously harm our business, results of operations and financial condition. In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and divert the time and attention of our management and technical personnel.

Although we apply measures to protect our intellectual property rights and our source code, there can be no assurance that the measures that we employ to do so will be successful.

In accordance with industry practice, since we have no registered patents on our software solution technologies, we rely on a combination of contractual provisions and intellectual property law to protect our proprietary technology. We believe that due to the dynamic nature of the computer and software industries, copyright protection is less significant than factors such as the knowledge and experience of our management and personnel, the frequency of product enhancements and the timeliness and quality of our support services. We seek to protect the source code of our products as trade secret information and as unpublished copyright works. We also rely on security and copy protection features in our proprietary software. We distribute our products under software license agreements that grant customers a personal, non-transferable license to use our products and contain terms and conditions prohibiting the unauthorized reproduction or transfer of our products. In addition, while we attempt to protect trade secrets and other proprietary information through non-disclosure agreements with employees, consultants and distributors, not all of our employees have signed invention assignment agreements. Although we intend to protect our rights vigorously, there can be no assurance that these measures will be successful. Our failure to protect our rights, or the improper use of our products by others without licensing them from us could have a material adverse effect on our results of operations and financial condition.

We and our customers rely on technology and intellectual property of third parties, the loss of which could limit the functionality of our products and disrupt our business.

We use technology and intellectual property licensed from unaffiliated third parties in certain of our products, and we may license additional third-party technology and intellectual property in the future. Any errors or defects in this third-party technology and intellectual property could result in errors that could harm our brand and business. In addition, licensed technology and intellectual property may not continue to be available on commercially reasonable terms, or at all. The loss of the right to license and distribute this third party technology could limit the functionality of our products and might require us to redesign our products.

Further, although we believe that there are currently adequate replacements for the third-party technology and intellectual property we presently use and distribute, the loss of our right to use any of this technology and intellectual property could result in delays in producing or delivering affected products until equivalent technology or intellectual property is identified, licensed or otherwise procured, and integrated. Our business would be disrupted if any technology and intellectual property we license from others or functional equivalents of this software were either no longer available to us or no longer offered to us on commercially reasonable terms. In either case, we would be required either to attempt to redesign our products to function with technology and intellectual property available from other parties or to develop these components ourselves, which would result in increased costs and could result in delays in product sales and the release of new product offerings. Alternatively, we might be forced to limit the features available in affected products. Any of these results could harm our business and impact our results of operations.

We could be required to provide the source code of our products to our customers.

Some of our customers have the right to require the source code of our products to be deposited into a source code escrow. Under certain circumstances, our source code could be released to our customers. The conditions triggering the release of our source code vary by customer. A release of our source code would give our customers access to our trade secrets and other proprietary and confidential information which could harm our business, results of operations and financial condition.

Significant disruptions of our information technology systems or breaches of our data security could adversely affect our business.

A significant invasion, interruption, destruction or breakdown of our information technology systems and/or infrastructure by persons with authorized or unauthorized access could negatively impact our business and operations. We could also experience business interruption, information theft and/or reputational damage from cyber attacks, which may compromise our systems and lead to data leakage either internally or at our third party providers. Our systems have been, and are expected to continue to be, the target of malware and other cyber attacks. Although we have invested in measures to reduce these risks, we cannot assure you that these measures will be successful in preventing compromise and/or disruption of our information technology systems and related data.

Catastrophes may adversely impact the P&C insurance industry, preventing us from expanding or maintaining our existing customer base and increasing our revenues.

Our customers include P&C insurance carriers that have experienced, and will likely experience in the future, catastrophe losses that adversely impact their businesses. Catastrophes can be caused by various events, including, amongst others, hurricanes, tsunamis, floods, windstorms, earthquakes, hail, tornados, explosions, severe weather and fires. Moreover, acts of terrorism or war could cause disruptions in our or our customers’ businesses or the economy as a whole. The risks associated with natural disasters and catastrophes are inherently unpredictable, and it is difficult to predict the timing of such events or estimate the amount of loss they will generate. In the event a future catastrophe adversely impacts our current or potential customers, we may be prevented from maintaining and expanding our customer base and from increasing our revenues because such events may cause customers to postpone purchases of new products and professional service engagements or discontinue projects.

There may be consolidation in the P&C insurance industry, which could reduce the use of our products and services and adversely affect our revenues.

Mergers or consolidations among our customers could reduce the number of our customers and potential customers. This could adversely affect our revenues even if these events do not reduce the aggregate number of customers or the activities of the consolidated entities. If our customers merge with or are acquired by other entities that are not our customers, or that use fewer of our products and services, they may discontinue or reduce their use of our products and services. Any of these developments could materially and adversely affect our results of operations and cash flows.

Some of our services and technologies may use “open source” software, which may restrict how we use or distribute our services or require that we release the source code of certain products subject to those licenses.

Some of our services and technologies may incorporate software licensed under so-called “open source” licenses, including, but not limited to, the GNU General Public License and the GNU Lesser General Public License. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. Additionally, open source licenses typically require that source code subject to the license be made available to the public and that any modifications or derivative works to open source software continue to be licensed under open source licenses. These open source licenses typically mandate that proprietary software, when combined in specific ways with open source software, become subject to the open source license. If we combine our proprietary software with open source software, we could be required to release the source code of our proprietary software.

We take steps to ensure that our proprietary software is not combined with, and does not incorporate, open source software in ways that would require our proprietary software to be subject to an open source license. However, few courts have interpreted open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. Additionally, we rely on multiple software programmers to design our proprietary technologies, and although we take steps to prevent our programmers from including open source software in the technologies and software code that they design, write and modify, we do not exercise complete control over the development efforts of our programmers and we cannot be certain that our programmers have not incorporated open source software into our proprietary products and technologies or that they will not do so in the future. In the event that portions of our proprietary technology are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our services and technologies and materially and adversely affect our business, results of operations and prospects.

FailureOur indebtedness is subject to managea floating interest rate and subjects us to debt service obligations that could have an adverseeffect on our rapid growth effectivelycontinuing liquidity and manage our headquarters transition could harm our business.financial condition.

We have recently experienced,The repayment of the principal amount of the bank debt that we incurred in connection with our acquisition of StoneRiver, which was initially $40 million, is subject to the terms of the credit agreement that we entered into with the lender, HSBC Bank USA, National Association. The interest rate payable on the loan is LIBOR plus 1.85%. Until repayment of the bank debt, we are subject to certain financial covenants. Our ability to make due payment of principal and expect to continue to experience, rapid growth in our number of employeesinterest and in our international operations that has placed, and will continue to place, a significant strain on our operational and financial resources and our personnel. To manage our anticipated future growth effectively, we must continue to maintain and may need to enhance our information technology infrastructure,comply with the financial and accounting systemsother covenants under the credit agreement is subject to the risk factors described herein, and controls and manage expanded operations and employees in geographically distributed locations. We also must attract, train and retain a significant number of additional qualified sales and marketing personnel, professional services personnel, software engineers, technical personnel and management personnel. Ourany failure to manage our rapid growth effectivelycomply with the covenants could have a materialan adverse effect on our business, resultsliquidity and operations. This debt requires us to dedicate a portion of operations and financial condition. Our growthour cash flow to debt service, could require significantimpair our ability to obtain additional financing for capital expenditures or other purposes, could hinder our ability to adjust rapidly to changing market conditions and may divert financial resources from other projects, such ascompetitive pressures, and could make us more vulnerable in the developmentevent of new servicesa downturn in our business or product enhancements.deterioration of general economic conditions. For example,further information concerning our indebtedness, see “Liquidity and Capital Resources” in Item 5 below and “HSBC Term Loan Credit Agreement” in Item 10.C below. Additionally, since it may take as long as six monthsour debt is subject to hire and train a new memberfloating rate of our professional services staff, we make decisions regarding the size of our professional services staff based upon our expectations with respect to customer demand for our products and services. If these expectations are incorrect, and we increase the size of our professional services organization without experiencinginterest, an increase in sales of our products and services, we will experience reductions in our gross and operating margins and net income. Furthermore, we have recently completed the relocation of our corporate headquarters within Israel, having moved from Ness Ziona to Holon in July 2013. We have incurred additional costs in connection with this relocation and our new headquarters lease. If we are unable to effectively manage our growth, our expenses may increase more than expected, our revenuesLIBOR could decline or grow more slowly than expected and we may be unable to implement our business strategy. We also intend to continue to expand into additional international markets which, if not technologically or commercially successful, could harm our financial condition and prospects.adversely affect us.

Risks Relating to Our International Operations

Our international sales and operations subject us to additional risks that can adversely affect our business, results of operations and financial condition.

We sell our products and services to customers located outside North America, and we are continuing to expand our international operations as part of our growth strategy. In fiscal years 20122015 and 2013, 69%2016, 67% and 67%66%, respectively, of our revenues were derived from outside of North America. Our current international operations and our plans to further expand our international operations subject us to a variety of risks, including:

As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Any of these risks could harm our international operations and reduce our international sales, adversely affecting our business, results of operations, financial condition and growth prospects.

International operations in the insurance industry, in which a significant portion of our business is concentrated, is accompanied by additional costs related to adaptation to specific territories.

As we seek to expand the marketing and offering of our products into new territories, because insurance regulations vary by legal jurisdiction, the investment required to adapt our solutions to the legal and language requirements of such territories may prevent or delay us from effectively expanding into such territories. Such adaptation process requires the retention of new, additional skilled personnel with knowledge of the particular market and applicable regulatory regime. Such skilled personnel may not be available at a reasonable cost relative to the additional revenues that we expect to recognize in those territories, or may not be available at all.

Our international operations expose us to risks associated with fluctuations in foreign currency exchange rates that could adversely affect our business.

Most of our revenues are derived from international operations that are conducted in local currencies, mainly inincluding US dollars, but also in GBP, EURO, and New Israeli Shekels, or NIS. Our primary economic environment currency isNIS, Japanese Yen, or JPY, Indian rupee, or INR and Polish zloty, or PLN. In 2015 and 2016, our revenues were approximately 36% and 37%, respectively, in US dollars, with the US dollar and therefore our functional currency isremainder in the US dollar.other currencies.

Because exchange rates between the NIS, GBP, Euro, JPY, INR and the PLN against the US dollar fluctuate continuously, exchange rate fluctuations and other currencies which we and our subsidiaries use, especially the NIS, maylarger periodic devaluations could negatively affect our earnings. A significant portion of our expenses, including researchrevenue and development, personnel and facilities-related expenses, are incurred in Israel, in NIS. Consequently, we are particularly exposed to the risk of appreciation of the NIS in relation to the US dollar. This appreciation would cause an increase in our expenses as recorded in our US dollar denominated financial statements even if the expenses denominated in local currencies remains unchanged. In addition, our level of revenues and profits may be adversely affected by exchange rate fluctuations.profitability.

In certain locations, we engage in currency-hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on our financial position and results of operations. However, there can be no assurance that any such hedging transactions will materially reduce the effect of fluctuation in foreign currency exchange rates on such results. In addition, if for any reason exchange or price controls or other restrictions on the conversion of foreign currencies were imposed, our financial position and results of operations could be adversely affected.

The tax benefits that will beare available to our Israeli subsidiaries will require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.

Some of our Israeli subsidiaries have been granted “Approved Enterprise” and “Benefited Enterprise” status, which provide certain benefits, including tax exemptions and reduced tax rates under the Israeli Law for the Encouragement of Capital Investments, 1959, referred to as the Investment Law. Income not eligible for Approved Enterprise and Benefited Enterprise benefits is taxed at the regular ratescorporate tax rate (25% in 20132016, 24% in 2017 and 26.5%23% in 2014)2018 and thereafter).

In the event of distribution of dividends from said tax-exempt income, the amount distributed will be subject to corporate tax at the rate ordinarilythat would have otherwise been applicable toon the Approved/Benefited Enterprise'sEnterprise’s income. Tax-exempt income generated under the Approved/Benefited Enterprise program will be subject to taxes upon dividend distribution (which includes the repurchase of the Company's shares) or liquidation. The benefits period under the Investment Law has yet to commence.

The entitlement to the above benefits (once they commence) is conditional upon the fulfillment of the conditions stipulated by the Investment Law and applicable regulations. Should the Israeli subsidiaries fail to meet such requirements, in the future, income attributable to the Approved Enterprise and Benefited Enterprise programs could be subject to the statutory Israeli corporate tax rate and they may be required to refund a portion of the tax benefits already received with respect to such programs.

Risks Related to an Investment in our Common Shares

There is limited trading volume for our common shares, which reduces liquidity for our shareholders, and may furthermore cause the stockshare price to be volatile, all of which may lead to losses by investors.

There has historically been limited trading volume forin our common shares, both on the NASDAQ Capital Market and the TASE. While recently there has been some improvement, the trading volume hasis still not reached the level that enables shareholders to freely sell their shareslimited, which results in substantial quantities on an ongoing basis and thereby readily achievereduced liquidity for their investment.our shareholders. As a further result of the limited volume, our common shares have experienced significant market price volatility in the past and may experience significant market price and volume fluctuations in the future, in response to factors such as announcements of developments related to our business, announcements by competitors, quarterly fluctuations in our financial results and general conditions in the industry in which we compete.

We are a foreign private issuer under the rules and regulations of the SEC and are therefore exempt from a number of rules under the Exchange Act and are permitted to file less information with the SEC than a domestic U.S. reporting company, which reduces the level and amount of disclosure that you receive.

As a foreign private issuer under the Exchange Act, we are exempt from certain rules under the Exchange Act, including the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations. Moreover, we are not required to file periodic reports and financial statements with the Securities and Exchange Commission, or the SEC as frequently or as promptly as domestic U.S. companies with securities registered under the Exchange Act; and are not required to comply with Regulation FD, which imposes certain restrictions on the selective disclosure of material information. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our common shares. Accordingly, you receive less information about our company than you would receive about a domestic U.S. company, and are afforded less protection under the U.S. federal securities laws than you would be afforded in holding securities of a domestic U.S. company.

As a foreign private issuer, we are also permitted, and have begun, to follow certain home country corporate governance practices instead of those otherwise required under the Listing Rules of the NASDAQ Stock Market for domestic U.S. issuers. We have informed NASDAQ that we follow home country practice in CuracaoCuraçao with regard to, among other things, composition of our boardBoard of directorsDirectors (whereby a majority of the members of our boardBoard of directorsDirectors need not be “independent directors,” as is generally required for domestic U.S. issuers), director nomination procedure and approval of compensation of officers. In addition, we have opted to follow home country law instead of the Listing Rules of the NASDAQ Stock Market that require that a listed company obtain shareholder approval for certain dilutive events, such as the establishment or amendment of certain equity-based compensation plans, an issuance that will result in a change of control of the company,Company, certain transactions other than a public offering involving issuances of a 20% or greater interest in the company,Company, and certain acquisitions of the stock or assets of another company. Following our home country governance practices as opposed to the requirements that would otherwise apply to a United States company listed on the NASDAQ Capital Market may provide our shareholders with less protection than they would have as stockholders of a domestic U.S. company.

Our controlling shareholder, Formula Systems (1985) Ltd., beneficially owns approximately 48.9% of our outstanding Common Shares and therefore asserts a controlling influence over matters requiring shareholder approval, which could delay or prevent a change of control that may benefit our public shareholders.

Formula Systems (1985) Ltd.beneficially owns approximately 48.9% of our outstanding Common Shares. As a result, it exercises a controlling influence over our operations and business strategy and has sufficient voting power to control the outcome of various matters requiring shareholder approval. These matters may include:

This concentration of ownership of our Common Shares could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs or other purchases of our Common Shares that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our Common Shares. This concentration of ownership may also adversely affect our share price.

Risks Related to Our Israeli Operations and Our Status as a Curaçao Company

The Israeli government grants that weour Israeli subsidiary has received require us to meet several conditions and restrict our ability to manufacture and engineer products and transfer know-how developed using such grants outside of Israel and require us to satisfy specified conditions.

We haveOne of our Israeli subsidiaries received grants in the past from the government of Israel through the National Technological Innovation Authority, or the Innovation Authority (formerly operating as Office of the Chief Scientist of the Ministry of Economy of the State of Israel, or the OCS,OCS), for the financing of a portion of ourits research and development expenditures in Israel. When know-howIsrael with respect to our legacy technology. In consideration for receiving grants from the OCS, we are obligated to pay the Innovation Authority royalties from the revenues generated from the sale of products (and related services) developed (in whole or in part) using the OCS funds, in an amount that is up to 100% to 150% of the aggregate amount of the total grants that we received from the OCS, plus annual interest for grants received after January 1, 1999. We must fully and originally own any intellectual property developed using the OCS grants and any right derived therefrom unless transfer thereof is approved in accordance with the provisions of the Israeli Encouragement of Research, Development and Technological Innovation Law, 5744-1984, or the Innovation Law (formerly known as the Encouragement of Industrial Research and Development Law, 5744-1984, or the R&D Law, as well asResearch Law), and related regulations.

When a company develops know-how, technology or products using grants provided by the Innovation Authority, the terms of these grants and the Innovation Law restrict the transfer of such know-how, and the transfer of manufacturing or manufacturing rights of such products, technologies or know-how outside of Israel. Even after the repayment of such grants in full, we will remain subject to the restrictions set forth under the Innovation Law, including:

Therefore, if aspects of our technologies are deemed to have been developed with OCS funding, the discretionary approval of an OCS committee would be required for any transfer to third parties outside of Israel of know-how or manufacturing or manufacturing rights related to those aspects of such technologies. We may not receive those approvals. Furthermore, the OCS may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel.

The transfer of OCS-supported technology or know-how outside of Israel requires pre-approval bymay involve the OCS which may at its sole discretion grant such approval and impose certain conditions, including requirement of payment of a transfer fee (referred to insignificant amounts, depending upon the law as the “Base Amount”) calculated according to the formula provided in the R&D Law which takes into account the consideration for such know-how paid to us in the transaction in which the technology is transferred. In addition, any decreasevalue of the percentagetransferred technology or know-how, the amount of manufacturing performed in Israel, as originally declared inOCS support, the application to the OCS, requires us to notify, or to obtain the approvaltime of completion of the OCSOCS-supported research project and may result in increased royalty payments to the OCS as well as increase total amount to be paid to the OCS. These restrictions may impair our ability to enter into agreements for those products or technologies without the approval of the OCS. We cannot be certain that any approval of the OCS will be obtained on terms that are acceptable to us, or at all.other factors. Furthermore, in the event that we undertake a transaction involving the transfer to a non-Israeli entity of technology developed with OCS funding pursuant to a merger or similar transaction, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with OCS funding (such as a merger or similar transaction) may be reduced by theany amounts that we are required to pay to the OCS. Any approval, if given,

We received grants from the OCS prior to an extensive amendment to the Research Law that came into effect as of January 1, 2016, or the Amendment, which may also affect the terms of existing grants. The Amendment provides for an interim transition period (which has not yet expired), after which time our grants will generally be subject to additional financial obligations. Failureterms of the Amendment. Under the Research Law, as amended by the Amendment, the Authority is provided with a power to comply withmodify the requirements underterms of existing grants. Such changes, if introduced by the R&D LawAuthority in the future, may subject us to mandatory repayment of grants received by us (together with interest and penalties), as well as expose us to criminal proceedings.impact the terms governing our grants.

We are not subject to the supervision of the Central Bank of Curaçao and Sint Maarten, so our shareholders are not protected by any regulatory inspections in Curacao.Curaçao.

We are not an entity subject to any regulatory supervision in Curaçao by the Central Bank of Curaçao and Sint Maarten. As a result, shareholders are not protected by any regulatory supervision or inspections by any regulatory agency in Curaçao, and we are not required to observe any restrictions in respect of its conduct, save asexcept to the extent disclosed in this prospectus supplementour annual report or our Amended Articles of Association.Articles.

We have been granted an exemption under the Foreign Exchange Regulations Curaçao and Sint Maarten enacted by the Central Bank of Curaçao and Sint Maarten (referred to as the FX Regulations). As a result of this exemption, we are exempted from certain conditions, regulations and provisions stemming from the FX Regulations relating to, among other things, capital transactions with non-residents of Curaçao (including dividend payments) and license fees on payments to non-residents of Curaçao. The exemption has been granted subject to our compliance with certain conditions, and the Central Bank of Curaçao and Sint Maarten can revoke the exemption should we no longer comply with one or more of those conditions. Those conditions include that none of our activities may take place in Curaçao or Sint Maarten, that we may not offer goods and services to residents of Curaçao or Sint Maarten, that we may not participate in Curaçao and Sint Maarten resident companies and that we may not extend loans to residents of Curaçao or Sint Maarten. Furthermore, residents of Curaçao or Sint Maarten may not be holders of our Common Shares.

The rights of shareholders under CuracaoCuraçao law differ from those under U.S. law, and you may have fewer protections as a shareholder.

Our corporate affairs are governed by our Amended Articles, of Association, the Civil Code of Curaçao and the civil law of Curaçao. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under Curaçao law are to a large extent governed by the Civil Code of Curaçao, the civil law of Curaçao and applicable case law. The rights of shareholders and the fiduciary responsibilities of our directors under Curaçao law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the U.S. In particular, Curaçao has a less developed body of securities laws as compared to the U.S., and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. In addition, Curaçao law does not make a distinctiongenerally distinguish between public and private companies, and some of the protections and safeguards (such as statutory pre-emption rights, saveexcept to the extent that they are expressly provided for in the Amended Articles of Association)Articles) that investors may expect to find in relation to a public company are not provided for under Curaçao law. As a result of all of the above, holders of our common sharesCommon Shares may have more difficulty in protecting their interests in the face of actions taken by our management, directors or major shareholders than they would as shareholders of a U.S. company.

Shareholders in CuracaoCuraçao companies may not be able to initiate shareholder derivative actions, thereby depriving a shareholder of the ability to protect its interests.

While caseDerivative actions are not permitted in Curaçao. Under Curaçao law, does exist in The Kingdom of The Netherlands for derivative actionsonly the Company may bring a civil action against a person who is liable to be brought in certain circumstances, shareholdersa Curaçao public limited liability company. Shareholders in Curaçao companies may not have standing to initiate a shareholder derivative action in a federal court of the U.S. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a Curaçao company being more limited than those of shareholders of a company organized in the U.S. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The Curaçao courts are also unlikely to: (i) recognize or enforce against us judgments of courts in the U.S. based on certain civil liability provisions of U.S. securities law; or (ii) to impose liabilities against us, in original actions brought in Curaçao, based on certain civil liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in Curaçao of judgments obtained in the U.S., although the courts of Curaçao will in certain circumstances recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

The laws of CuracaoCuraçao provide little protection for minority shareholders, so minority shareholders will have little or no recourse if the shareholders are dissatisfied with the conduct of our affairs.

Under the laws of Curaçao, there is little statutory protection offor minority shareholders other than the provisions of the Civil Code dealing withof Curaçao, which provides for shareholder remedies. Minority shareholders of a Curaçao company may commence legal proceedings against the company in which they hold shares on the following grounds:

Under Curaçao law, shareholders who satisfy certain threshold requirements can initiate inquiry proceedings with the joint Court of Justice of Aruba, Curaçao, Sint Maarten, Bonaire, Sint Eustatius and Saba. Such inquiry proceedings can relate to the policy of the company and its business as well as to the (deficient) functioning of the company as such. The Court of Justice will only order an inquiry if it finds that well-founded reasons exist to doubt the soundness of the policies of the company or the conduct of its business. This is not restricted to the policies of the governing bodies of the company (for example, the board) but can also pertain to acts or omissions of the general meeting of shareholders. During the proceedings, the Court of Justice may impose immediate provisional measures, such as a temporary amendment to the articles of association of the company; or

In addition to the above, there are alternative claims under Curaçao law available for minority shareholders who seek relief for alleged wrongful acts by a company, its directors or the majority shareholders, such as contesting the corporate resolutions of a company and requesting the majority shareholders to purchase the stake of the minority shareholders (uitkoopuittreding). However, these alternative possibilities are very cumbersome and time-consuming.time-consuming and may not be instituted in respect of shares which are traded at a stock exchange.

Curacao law makes it more difficult for us to enter into a change of control transaction in which we are acquired and you are paid a premium on the shares that you hold in our company.

Our status as a Curacao company makes it more challenging (compared to Israel and various US states) to consummate a change of control transaction in which our company is acquired and our shareholders benefit economically via the payment of a premium on their shares relative to the then-current market price. Under Curacao law, there is no legal basis for a reverse triangular merger, a commonly-utilized transaction structure for the acquisition of publicly traded companies such as ours, in which shareholders receive cash. Curacao law allows for the acquisition of a publicly traded company such as ours for cash through a tender offer, provided that the offeror acquires at least 95% of the company's issued and outstanding share capital (which 95% threshold may be reduced under certain circumstances to 90% or 80% in case of a pre-wired asset sale), following which the offeror can purchase the remaining shares subject to court approval and possibly the exercise of certain dissenters' rights. Since Curacao law does not permit a cash merger and due to the challenges in obtaining such level of acceptance of the tender offer, a potential buyer might need to use different structures to acquire our company, e.g. migrating the company to another jurisdiction that allows for a cash merger as a means to acquire publicly traded companies; however, such process may be very time-consuming and could therefore prevent such a transaction from occurring. An additional option under Curacao law is a sale of assets, which is likely to be generally less efficient to our shareholders from a tax perspective.  Each of the foregoing limitations or disadvantages of effecting an acquisition of our company or its assets in which shareholders realize a premium could furthermore adversely impact the market price of our shares in an ongoing manner.   

Corporate Details

Our legal and commercial name is Sapiens International Corporation N.V., and we were incorporated and registered in Curaçao on April 6, 1990. We are a public limited liability company and operate under the provisions of the Curaçao Commercial Code. In addition, we are registered as an Israeli company for tax purposes only. Our registered officeprincipal place of business is located at Landhuis Joonchi, Kaya Richard J. Beaujon z/n, Curaçao,Azrieli Center, 26 Harokmim Street, Holon, 5885800, Israel, and our telephone number in Curaçaothere is + 5999-736-6277. United International Trust N.V.+972-3-790-2000. Sapiens Americas Corporation is the Company’sour agent in Curaçao and serves as a member of our Board of Directors.the United States. Our World Wide Web address is www.sapiens.com. The information contained on the web site is not a part of this annual report. Except as described immediately below,elsewhere in this annual report, we have not had any important events in the development of our business since January 1, 2013.

Underwritten Follow-On Offering2016.

Capital Expenditures and Divestitures since January 1, 20112014

On August 21, 2011,In the third quarter of 2014, we acquired FIS Software Ltd. (“FIS”)Knowledge Partners International LLC, or KPI, and the assets of The Decision Model, or TDM, for total consideration of $49.7 million, which was comprised of $6.75$2.1 million in cash 10,016,875and 57,000 ordinary shares of Sapiens Decision, our Common Sharessubsidiary which holds all of the interests in KPI (representing 3% of Sapiens Decision’s issued and warrantsoutstanding ordinary shares immediately prior to purchase 1,000,000 of our Common Shares.closing). In addition, on Augustone of the shareholders of KPI received 88,500 restricted shares of Sapiens Decision (of which 29,500 vested during each of the years ended December 31, 2011 we acquired IDIT I.D.I. Technologies Ltd. (“IDIT”)2015 and 2016) plus $450,000 in cash, subject to certain performance criteria. The agreements for total consideration of $31.4 million, which was comprised of 7,483,125 of our Common Shares. The aggregatethe foregoing acquisitions included, among other things, certain put and call options relating to the Sapiens Decision shares issued upon completionconsummation of the foregoing transactions constituted, immediatelytransaction and certain other benefits payable upon such completion, 44.2%the occurrence of certain conditions. For further information, please see Note 1(d) to our issuedconsolidated financial statements included in Item 18 of this annual report.

In the second quarter of 2015, we acquired IBEXI Solutions Private Limited, or IBEXI, an India-based provider of insurance solutions and outstanding share capital. Options toservices, which services 18 insurers in both the P&C and L&P markets throughout Southeast Asia. The total purchase shares of FIS and IDIT were replacedprice in this acquisition was approximately $4.8 million, which we paid in cash at the closing, with optionsand which is subject to purchase an aggregateadjustment based on certain future criteria. For further information, please see Note 1(b) to our consolidated financial statements included in Item 18 of 1,938,844this annual report.

In the third quarter of 2015, we acquired Insseco, a Poland-based software and services provider for the insurance market, from Asseco Poland S.A., or Asseco, the indirect controlling shareholder of our Common Shares.company, which helped us to establish a strong presence in the Polish insurance market. We paid approximately $9.1 million in cash for Insseco, subject to upwards adjustment based on its achieving future revenue goals. For further information, please see Note 1(b) to our consolidated financial statements included in Item 18 of this annual report.

In the third quarter of 2016, we acquiredMaximum Processing Inc., or MaxPro,a privately-held company headquartered in Bradenton, Florida, with offices in Garner, North Carolina. MaxPro is the provider of the Stingray System, a P&C insurance administration suite targeted towards the tier 4-5 U.S. market, as well as managing general agents, or MGAs, third-party administrators, or TPAs, and insurance brokers. We paid $4.3 million in cash for this acquisition (including $1.5 million that we placed in escrow at the closing). The seller also has the right to receive performance based payments of up to $2.6 million relating to achievements of revenue and profitability goals over three years (2016, 2017, 2018), which are also subject to continued employment. For further information, please see Note 1(b) to our consolidated financial statements included in Item 18 of this annual report.

In the third quarter of 2016, we acquired4Sight Business Intelligence Inc., or 4Sight, a provider of business intelligence reports that is based in Austin, Texas. 4Sight offers insurance-specific business intelligence, or BI, solutions, including 4SightBI, a P&C-specific, off-the-shelf business intelligence (BI) product. We paid $330,000 in cash for this acquisition. In addition, the seller of 4Sight may receive additional performance-based payments of up to $2.6 million relating to achievements of revenue and profitability goals over three years (2016, 2017, 2018), which are also subject to continued employment. For further information, please see Note 1(b) to our consolidated financial statements included in Item 18 of this annual report.

In the first quarter of 2017, we acquired StoneRiver, a Denver, Colorado-based provider of a wide range of technology solutions and services to insurance carriers, agents, and broker-dealers, whose product groups encompass front-office, policy, claim, rating, underwriting, billing, and reinsurance solutions for all major business lines. The acquisition will enable us to expand the range of solutions and services that we offer in North America. We paid approximately $100 million in cash, subject to certain adjustments based on working capital, transaction expenses, unpaid debt and certain litigation matters. For further information, please see Note 17(a) to our consolidated financial statements included in Item 18 of this annual report.

Our principal capital expenditures during the last three years related mainly to the purchase of computer equipment and software for use by our subsidiaries. TheseOur capital expenditures totaled approximately $0.5$1.5 million in 2011, $1.32014, $2.8 million in 20122015 and $4.1$4.7 million in 2013 (including lease improvements.2016.

We are a leading global provider of software solutions for the insurance industry, with an emerging focus ona growing presence in the broader financial services sector.We offer coresector. Our extensive expertise in the insurance industry is reflected in our innovative software suites, solutions and services for Propertyproviders of property & Casualty/General Insurancecasualty/general insurance (P&C), and Life, Annuities, & Pensionslife, annuities and pension (L&P) providers, allowing theminsurance. Our offerings enable our customers to effectively manage their core business functions, including policy administration, claims management and billing functions. billing.

We also providesupply core record-keeping software solutions for Retirement Servicesretirement services and a complete offering for reinsurance providers. In addition,Additionally, we offer a variety of other technology-based solutionsdecision management platform that enable organizationsenables our customers to quickly deploy business logic and comply with policies and regulations across their organizations. organizations and our digital suite facilitates an end-to-end, holistic and seamless digital experience for agents, customers and assorted insurance personnel.

Our solutions, enablewhich possess modern, modular architecture and are digital-ready, empower customers to respond to evolving market needs and regulatory changes, while improving the efficiency of their core operations, thereby increasingoperations. These enhancements increase revenues and reducingreduce costs.

Our offering is comprised primarily of:

Software Solutions

Our software solutions portfolio is comprised of:

Software solutions

Services

Our services modernize and automate processes for insurance providers and financial institutions around the globe, helping to create greater organizational efficiencies, reduce costs and provide a better end user experience.

Our services include:

Built on a solid foundation of insurance domain expertise, proven technology and a history of successful deployments, our organization assists clients in identifying and eliminating IT barriers to achieve business objectives.

For more information about our software solutions and services, please see “Sapiens’ Software SolutionsSolutions” and Services please read“Sapiens’ Global Services” below in this Item 4B.section.

Our Marketplace and its Needs

Our Target Markets

We operate in a large market undergoing significant transformation. According to a research report published by Celent, a research and consulting firm (IT Spending in Insurance, — Aa Global Perspective, March 2013)2016, by Jamie Macregor, Juan Mazzini, Karen Monks and KyongSun Kong, published on April 27, 2016), global IT spending by insurance companies is expected to grow from $140.2$184.9 billion in 20132016 to $154.5$195.5 billion in 2015.2017 and $208 billion in 2018. In particular, such IT spending on external software and IT services, willwhich was expected to total approximately $57.0$81 billion in 2013, and2016, is expected to increase to $63.7$87 billion by 2015, representing2017, reflecting a 6% compound annual7.3% growth rate from 2013 to 2015. Of these amounts, werate.

We believe that our current total addressable market for core insurance software solutions is approximately $25.0$30 billion, and that it willwhich we expect to grow as a result of theinsurance carriers’ and financial institutions’ need for insurance carriers and other financial institutions to spend on modern software solutions from external providers to rectifyaddress the operational challenges presented by the inefficiency of their legacy policy administrationcore systems. SuchLegacy systems includepossess technical and functional limitations that have an adverseadversely impact on thecarriers’ ability of carriers to swiftly launch new, innovative products in line withthat satisfy their customers’ changing needs and preferences. These legacy systems also slowBy slowing down carriers’ business and geographic expansion, and lead tolegacy systems create operational inefficiencies whichthat are translated into increased business risk and financial costs. Furthermore, our

Our customers are operating in a dynamic and changing regulatory environment. Often thesetheir legacy systems simply do not support new regulatory requirements and put carriers at risk of non compliance.non-compliance. We believe these challenges will cause an acceleratingaccelerate the shift from spending on legacy systems to new vendor software solutions, and athe shift from reliance on in-house development to external vendors such as ourselves.vendors.

There is also a strong trend of shifting attention to the end-customer experience and activities, with a focus on digital operations. Many insurers are currently unable to provide the type of quality digital experience that their customers are already enjoying across most other verticals and customer satisfaction is only one of the many recognized benefits of going digital. This can only be supported via increased usage of data for decision-making, risk analysis, customer evaluation and rating, which requires a streamlined data flow and easy access to information from multiple sources.

The Life, Insurance, Annuities, Savings, PensionsPension, Annuity and Retirement (“L&P”) MarketMarkets

L&PLife, pension, annuity and retirement providers offer their customers a wide range of products for long-term savings, protection, pension and insurance toinsurance. They assist policyholders inwith financial planning through life insurance, retirement, pensionspension, medical and investment products. L&PTheir products can be classified ininto several areas, primarily Investmentinvestment and Savingssavings, risk and protection, pension and health-related products. These products Risk and Protection products, and Pension products – and can exist both as individual-targeted productsbe targeted to individuals, as well as group-relatedgroup- and employer-related products. Some L&P providers as well as otherinsurance and financial services providers also offer retirement services products, particularly management of, and recordkeeping for, defined contribution retirement plans.

Retirement services offer Employer- related Defined Contributionemployer-related, defined contribution plans whichthat are the primary and fastest-growing retirement savings vehicles in the U.S., holdingincluding nearly one-third of overall retirement assets. Financial Servicesservices companies such as– including insurance companies, Mutual Funds, Banksmutual funds, banks and TPAs,third-party administrators (TPAs)– provide recordkeeping services for employer-related plans. Many recordkeepingRecordkeeping service providers commonly use legacy or in-house software solutions to manage their books.

The Property & Casualty/General Insurance (“P&C”) Market

P&CProperty and casualty insurance (also– also known as non-life insurance, or General Insurance / “GI”)general insurance (GI) – protects policyholders against a range of losses on items of value. P&C insurance includes the Personalpersonal segment (insurance, which is insurance coverage for individuals, includingwith products such as motor, home, personal property and travel)travel; thecommercial segment, the Commercial segment (coveringcovering aspects of commercial activity, such as commercial property, car fleet,fleets and professional liability)liability; andspecialty lines, and Specialty Lines (coveringcovering unique domains, such as marine, art and credit insurance).insurance.

Reinsurance is insurance that is purchased by an insurance company (“ceded reinsurance”) from another insurance company (“assumed reinsurance”) as a means of risk management. The reinsurer and the insurer enter into a reinsurance agreement (referred to as “contract” or “treaty”), which details the conditions upon which the reinsurer would pay the insurer'sinsurer’s losses. The reinsurer is paid a reinsurance premium by the insurer and the insurer issues insurance policies to its own policyholders. The insurer must maintain an accurate system of recordrecords to track hisits reinsurance contracts and treaties, to avoid claims leakage.

The Financial Services Market for Decision Management

LargeIncreasing competition, regulatory burden, customer experience expectations, the proliferation of digital and product innovation requirements are necessitating a shift in thinking and approach across the financial organizations –retail banking, investment banking, mortgage bankingservices market. By replacing conventional policy and others –process management with the growing discipline known as “decision management,” financial institutions are bridging the gap between business and IT by enabling business users to rapidly frame requirements in formal business models that can be easily understood by all heavily rely on huge amounts of data. This data is used for their ongoing operations, and serves the decision management process.stakeholders.

The decision management processprocesses in financial services has an impact onaffects overall corporate performance, vis-à-visincluding its impact on customers competitors and in response to regulatory requirements.competitors. Decision management systems are a key performance component of every financial services organization, as they help the organization define, avoid and hedge and financial risk.

Increasing competition, regulatory burden and product innovation requirements are necessitating a shift in thinking and approach across the financial services market.  Sapiens DECISION remains focused on expandingNeeds of our market presence in the mortgage, retail and investment banking sectors, where the scale and complexity of operations requires enterprise-grade technology that can easily be adapted as polices and business strategies rapidly evolve. 

In a recent Gartner report (“Find the Best Approach to Decision Management”, Published: 26 February 2014 by analyst(s): W. Roy Schulte, Teresa Jones, Lisa Kart), Gartner has identified that Business Decision Management solutions are the next revolution in complex organization management, and are required to align the Business Rules Management (BRM) systems and Business Process Management (BPM) systems. Where business logic is complex, regulated and re-used, it must be managed in a central repository and treated as an asset.Target Markets

This market is now gaining traction. Gartner analysts state that “Decision management improves the intelligence of business operations by enabling fast, consistent and precise fact-based decisions. The vast increase in the amount of available data, and the decreasing cost of computers, memory, mobile devices, sensors and communication networks, have given enterprises the opportunity to greatly improve their operational effectiveness and efficiency.”

Our Target Markets Needs

Large financial organizations need tomust constantly invest in their IT systems in order to respond to several key market drivers, including:drivers.

They require the ability to:

Specific Needs of the Insurance &and Retirement Services Market Specific NeedsMarkets

The insurance market is a large, complex and highly regulated environment. Insurance carriers operate in a highly competitivesuper-competitive and quickly evolving market, and thewhich necessitates differentiating their value proposition of the carrier must be better identified. In addition, thepropositions. Additionally, carriers operate under a rigid regulatory regime and are required to comply with market regulations.that demands fast compliance.

In order to

To efficiently manage their operations, insurance carriers require IT platforms that enable rapid introduction of changes via configurable, user-driven activities, integrateintegration with other internal and external systems, control and audit theauditing of internal employeesemployees’ work, support multi-channelfor omni-channel distribution and provide clear visibility ofinto the carrier’s business operations.operations, through streamlining and intelligent usage of data.

Insurance carriers are experiencing substantial operational challenges due to the inefficiency of their legacy policy administration systems. Suchsystems and their lack of digitalization. These legacy systems, which include both technical and functional limitations, have acuteacutely impact on thecarriers’ ability of the carriers to face thecope with growing challenges, ofsuch as the rapidly-changing insurance marketplace aroundneed for innovation, the shift of power to the consumer, and the dynamic and constantly changing regulatory environment.

We believe that the following are key factors thatconsiderations for insurance carriers take into consideration when considering an upgrade ofthey think about upgrading their legacy systems:

·            Dynamic business environment with constantly changing regulations–Many insurance carriers still use outdated legacy systems that are costly and time-consuming to modify or upgrade. This has prevented insurance carriers from innovating and growing. Carriers who use legacy systems may find that it is difficult for them to modify existing products, introduce new products and reach untapped market segments. Varied and frequently changing global regulatory requirements require specialized data and business rules, which makes change implementation particularly challenging.

·            Change in end-consumers’ behavior and the shift of power to consumers– Insurance carriers must adapt rapidly to the shifting needs and behaviors of consumers, including the types and terms of insurance products offered, and how consumers access information. Insurance carriers require systems with new technologies are:integration capability and support for multi-channel distribution, so they can reach their clients’ customers and partners using multiple methods, including social media, across devices.

·            A need to improve operational efficiency and reduce total cost of ownership–We believe that a majority of insurance carriers are still using inefficient and outdated processes that do not automate operations and workflows, and thus don’t offer efficient process management. Many of these processes may have high error rates. Additionally, the ongoing maintenance of legacy systems is expensive and technically difficult. A specialized IT staff with the requisite skills and experience needed to maintain these systems is difficult to find or replace. Insurers seek systems that are modern, digital, automated, efficient and easy to maintain, and can lower costs over the long term.

·            Increasing global and multi-national operation – A rising number of insurers are accelerating their growth initiatives through global acquisitions. These insurers seek sole providers who can deliver solutions that will be used across markets, combining the support of local regulatory requirements and specific customer needs, while driving a generic corporate business approach and strategy across the globe, reducing costs and overhead.

·            Going digital– Digitalization holds significant potential for financial services institutions and insurers, but only if they manage to efficiently digitalize their operations, support multi-channel distribution and ensure that agents and customers are able to access real-time, accurate data at any time and from anywhere – including tablets and other mobile devices.

Business Decision Management Market Needs

Many large organizations, particularly in the financial services market, must adhere to growing regulation, andcomply with complex regulations. They operate in a highly competitive marketmarkets that requiresrequire quick responses. Business logic drives most of the financial services transactions and is the very backbone of an organization'sorganization’s policies and strategies, and its ability to successfully operate in this market.operate.

To support that, theoperate efficiently, business owners must assume ownership onof the business logic be ableand possess the ability to define and modify it,it; standardize it; and makereuse it consistent and reusable across the organization. Today, the business logic is defined by the business owners and compliance officers, but the IT departments aretranslate the ones to translate those requirements into code. This process raises several key challenges: the result does not always accurately reflect the business requirements; the new requirements might conflict with, or override, previous requirements; and the wholeentire process is not fully audited. These gaps often create an inefficient and risk-exposed organization.

Sapiens’ Software Solutions

Overview

We are a leading global provider of software solutions for the insurance industry with an emerging focus ona growing presence in the broader financial services sector, with the abilitysector. By enabling our customers to digitize and be more agile in the face of new and changing business environments, we help them take advantage of powerful current trends – such as the Internet of Things, social media, ride sharing, customer engagement, robo-advice, etc. – while simultaneously reducing IT costs.

We offer our insurance customers a range of packagepackaged software solutions that are:

Our packagepackaged software solutions enable, for our customers:

enable:

Sapiens Life, Pension & Annuity Solutions

Sapiens L&P (ALIS)ALIS for Life, Pension and Annuities

Sapiens L&P (ALIS)ALIS is a comprehensive L&P software solution for individual and group insurance products. Sapiens L&PIt provides comprehensive support for the complete policy lifecycle of all life insurance products– from quotation and illustrations, throughillustrations; to underwriting, billing and servicing, and up to theservicing; through claims management and exit processing.

Sapiens L&PALIS supports a wide range of insurance product lines across multiple territories, including:

Sapiens L&PALIS is a modular system and itsthat includes all the functional components include all the components necessary for L&P insurers to manage their business. Sapiens L&P allows insuranceInsurance carriers tocan manage their entire core business on a single platform and to integrate Sapiens L&PALIS with other systems for the completion of a specific activity or domain.

Sapiens L&PALIS integrates all of the following functions into one solution:

On top of the functional modules, Sapiens ALIS provides a set of digital capabilities to its customers, including an advanced analytics solution, a consumer and agent portal, personalized video capabilities and a customer engagement platform These capabilities increase customer touch-points and generate actionable insights. Sapiens has partnered with Microsoft Azure to offer its Sapiens ALIS policy administration system and accompanying services over private and public clouds. 

Sapiens L&P (Retirement Services)Retirement Services

Leveraging assets we have built from our Sapiens L&P (ALIS),ALIS offering, we have developed Sapiens Recordkeeping for Retirement, Services: a modern, end-to-end, packaged software solution that manages record-keeping for record-keeping management for Defined Contribution Recordkeepingdefined-contribution recordkeeping providers.

Sapiens Recordkeeping solution offersRetirement Services Platform is a completenext-generation, defined contribution platform that enables recordkeepers to secure and retain profitable plans by offering the efficiency, flexibility and end-to-end support of the recordkeeping functionality, based on a modular deployment structure, allowing flexibility on using specific modules, which seamlessly integrates with our customers’ preferred systems/modules.governance required for success in today’s market. Designed by leading industry experts, Sapiens Recordkeeping for Retirement Services supports the fulla wide range of Defined Contribution retirement products, including, but not limitedplan types – 401(k), 403(b) and 457 – from micro to 401(k), ESOP and Profit Sharing,mega plans, and the associated plan variations, including ERISA, Non-ERISA, Safe Harbor, Taft Hartley and others.

Sapiens L&P (Closed Books)Closed Books

Sapiens Closed Books is a solution for life and pension insurance companies that enables them to efficiently and more effectively administer policies and claims relating to their legacy portfolio and closed books of business where products(products that are no longer open to new business.business, but must still be administered).

An industry leading and proven system, Sapiens Closed Books was designed to deliver solutions to legacy portfolio challenges, while significantly cutting the costs that are commonly associated with legacy platforms. Sapiens Closed Books provides a full, end-to-end legacy portfolio-focused system that is capable of dealing with missing data, old legislation and a wide range of product types.

The Sapiens Closed Books model ensures that benefits are realized in a controlled and low risk manner, via best practices and proven industry experience.

Sapiens L&P (TOPAZ)INSIGHT

Sapiens L&P (TOPAZ)INSIGHT is offered uniquely in the Israeli market,Israel, enabling L&P carriers in Israellife and pension insurance providers to handle a wide range of L&P activities and regulations that are unique to the Israeli market.

Sapiens Property & Casualty/General Insurance Solutions

Sapiens P&C (IDIT)IDIT

Sapiens P&C (IDIT)IDIT is a component basedcomponent-based software solution, addressing the specific needs of general insurance carriers for traditional insurance, direct insurance, bancassurance and brokers markets, primarily in EuropeEMEA and Asia-Pacific.

Sapiens P&CIt supports a broad range of general, personal and commercial lines of business, including:

Sapiens P&CIDIT integrates multiple front office and back office processes, including insurance product design, the quote and buy process, policy administration, underwriting, call center, and remote users and partners, backed by fully secured internet-based capabilities.

Sapiens P&C providesBy providing a full set of components, to supportSapiens IDIT supports insurance carriers’ core operations lifecycle– from inception to renewal, and claims, including:claims. This includes:

The solutionSapiens IDIT includes modular software components that can be customized to match specific insurance business requirements, while providing pre-configured functionality, including:

On top of the functional modules, Sapiens IDIT provides a set of digital solutions and services to its customers, including an advanced analytics solution, a consumer and agent portal, personalized video capabilities and cloud offerings and services. These capabilities accelerate and automate responses, and reduce costs.

Sapiens Stingray

Sapiens Stingray is a modular browser-based, property and casualty policy administration solution for Policy (quoting, rating, issuance), Billing, Claims and Reinsurance administration. Sapiens Stingray includes complete customer and agent portals as well as an imaging system. Additionally, Stingray has statistical bureau reporting, DMV, Credit Card, General Ledger, Comparative Raters, CLUE, Business Intelligence, reporting and many other third party insurance related interfaces.

Sapiens Reinsurance

Sapiens Reinsurance enables P&C/General Insurance carriersis a comprehensive business and brokersaccounting solution designed to handlesupport the entire range of reinsurance contracts and activities, both ceded and assumed, for all lines of their P&C/Generalbusiness. This software product provides both insurers and reinsurers superior handling of all reinsurance activities and in-depth accounting functionality on a single platform, with full financial control and auditing support.platform. By incorporating in-depth, fully automated functions readily adaptable to each company'sadapted conveniently for its customers’ business procedures, Sapiens Reinsurance provides flexible and full financial control of theits customers’ reinsurance practice,processes, including full support for all auditing requirements and regulatory reporting.statutory compliance.

Sapiens Reinsurance providesoffers end-to-end processing, including:

Sapiens P&C (Insight)Insight

Sapiens Insight for P&C is a software solution used by P&C carriers that workworks on IBM System z (mainframe) and System i platforms. Insight for P&C has been customized to meet the particularspecific business demands at the insurer level and the regulatory needs at the state level.

Sapiens Digital Suite

Sapiens INTELLIGENCE

Sapiens INTELLIGENCE is a modular, highly innovative business intelligence solution specifically designed for the insurance market. Based on the advanced technology of SAP’s analytics platform, Sapiens INTELLIGENCE is an important component of the industry-leading Sapiens’ portfolio and is comprised of two integral elements: SmartStore and InfoMaster.

SmartStore is a centralized data hub for all insurance reporting and analytics. It gathers data from Sapiens’ operational repository and intelligently transforms it into an insurance-domain set of business logical models, specifically designed for complex and in-depth analytics.

InfoMaster is Sapiens’ set of analytical applications, offering a wide range of data visualization and analysis capabilities through reporting, dashboards and data discovery. Incorporating Sapiens’ best practices and three decades of leading experience, Sapiens InfoMaster helps insurers achieve greater efficiency and begin reaping the benefits of analytics immediately.

Sapiens PORTAL

The Sapiens PORTAL is pre-integrated with Sapiens ALIS and Sapiens IDIT. In addition to enjoying the myriad benefits provided by Sapiens ALIS and Sapiens IDIT, insurers can deploy a portal that will transform their online sales, customer and agent experience.

The Sapiens PORTAL was specifically designed to address insurers’ needs, guided by Sapiens’ three decades of industry experience. Two key segments are addressed by the Sapiens PORTAL:

The PORTAL for Consumers is a direct-to-consumer application that enables customers to buy policies, view the status of their policies and accounts, issue claims and conduct many other transactions that save insurers time and reduce costs. Insurers can leverage their investment by offering customers a unique, real-time customer experience tailored to today’s digital natives.

The PORTAL for Agents empowers the agent with full lifecycle enablement, including the ability to manage their pipeline, sell policies to their consumers and provide top-level customer service in real time. They can also obtain a holistic view of their business performance overall and benefit from full access to all their remunerations, payments, commission transactions and statements. Equipping agents with self-service tools that make their lives easier and help them better serve their customers will increase agent efficiency and satisfaction.

Sapiens Business Decision Management Solutions

Sapiens DECISION

Sapiens DECISION is an innovative business decision software solution which allows business professionals - with no IT skills - to design, simulate, implement, change, analyze, and visualize business logic that drives financial operations and compliance in a business-friendly format and environment.

Sapiens DECISION is a business decision management solution that consistently enforces business logic across all enterprise applications. Organizations use it to track, verify and ensure that every decision is based on the most up-to-date rules and policies. The solution is powered by The Decision ModelModel®, a widely adopted decision management methodology, for which we license underown a long term license fromnumber of patents.

Organizations are undergoing a paradigm shift in the Knowledge Partners International LLC. When implementedway they approach change, by replacing conventional policy and process management with Sapiens DECISION, ita growing discipline called “decision management.” Decision management bridges the gap between business and IT, by enabling business users to rapidly frame requirements in formal business models that can resolvebe easily understood by all stakeholders. This ensures that the disparate nature of thebusiness logic across the organization to provide a central repository for enterprise management ofis complete, internally consistent and accurate, and does not replicate existing logic. It allows a single representation of the logic across the organization and treats it as an enterprise asset.

Sapiens DECISION allows the reusability and governance of business logic across all business divisions and software applications, using any rules engine or business process management system, and integrating seamlessly with the BRM or BPM system that the organization has in place.

Some of the key benefits for organizations that use Sapiens DECISION are:

We are currently focusing on the development and marketing of Sapiens DECISION in the financial services market in North America and WestWestern Europe, and we are building best practices to be used mostlyprimarily by mortgage, banking, retail banking and investment banking.

banking where the scale and complexity of operations requires enterprise-grade technology that can easily be adapted as policies and business strategies rapidly evolve. We also intend to develop and market Sapiens DECISION for the insurance industry and leverage our industry knowledge and close relationships with our existing customers and partners.

Technology Based Solutions:Technology-Based Solutions

Sapiens eMerge

Sapiens eMerge is a rules-based, model-driven architecture that enables the creation of tailor-made, mission-critical core enterprise applications with little or no coding. Our technology is intended to allow customers to meet complex and unique requirements using a robust development platform. For example, we perform proxy porting for our customers in an efficient, cost effective manner with Sapiens eMerge.

Sapiens’ Global Services

Sapiens provides implementation

Our services modernize and integration servicesautomate processes for insurance providers and financial institutions around the globe, helping to help our customers fully realize benefit from our software solutions. Somecreate greater organizational efficiencies, reduce costs and provide a better end-user experience. Built on a solid foundation of the key advantagesinsurance domain expertise, proven technology and a heritage of our professional services are outlined below:successful deployments, we assist clients in identifying and eliminating IT barriers to achieve business objectives. Benefits include:

Our implementation teams assist customers in building implementation plans, integrating our software solutions with their existing systems, and deploying specific requirements unique to each customer and installation.

We also partner with several leading system integration and consulting firms to achieve scalable, cost-effective implementations for our customers. We have developed an efficient, repeatable methodology that is closely aligned with the unique capabilities of our solutions.

Most of our clients in whose sites we have deployed our solutions, elect to enter into an ongoing maintenance and support contract with us. The term of such a contract is usually twelve months and is renewed every year. A maintenance contract entitles the customer to technology upgrades (when made generally available) and technical support. In addition, we offer introductory and advanced classes and training programs available at our offices and at customer sites.

Our service teams havepossess strong technology skills and industry expertise. The level of service and business understanding they provide contributes to the long term success of our customers. This helps us develop strategic relationships with our customers, enhances information exchange and deepens our understanding of the needs of companies within the industry.

WeThrough our service teams, we provide a wide scope of services and consultancy around our core solutions, both in the stage of the initial project implementation stage, as well as on-goingongoing additional services. Many of our customers also use our services and expertise on an on-going basis to assist them with various aspects of daily maintenance, on-goingongoing system administration and additionsthe addition of new enhancements to the solutions - and are considering Sapiens as a strategic partner for such services.solution enhancements.

Such services include, among others:

include:

In addition, most of our clients elect to enter into an ongoing maintenance and support contract with us. The terms of such a contract are usually twelve months and are renewed every year. A maintenance contract entitles the customer to technology upgrades (when made generally available) and technical support. We also offer introductory and advanced classes and training programs available at our offices and customer sites.

We partner with several system integration and consulting firms to achieve scalable, cost-effective implementations for our customers. We have developed an efficient, repeatable methodology that is closely aligned with the unique capabilities of our solutions.

Our Strengths

Comprehensive suite of core solutions.suitesof high-end, crucial solutions for insurance. We offer end-to-end solutions for both the P&C and L&P&P/L&A markets, supporting allmost sub-segments of these markets and the complete lifecycle of product lines .lines. Our software supports and enables our customers’ most fundamentalcore insurance business processes throughout the full lifecycle of administration within an organization, including policy administration, billing and claims. Ourclaims, which we believe is a unique offering among software solution providers. In addition, our solutions for the Retirement Servicesretirement market provides modern record keeping solutionsupport core record-keeping for retirement services providers, which areis fundamental to their operations. Our business decision management solution is a unique offeringBuilt for the design, management,global and governance of the business logic behindmulti-national operations, and complianceour solutions are used in a wide variety of organizations.international regulatory, language and currency environments. Our digital suite is pre-integrated with Sapiens IDIT and Sapiens ALIS.

Innovative productssolutions with leading functionality and technology. Our solutions include integrated, flexible, configurable, scalable and reliable suites of productsare based on advanced, modern architectures whichthat are specifically designed forto satisfy our customers’ needs. In addition,These solutions are integrated, modular and component-based, and include scalable product suites supporting various lines of business. By using our solutions, are highly compatible with other software solutions our customers may use. We allow carriers tocan support new sales channels, including mobile and social, reduce time to market for new product launches, and lower total cost of ownership, and support global operations. We have significant investmentownership. Additionally, we significantly invest in research and development to ensure that our products employ new technology, and are compatible with the needs of our clients.clients and are easy to use. As a result, our products are highly regardedmaintain a leadership position, as recognized by leadingtop industry analysts, such as Celent and Ovum, for their levels of both technology and functionality.

One-stop-shop across products and services. In addition to our market-leading products across P&C and L&P, we possess consulting and implementation capabilities, which we use to customize our products and design the solution that best meets our customers’ requirements. We believe that our customers do business with us not only because of our leading products, but also due to our complementary service offerings, which enhance our products and enable clients to maximize the value derived from our solutions. We believe that this approach lowers the risks for our clients, as they transition to a new system, and at the same time provides them with the functionality they desire. For example, we consult with each of our customers to determine their specific needs and then enhance our core solution and customize the appropriate interfaces. Through these interactions and experiences, we foster long-term relationships with our customers, which provide opportunities to deliver a wide range of our products and services as requirements change over time.

Strong, diverse and stable customer base. We currently haveserve more than 130200 customers globally, including some of the world’s largest global insurance carriers and financial institutions. Our customer base is well diversified across the P&C, L&Pinsurance providers, including life, pensions and annuities; property and casualty insurers; and retirement services segments.providers. We believehave been able to successfully maintain these customers due to our broad product portfolio geared toward addressing the needs of these industries. In addition, our business decision management solutions areplatform is applicable across the financial services industry, including a wide range of financial institutions, and offeroffers an opportunity for further diversification. Wediversification in other markets. Geographically, we derived 33%34.4%, 58%21.7%, 16.4%, 13.5% and 9%14.0% of our revenuesrevenue from North America, the Americas,United Kingdom, the rest of Europe, Israel and the Asia-Pacific region, respectively, in the year ended December 31, 20132016, and 31%33.0%, 58%22.9%, 17.7%, 15.3% and 11% from those respective regions,11.0%, respectively, in the year ended December 31, 2012.2015.

Long-term relationships with customers.Our products are at the core of our customers’ businesses, which ensures that our customers continue to use and co-invest in our products, providing us with long-term relationships that result in revenue stability. Installing a new core system is a major undertaking for insurance carriers whichthat involves extended pre-production work and entails a complexcomprehensive integration and implementation effort. Our products are at the coreeffort that is offered as part of our customers’ businesses, and our customers are therefore committed to our products, providing us with long-term relationships that result in revenue stability.services. Many of our customer relationships have been in place for more than 10 years and we have benefited from recurring revenues as customers request support, upgrades and enhancements for our systems. In addition, we benefit from these relationships, due to our ability to market complementary solutions to our loyal customer base.

Portfolio is recognizedProven management team. Our management team has extensive experience in the insurance and financial services industries and we have been able to achieve our business and development objectives to date. Management has also been successful in retaining key personnel from the companies we acquired,enabling us to benefit from their experience and knowledge of the acquired products and technology. Our management team possesses a variety of skills in product development, business development, sales, marketing, technology and finance, as market leader.During 2013,well as a unique knowledge of the financial services industry. We have maximized contributions from our products were recognized as market leaders in their space, as follows:hard working, talented and innovative employees.

Our Strategy

Our visionLeveraging our offerings, geographic presence and experienced management team, our goal is to become a leadingfurther expand our presence in the markets in which we operate and further enhance our leadership in the global provider of innovative software solutions for the insurance industry, with an emerging focusmarket. Our growth strategy is solidly based on the broader financial services sector.both existing and new customers, and will include mergers and acquisitions, when applicable, to accelerate our growth. We plan to achieve our goals by focusing on the following principles:

GrowthContinue to innovate and extend the leadership of our product offerings. Due to past investments, we have become a leader in revenues within existing markets (new and existing customers) - we intendproviding software offerings to the insurance industry. We plan to continue to operateinvest in research and development to enhance our software platform solutions and to ensure they remain leading products, in terms of functionality and technology. We believe our focus on innovation, combined with our industry expertise, will enable us to improve our existing marketsofferings and allow us to produce new solutions for the benefit of our customers and partners.

Leverage our global footprint to offer our complete solutions suite.We intend to broaden our existing offering of solutions to enhance our presence in the geographies in which we have present and referenced customers and to increase our customer base in such markets. In addition, we intend to strengthen our recurring revenue model by providing additional solutions, support, maintenance, assistance, and implementation services to our existing customer base, leveraging our comprehensive and diversified product suite.

Growth with existing products into new markets - we plan to grow our business by offering our existing portfolio in new markets.currently operate. In particular, we believe that there is considerable opportunity to commence and grow sales of our P&C product suite in additional European countries, as well as the United States and Canada, and also to expand the customer base for Sapiens DECISIONmarket reach of our business decision management platform into Europe and the Asia Pacific region. Additionally, we plan to market our current suite of solutions to other countries in Europe.Europe in order to continue to generate revenue on existing products in new geographies.

Maintain InnovationMergers and technology leadership -Acquisitions.Our M&A approach facilitates our growth strategy. We seek to identify new growth markets to penetrate via acquisition of local offices and customer bases. In addition, we aim to enhance our product portfolio with complementary solutions that will help our customers excel. We believe that our acquisition of local customer bases and expertise will accelerate our market penetration in growth geographies. We plan to take advantage of our recent acquisition of StoneRiver to strengthen our presence in North America, expand our product portfolio and accelerate our footprint in the U.S. Property & Casualty market.

Capture adjacencies and new opportunities.In order to maximize the value of our current offerings and leverage our long-term relationships with customers, we plan to continuefeature and promote our digital suite to enhance our presence in the insurance market. To date, our core insurance software solutions to ensure they remain leading products in termsaccount for approximately 80% of functionality andour business, while our technology to meet the market demand.platforms account for approximately 20% of our business. We believe our plan to remain vertically focused, while concentrating on our customers’ ancillary needs, will strengthen our customer relationships. Additionally, we plan to focus on innovationpenetrating the financial services market with our business decision management platform to aid financial services organizations in the management, design and our industry expertise will enable ussimulation of the business logic behind operations. Our business decision management platform can be geared toward compliance in a wide variety of organizations to further improve our existing product offering as well as to produce new software solutions for the benefit of our customersfacilitate streamlined and partners. We will continue to leverage the insights and best practices drawn from our customer base as well as to invest in research and development.efficient regulatory compliance.

Growth through acquisitions -Invest in sales and marketing. as partWe plan to strengthen our sales and marketing teams by working with and training sales professionals with experience in the insurance industry, or with connections to new or existing customers, enhancing market-awareness of our growth strategy, we have made three acquisitions over the past few years. We will continue to seekbrand and evaluate opportunities to grow through acquisitions of companies with complementary software solutions, related intellectual property or customer base. As various companies in our industry offer differentiated solutions sold to different customers, we believe we may encounter opportunities to acquire companies or technologies that can be meaningfully synergistic with our solutions. We will balance investment in such acquisitions with returnbelieve that the strength of our core solutions, the experience of our sales and marketing team, and our established and growing customer base create a significant opportunity to investorsprovide new and allocatecomplementary solutions that address the ongoing needs of our capital resources accordingly.customers.

Competitive Landscape

We operate in two main markets – insurance and the broader financial services sector – with different competitive landscapes.

The market for core software solutions for the insurance industry is highly competitive and characterized by rapidly changing technologies, evolving industry standards and customer requirements, and frequent innovations.

The market for business decision management is a relatively new and innovative market, and as such it is toostill early to accurately identify competition.

Competitive Landscape for our Insurance Software Solutions

Our competitors in the insurance software solutions market differ from us based on the size, geography and linelines of business in which we operate.business. Some of our competitors offer a full suite, andwhile others offer only one module; some operate in specific (domestic) geographies, while others operate on a global basis; and theirbasis. And delivery model willmodels vary, with some competitors keeping delivery in-house, or using IT Outsourcingoutsourcing (ITO) or business process outsourcing (BPO).

The insurance software solutions market is highly competitive and demanding. Maintaining a leading-edgeleading position is challenging, for several reasons:because it requires:

The complex requirements of this market create a high barrier to entrance ofentry for new players. As for existing players, these requirements have led to a marked increase in M&A transactions in the insurance software solutions sector, since small, local vendors have not been able to sustain growth without continuing to fund their R&D departments and follow the globalization trend of their customers.

We believe we are well positionedwell-positioned to leverage our modern solutions, customer base and global presence to compete in this market and meet its challenges. In addition, our accumulated experience and expert teams allow us to provide a comprehensive response to the IT challenges of this market.

SomeDifferent types of competitors are:

include:

We differentiate ourselves from our competitors throughvia the following key factors:

Competitive Landscape for Business Decision Management Solutions

Sapiens DECISION is a pioneer in this innovative, disruptive market landscape. Since the introduction to the market of our innovative approach to enterprise architecture to the market, we have identified only a small number of potential competitors.

We differentiate ourselves from our potential competitors through the following key factors:

Geographical Scope of Our Operations

For a breakdown of the geographical regions in which our revenues are generated and the relative amounts of such revenues over the course of the last three fiscal years, please see “Item 5—Operating and Financial Review and Prospects—A. Operating Results—Revenue by geographical region” below in this annual report.

Sales &and Marketing

Our main sales channel is direct sales, with a small (yet growing) portion of partner sales. Our sales team is located atdispersed across our regional offices in North America, the United Kingdom, Belgium, France, Israel, Australia, India, Poland and Japan. The direct sales force is geared to large organizations within the Insurance Industryinsurance and the financial services industry.

In 2013,2016, we expandedcontinued to significantly invest in our investment in sales and marketing to new customers. We intend to further expand our sales and marketing efforts intarget regions– North America, UK and Europe as we enhance– and our local offices with sales, presale,presales, domain expert,experts and marketing teamspersonnel. We anticipate that our sales team will leverage the vicinitytheir proximity to the customers and prospective clients to drive more business, and brand awareness.offer our services across our target markets.

In addition, in 2013 we expanded our account management teams. Our have account managers who arewere focused on building ongoing relationships with existing customers during the past year, to maintain a high level of customer satisfaction and identify up-selling opportunities within these organizations. We believe that a high level of post-contract customer support is important to our continued success. In addition, we employ a team of technical specialists who provide a full range of maintenance and support services to our customers to help them fully exploit the capabilities of our solutions.

As part of our sales process, we typically sell a package whichthat includes license, implementation, customization and integration services, and training services. All of our clients for whom we have deployed our solutions elect to enter into an ongoing maintenance and support contract with us.

We aim to expand our distribution model to include more channel partners and system integrators, but we intend to maintain the direct sales model as our prime distribution channel.

We attend major industry trade shows to improve our visibility and our market recognition. Additionally, we host client conferences– such as our annual Sapiens Client Conference, which took place in Gouvieux, France in October 2015 and in North Atlanta, U.S. in September 2016–that are intended to strengthen our relationshiprelationships with our existing customer base. We continue investing in our web presence, using the internetwe created a new blog channel in 2014 (“Sapiens Spotlight”) and social media networks.totally refreshed and redesigned our website. We also invest in tightening our working relationshiprelationships and advisory services within the global industry-analyst community.

We work together with standards providers– such as ACORD, MISMO and MISMO,SPARK– to further enrich our offeringofferings and provide our customers with a comprehensive and innovative solutionsolutions that addressesaddress the entire breadth of their business needs.

Intellectual Property

We rely on a combination of contractual provisions and intellectual property law to protect our proprietary technology. We believe that due to the dynamic nature of the computer and software industries, copyright protection is less significant than factors such as the knowledge and experience of our management and personnel, the frequency of product enhancements and the timeliness and quality of our support services.

We seek to protect the source code of our products as trade secret information and as an unpublished copyright work, although in some cases, we agree to place our source code into escrow. We also rely on security and copy protection features in our proprietary software. We distribute our products under software license agreements whichthat grant customers a personal, non-transferable license to use our products and contain terms and conditions prohibiting the unauthorized reproduction or transfer of our products. In addition, we attempt to protect trade secrets and other proprietary information through agreements with employees, consultants and distributors. As of today, we do not hold any patents.

Our trademark rights include rights associated with our use of our trademarks, and rights obtained by registration of our trademarks. Our use and registration of our trademarks do not ensure that we have superior rights to others that may have registered or used identical or related marks on related goods or services. We have registrations for the mark “Sapiens” in USA, Benelux, Germany, Italy Switzerland and Israel, the name “RapidSure” in the USAU.S. and Canada, and the names ALIS, E-ALIS, CORE-ALIS and certain other related marks, as well as the ALIS design in the USA and Israel. The initial terms of protection for our registered trademarks range from 10 to 20 years and are renewable thereafter.

We have entered into a long term teaming agreement with Knowledge Partners International LLC (“In the third quarter of 2014, we acquired KPI”) and a long term license agreement with the Decision Model Licensing LLC, pursuant to which we were granted the right to integrateassets of The Decision Model, or TDM, which included certain intellectual property rights, including a patent held by TDM and a patent application for The Event Model, or TEM. Both TDM and TEM relate to decision management methodology which is patented inthat was invented by Larry Goldberg and Barbara Von Halle (in the US,case of TEM, IBM was a co-inventor as partwell). See “Item 4.A. History and Development of the Company– Capital Expenditures and Divestitures since January 1, 2014” and “Item 4.B. Business Overview— Sapiens DECISION solution, subject to payment of royalties on our Sapiens DECISION license revenues.Business Decision Management Solutions” for further information.

Regulatory Impact

The global financial services industry is heavily subject to significant government regulation, which is constantly changing. Financial services companies must comply with regulations, such as the Sarbanes-Oxley Act, Solvency II, Retail Distribution Review (known as RDR) in the United Kingdom, the Dodd-Frank Act and other directives regarding transparency. In addition, many individual countries have increased supervision over financial services operating in their market.

For example, regulators in Europe regulators have been very active, motivated by past financial crises and the need for pension restructuring. Distribution of policies is being optimized with the increasing use of Bank Assurance (selling of insurance through a bank’s established distribution channels), supermarkets and kiosks (insurance stands). Increased activity–such as that occurring in Europe– would generally tend to have a positive impact on the demand for our software solutions and services; nevertheless,services. Nevertheless, insurers are cautiously approaching spending increases, and while many companies have not taken proactive steps to replace their software solutions in recent years, many of them are now looking for innovative, modern replacements to meet the regulatory changes.

For further information, please see Item 5.D below, “Trend Information.”

Sapiens International Corporation N.V. (“, or Sapiens N.V.”), is the parent company of the Sapiens group of companies. Our significant subsidiaries are as follows:

Sapiens International Corporation B.V. (“, or Sapiens B.V.”): incorporated in the Netherlands and 100% owned by Sapiens N.V.

Unless otherwise indicated, the other significant subsidiaries of Sapiens listed below are 100% owned by Sapiens B.V.:

Sapiens Israel Software Systems Ltd.: incorporated in Israel

Sapiens Technologies (1982) Ltd.: incorporated in Israel

Sapiens Americas Corporation: incorporated in New York, US

SapiensU.S.
Sapiens North America Inc.: incorporated in Ontario, Canada.

Sapiens (UK) Limited: incorporated in England

Sapiens France S.A.S.: incorporated in France

Sapiens Deutschland GmbH: incorporated in Germany

(owned 100% by Sapiens Technologies (1982) Ltd.)
Sapiens Japan Co.: incorporated in Japan and 90% owned by Sapiens B.V.

Sapiens Software Solution (IDIT) Ltd. (“, or Sapiens IDIT”):IDIT: incorporated in Israel (owned 100% by Sapiens Technologies (1982) Ltd.)

IDIT Europe N.V.: incorporated in Belgium (owned 100% by Sapiens IDIT)

IDIT APAC PTY. Limited: incorporated in NSW, Australia (owned 100% by Sapiens IDIT)

Sapiens (Singapore) Insurance Solution.: incorporated in Singapore (owned 100% by Sapiens IDIT)

Sapiens Software Solution (Life and Pension) Ltd. (“, or Sapiens L&P”) :&P: incorporated in Israel (owned 100% by Sapiens Technologies (1982) Ltd.)

Sapiens (UK) Insurance Software Solutions Limited: incorporated in the UK (owned 100% by Sapiens L&P))

Sapiens NA Insurance Solutions Inc.: incorporated in Delaware, US (owned 100% by Sapiens L&P)

Formula Insurance Solutions (FIS) France: incorporated in France (owned 100% by Sapiens (UK) Insurance Software Solutions Limited)

FIS- AU Pty Limited: incorporated in Australia (owned 100% by Sapiens (UK) Insurance Software Solutions Limited.)

Neuralmatic Ltd.: incorporated in Israel (owned 66% by Sapiens L&P)

Sapiens Software Solutions (Decision) Ltd., or Sapiens Decision (owned 95.7% by Sapiens Technologies (1982) Ltd.)

Sapiens Decision NA Inc. (owned 100% by Sapiens Decision)

Knowledge Partners International LLC, or KPI (owned 100% by Sapiens Decision NA Inc.)

Sapiens (UK) Decision Limited (owned 100% by KPI)

Ibexi Solutions Private Limited: incorporated in India (owned 95% by Sapiens Technologies (1982) Ltd)

Ibexi Solutions Pte Limited: incorporated in Singapore (owned 100% by Ibexi Solutions Private Limited)

Ibexi Solutions FZE: incorporated in Dubai (owned 100% by Ibexi Solutions Private Limited)

Sapiens Software Solutions (Poland) Sp. z o.o. (formerly Insseco Sp. z o.o.): incorporated in Poland (owned 100% by Sapiens Technologies (1982) Ltd)

Maximum Processing Inc., incorporated in Florida (owned 100% bySapiens Americas Corporation)

4Sight Business Intelligence Inc., incorporated in Texas(owned 100% bySapiens Americas Corporation)

StoneRiver, Inc, incorporated in Delaware (owned 100% by Sapiens Americas Corporation)

Sapiens Software Solutions (Denmark ApS): incorporated in Denmark (owned 100% by Sapiens (UK Insurance Software Solutions Limited))

Sapiens Software Solutions Instanbul: incorporated in Turkey (owned 100% by Sapiens Technologies (1982) Ltd.)

Sapiens SA PTY Ltd.: incorporated in South Africa (owned 100% by Sapiens (UK Insurance Software Solutions Limited))

We are a member of the Formula Systems (1985) Ltd., or Formula, Group (NASDAQ: FORTY and TASE: FORT).

Formula is a holding and managing company of (currently) three publicly traded companies whichthat provide IT solutions worldwide, developing and implementing innovative, proprietary software, services and solutions, turnkey projects and outsourcing services, as well as software distribution and support.

As

Based on information provided to the Company by Formula, Formula held 23,954,094 of April 1, 2014, based on the last amendment to its Schedule 13D, filed on May 6, 2013, in which it reported ownership of 22,369,035our Common Shares, and based onor approximately 48.9% of our 46,881,450 outstanding Common Shares as of AprilMarch 1, 2014, Formula beneficially owned approximately 47.7% of our outstanding Common Shares.2017. As of AprilMarch 1, 2014,2017, Asseco beneficially owned 46.4%46.3% of the outstanding share capital of Formula.

Based on the foregoing beneficial ownership by each of Formula and Asseco, each of Formula and Asseco may be deemed to directly or indirectly (as appropriate) control us.

We lease office space, constituting our primary office locations, in the following countries: Israel, the United States, Canada, the United Kingdom, Belgium, Japan, India and Japan.Poland. The lease terms for the spaces that we currently occupy are generally five to eleven years. In Israel, basedBased on our current occupancy, we lease approximately 101,000(except for owned real property indicated below) the following amount of office space in the following locations, which constitute our primary locations:

* 10,243 square feet of such office space;space in the United States approximately 9,100 square feet; in Canada, approximately 8,900 square feet; in the United Kingdom, approximately 14,200 square feet, in Belgium, approximately 3,400 square feet and in Japan, approximately 4,400 square feet. In 2013,constitutes owned real property.

Our Israeli offices house our rent costs totaled $3.4 million, in the aggregate, for all of our leased offices. Our corporate headquarters, are located in Israel andas well as our core research and development activities are performedactivities. As of December 31, 2016, the lease at our offices across Israel. In July 2013 we consolidated all of our operations in Israel and moved to our new location in Azrieli Center in Holon. The lease at thatIsraeli facility is for a termtermof in excess of 11seven remaining years and we have an option to extend the term for an additional five years. In 2016, our rent costs totaled $6.3 million, in the aggregate, for all of our leased offices (which does not include office space leased by StoneRiver in the United States, since it was acquired after December 31, 2016). We believe that our existing facilities are adequate for our current needs.

Not applicable.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere herein. Our financial statements have been prepared in accordance with U.S. GAAP. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. As a result of many factors, such as those set forth under Item 3.D “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in the Introduction to this annual report,our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

We are a leading global provider of software solutions for the insurance industry, with an emerging focus on the broader financial services sector.Wesector. We offer core software solutions for Life, Pension & Annuities (L&P) and Property & Casualty/General Insurance (P&C), and Life, Annuities, & Pensions (L&P) providers, allowing them to manage policy administration, claims management and billing functions. We also provide record-keeping software solutions for Retirement Services providers. In addition, we offer a variety of other technology-based solutions that enable organizations to deploy business logic and comply with policies and regulations across their organizations. Our solutions enable customers to respond to evolving market needs and regulatory changes, while improving the efficiency of their core operations, thereby increasing revenues and reducing costs.

We derive our revenues principally from the sale, implementation, maintenance and support of our solutions and from the provision ofproviding consulting and other services related to our products. Revenues are comprised primarily of revenues from services, including systems integration and implementation and product maintenance and support, and from licenses of our products.

We also generate revenues from other customers unrelated to the financial services industry, which use our legacy solution based on e-Merge software. For these customers, except for the difference in the target industry, revenues are recognized from the compositionsale of revenues described inpackage-based software solutions that include the preceding paragraph (that is,grant of a license to use our product, implementation and customization services related to the product sold and maintenance and support services and licenses) is applicable as well.follow similar methods of project delivery. See “Critical Accounting Policies and Estimates” below for a discussion of how we account for our revenues and their associated costs.

Key Business Metrics

We use certain key financial metrics to evaluate and manage our business and that we believe are useful for investors, including select GAAP and non-GAAP metrics. These metrics include, most prominently, our operating cash flow.

Operating Cash Flows

We monitor our cash flows from operating activities, or operating cash flows, as a key measure of our overall business performance, enabling us to analyze our financial performance without the effects of certain non-cash items such as depreciation and amortization and stock-based compensation expenses. Additionally, operating cash flows take into account the impact of changes in deferred revenue, which reflects the receipt of cash payment for products and services before they are recognized as revenue. Our operating cash flows are impacted by changes in deferred revenue and collections of accounts receivable. As a result, our operating cash flows may fluctuate significantly on a quarterly basis.

Our operating cash flows were $21.6 million, $40.4 million and $26.0 million for the years ended December 31, 2014, 2015 and 2016, respectively. For a further discussion of our operating cash flows, see “Item 5.B. Liquidity and Capital Resources‒Cash Flows from Operating Activities” below in this annual report.

GAAP Results of Operations

The following tables set forth certain data from our results of operations for the years ended December 31, 2014, 2015 and 2016, as well as such data as a percentage of our revenues for those years. The data has been derived from our audited consolidated financial statements included in this annual report. The operating results for the below years should not be considered indicative of results for any future period. This information should be read in conjunction with the audited consolidated financial statements and notes thereto included in this annual report.

Comparison of the years ended December 31, 2015 and 2016

Revenues

Please refer to “Critical Accounting Policies and Estimates”below in this Item 5.A for a description of our accounting policies related to revenue recognition.

Our overall revenues increased by $30.6 million, or 16.5%, to $216.2 million for the year ended December 31, 2016 from $185.6 million for the year ended December 31, 2015, as shown in the table below:

Revenues are derived primarily from implementation of our solutions and post-implementation services such as ongoing support and maintenance and professional services as part of an overall solution that we offer to our customers. The increase in revenues for the year ended December 31, 2016 is attributed to organic growth of approximately $38.0 million, primarily due to implementation and professional services generated from existing and new customers, which were offset in part, in an amount of $4.6 million, due to the devaluation of foreign currencies (in which revenues were received) relative to the U.S. dollar. The increase was furthermore due to $3.5 million of revenues attributable to MaxPro and 4Sight, the results of which were included in our consolidated results for the first time for the year ended December 31, 2016.

Revenues by geographical region

The dollar amount and percentage share of our revenues attributable to each of the geographical regions in which we conduct our operations for the year ended December 31, 2015 and 2016, respectively, as well as the percentage change between such periods, were as follows:

*Revenue amounts for North America that are shown in the above table consist of revenues from the United States, except for approximately $0.5 million and $0.9 million of revenues generated in Canada in the years ended December 31, 2015 and 2016, respectively.

Our revenues in North America increased by $13.1 million, or 21.4%, to $74.5 million for the year ended December 31, 2016 from $61.3 million for the year ended December 31, 2015, reflectingan increase of $9.6 million in revenues from existing and new customers, as well as an increase of $3.5 million of revenues attributable to MaxPro and 4Sight, the results of which were included in our consolidated results for the first time for the year ended December 31, 2016.

Our revenues in the United Kingdom increased by $4.3 million, or 10.1%, to $46.9 million in the year ended December 31, 2016 from $42.6 million in the year ended December 31, 2015. The increase was attributable to an increase of $10.52 million in revenues from our existing and new customers, offset by $6.2 million due to devaluation of the GBP relative to the U.S. dollar resulting from the decision of United Kingdom to exit the European Union.

Our revenues in the Rest of Europe increased by $2.6 million, or 8.0%, to $35.5 million in the year ended December 31, 2016 from $32.9 million in the year ended December 31, 2015. The increase was attributable to an increase in revenues from our existing and new customers.

Our revenues in Israel increased by $0.8 million, or 2.7%, to $29.1 million in the year ended December 31, 2016 from $28.3 million in the year ended December 31, 2015.

Our revenues in Asia Pacific, or APAC, increased by $9.7 million, or 47.3%, to $30.2 million in the year ended December 31, 2016 from $20.5 million in the year ended December 31, 2015. The increase was attributable to an increase of $7.7 million in revenues from our existing and new customers in Japan, as well as an increase of $2.0 million due to the appreciation of foreign currencies (primarily the Japanese yen) relative to the U.S. dollar.

Cost of Revenues

Our cost of revenues for the years ended December 31, 2015 and 2016, respectively (both in absolute terms and as a percentage of our overall revenues), as well as the percentage change between those years, are provided in the below table:

Our cost of revenues increased by $19.2 million, or 17.3%, to $130.4 million for the year ended December 31, 2016, ascompared to $111.2million for the year ended December 31, 2015. Cost of revenues increased as a percentage of our revenues during the year ended December 31, 2016, to 60.3% as compared to 59.9% during the year ended December 31, 2015. The increase in absolute cost of revenues was related to the increase in revenues during the year ended December 31, 2016 relative to the year ended December 31, 2015, including due to the inclusion of MaxPro and 4Sight in our consolidated results for the first time for the year ended December 31, 2016. The level of our cost of revenues as a percentage of our revenues remained relatively stable in 2016. Certain projects in certain non-central locations that are not part of our core insurance business had a lower degree of profitability, which contributed to the slight increase in our cost of revenues as a percentage of our revenues. In addition, the appreciation of the New Israeli Shekel relative to the U.S. dollar also increased our cost of revenues as a percentage of our revenues as recorded in U.S. dollars for the year ended December 31, 2016.

Gross profit

Our gross profit for the years ended December 31, 2015 and 2016, respectively (both in absolute terms and as a percentage of our overall revenues), as well as the percentage change between those periods, are provided in the below table:

Our gross profit increased by $11.4 million, or 15.2%, to $85.8 million for the year ended December 31, 2016, as compared to $74.4 million for theyear ended December 31, 2015. This increase was primarily attributable to the absolute increase in our revenues by $30.6 million for the year ended December 31, 2016 compared to theyear ended December 31, 2015. The decrease in gross profit as a percentage of revenues for the year ended December 31, 2016 was due to the factors described above with respect to the increase in our cost of revenues as a percentage of revenues.

Operating expenses

The amount of each category of operating expense for the years ended December 31, 2015 and 2016, respectively, as well as the percentage change in each such expense category between such periods, and the percentage of our revenues constituted by our total operating expenses in each such period, is provided in the below table:

Research and development expenses, net increased by 61.1% for the year ended December 31, 2016 compared to theyear ended December 31, 2015.This increase was attributable to our greater level of investment in research and development activities in support of the expansion of our offering of solutions in the year ended December 31, 2016, including due to the inclusion of MaxPro and 4Sight in our consolidated results for the first time for the year ended December 31, 2016. Our gross research anddevelopment expenses (before capitalization of eligible software development costs) for the year ended December 31, 2016 totaled $22.0 million compared to $16.2 million in the year ended December 31, 2015. Such increase of 35.8% was attributable to the same factor related to the increase in our net research and development expenses.Capitalization of software development costs accounted for $5.5 million of our research and development expenses, net for the year ended December 31, 2016 compared to $6.0 million in the year ended December 31, 2015, constituting a non-material change from one such year to the other.

Selling, marketing, general and administrative, or SMG&A, expenses were $44.5 million for the year ended December 31, 2016 compared to $39.9 million in theyear ended December 31, 2015.The increase was attributable to a greater investment in our sales and marketing organizations team and our increased marketing expenses to support our brands and expand sales opportunities, including due to the inclusion of MaxPro and 4Sight in our consolidated results for the first time for the year ended December 31, 2016, which was evidenced by the 16.5% increase in our revenues in the year ended December 31, 2016. As a percentage of total revenues, our SMG&A decreased from 21.5% in the year ended December 31, 2015 to 20.6% for the year ended December 31, 2016, constituting a non-material change from one such period to the other.

Operating income

Operating income and operating income as a percentage of total revenues for the years ended December 31, 2015 and 2016, respectively, as well as the percentage change in operating income between such periods, were as follows: