BPCE - 2018 Risk report / Pillar III

NON-COMPLIANCE, SECURITY AND OPERATIONAL RISKS Technical Insurance risks

Technical Insurance risks 11.7

Insurance risk is the risk of any difference between expected and actual claims. Depending on the Insurance product in question, the risk varies accordingto macroeconomicchanges,changesin customer behavior, changes in public healthcare policy, pandemics, accidents and natural disasters (such as earthquakes, industrial accidents or acts of terrorismor war). The Credit Insuranceactivity is also exposed to credit risk. Insurancerisk managementrequires solid comprehensionof technical Insurance risks in order to meet commitments to insurers and policyholders.Particular attention must also be paid to the financial risks borne throughassets held to backcommitments. In addition to protectingthe balance sheet and income statementof Insurance companies, the aim is to guarantee the solvency and liquidity of the Insurance companies. Natixis Assurancesis the Insurance division of the Natixis group and is divided intotwo businesses: the personal Insurance business, focused on developing portfolios ● of life insurance and endowment policies for investment and retirement purposes, as well as provident Insurance portfolios; the non-life insurance business, focused on developing portfolios ● for auto and multi-risk home Insurance, personal accident Insurance, legal protection, healthcare and property and casualty Insurance. Given the predominance of the Investment Solutions activity, the main risks to which Natixis Assurances is exposed are financial. The company is also exposed to underwritingrisks (life and non-life), as well as counterparty risk. MARKET RISK Market risk is in large part borne by the subsidiary BPCE Vie on the financial assets that underpin its capital guarantee and guaranteed return products (euro-denominated policies: € 53.8 billion onthe main fund balance sheet). The companyis exposedto asset impairmentrisk (fall in the equity or real estate market, widening spreads, interest rate hikes) and to the risk of lower interest rates which would generate insufficient income to meet its capital and return guarantees.To deal with this risk, BPCE Vie has only sold policieswith a minimumguaranteedreturn in recent years: more than 94% of the policies have a zero minimum guaranteed return. The minimum guaranteedreturn averages0.15%. To manage market risk, sources of return have been diversified, namely via investmentsin new asset classes (fundingof the economy, low-volatility equities, etc.). This diversification is governed by a strategicallocation,defined on a yearly basis, that takes into account regulatoryconstraints,commitmentsto policyholdersand commercial requirements. Natixis Assurances

To this end, Groupe BPCE’s companies have set up effective risk measurement, reporting and supervisory procedures. The extensive preparationsthat went into these procedureshave allowed the Group to meet the new regulatory requirements that came into effect on January 1, 2016 with the application of Solvency II (Pillar I Quantitative Solvency Requirements, Pillar II Governance & ORSA, Pillar III Prudential reporting and public information). The Group created an Insurance Risk function in 2011. This function meets the requirements set out in the Financial Conglomerates Directive (FICOD) 2002/87/EC and its transposition in France by the Ministerial Order of November 3, 2014 governing the additional supervision of financial conglomerates, through the cross-divisional Group Insurancerisk monitoringsystem. CREDIT RISK Credit risk is monitored and managed in compliance with Natixis Assurances’standardsand internallimits. At December 31, 2018, 63% of the fixed-incomeportfolio was invested in securities rated higher than A-. LIFE INSURANCE UNDERWRITING RISK The main life insuranceunderwritingrisk is related to the Investment Solutions activity. In an especiallylow interest-rateenvironment,the biggest risk is that of fewer redemptionsand/or excessive inflows in euro-denominatedvehicles, as reinvestmentsin securities dilute the main fund’s return.Measureshave been taken to prioritizeunit-linked inflows, such as the creation of unit-linked products and communicationcampaigns,and a communicationcampaigntargeting customers and the network. NON-LIFE INSURANCE UNDERWRITING RISK Natixis Assurances’ non-life insurance underwriting risk is predominantlyborne by its subsidiaryBPCE Assurances: premium risk: in order to ensure that the premiums paid by ● policyholders match the transferred risk, BPCE Assurances implementeda portfolio supervision policy whereby each policy is given a score based on its track record over three years. Factoredin are types of claims, numberof claims, their cost and other variables specific to the activity in question (degree of liability and bonuses/penaltiesfor auto Insurance,for instance).This supervision policy also helps to detect potential risks arising from large claims, and to arrangeadequate reinsurance coverage;

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Risk Report Pillar III 2018