BPCE - 2018 Risk report / Pillar III

11 NON-COMPLIANCE, SECURITY AND OPERATIONAL RISKS Technical Insurance risks

COUNTERPARTY RISK The counterpartyrisk to which Natixis Assurances is exposed mainly concerns reinsurance counterparties. A sound reinsurer selection process is keyto managing thisrisk: Natixis Assurances deals with reinsurers that are subject to a ● financial rating by at least one of the three internationally recognized rating agencies, and that have a Standard & Poor’s equivalent ratingof A- or higher; reliance on multiple reinsurers ensures counterpartydiversification ● and limits counterparty risk. In addition to weekly and monthly monitoring of each region and country, Coface has implemented a system based on: the centralizationof reservesfor claims exceedinga certainamount ● per debtor which are then analyzed ex-post to improve the information, underwriting and collection activity’s performance; oversight of underwriting risk, which, above a given level of ● DRA-based outstandings, generates an approval and the establishment of an overall budget by Coface’s Underwriting department; and a DRA-based risk assessment system covering all debtors. ● Coface maintains a diversified credit risk portfolio, in order to minimize the risk of debtor default, a slowdown in a given business sector, or an adverse event in a given country having a disproportionate impact on its overall loss ratio. The Insurance policies also contain clauses allowing credit limits to be changed mid-contract. Furthermore, the fact that the great majority of Coface’s risks are short-term(95% of total outstandings)allows it to reduce the risk covered for a debtor or a group of debtors relatively quickly and to anticipatea decreasein their solvency. Level 2 controls are set up to ensure that the Group’s credit risk standards are observed. DIVERSIFICATION OF THE CREDIT RISK PORTFOLIO

risk of loss: each time inventoryis taken, an actuarialassessmentof ● the reserves for claims to be paid is conducted based on methods widely recognized by theprofessionand required by the regulator; catastrophe risk: catastrophe risk is the exposure to an event of ● significant magnitude generating a multitude of claims (storms, civil liabilityrisk, etc.). This risk is thereforereinsuredeither through the governmentin the event of a natural disaster or an attack, for example,or throughprivate reinsurers,specificallyin the event of a storm or acivil liability claim, or through reinsurance pools. Coface Throughits activities,Coface is exposedto five types of risk: strategic risk, credit risk, financial risk, operational risk and non-compliance risk, and reinsurance risk. The two main types of risk are credit risk and financial risk. CREDIT RISK Credit risk is defined as the risk of loss, due to non-payment by a debtor, of a receivable owed to a policyholder of the Group. Coface manages credit risk through a number of procedures, whose scope includes the approval of the terms of product policies, pricing, monitoring of credit risk hedges and portfolio diversification.Credit risk can be exacerbated due to the concentration of exposure (country,sector, debtor, etc.) and is modeled as premiumrisk, reserve risk and disaster risk. Traditionally, Coface makes a distinction between frequency risk and event risk: frequency risk represents the risk of a sudden material increase in ● delinquencyby a large number of debtors. This risk is measuredfor each region and country by monitoring the instantaneous loss ratio (1) and the monthly indicator that breaks down the changes in domestic/exportcredit by DRA (2) and businesssector, by acceptance rate on the DRA scale, or by product line (deposit, single risks). As regards exposure and portfolio monitoring, the Group has set up detailed risk oversight based on a sector/country; breakdown. Accordingly, delinquent payments are analyzed weekly by the Senior Management Committee and monthly by Coface’s Underwriting Committee. This risk is mitigated by Coface Re SA reinsurance. Loss ratios for the different underwriting regions are also monitored at the consolidated Coface level; event risk representsthe risk of abnormallyhigh losses recordedfor ● the same debtor or group of debtors, or of an accumulation of losses for the same country. Event risk is covered by Coface Re SA reinsurance.

The instantaneous loss ratio is a weekly indicator that reproduces the change in the loss ratio. It is monitored for each region and each country and is reported weekly by Coface, particularly (1) so that underwriters can monitor the change in their portfolio and detect any deterioration in order to introduce corrective actions as early as possible. Debtor Risk Assessment: Assessment of debtors using a Group-wide scale. (2)

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Risk Report Pillar III 2018