BPCE - 2019 RISK REPORT Pillar III

12

OPERATIONAL RISKS

INSURANCE RISKS

NON-LIFE INSURANCE UNDERWRITING RISK The non-life insurance underwriting risk to which Natixis Assurances is exposed is borne by its subsidiary BPCE Assurances: premium risk: to ensure that the premiums paid by the • policyholders match the transferred risk, BPCE Assurances implemented a portfolio monitoring policy whereby each policy is given a score based on its track record over three years. The score factors in types of claims, number of claims, their cost and other variables specific to the activity in question (degree of liability and bonuses/penalties for auto insurance, for instance). This supervision policy also helps to detect potential risks arising from large claims, and to arrange adequate reinsurance coverage; risk of loss: each time inventory is taken, an actuarial • assessment of the reserves for claims payable is conducted based on methods widely recognized by the profession and required by the regulator; Through its activities, Coface is exposed to five main types of risk (strategic risk, credit risk, financial risk, operational and non-compliance risk, and reinsurance risk), of which the two principal risks are credit risk and financial risk. CREDIT RISK Credit risk is defined as the risk of loss, due to non-payment by an obligor, 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 exposures (countries, sectors, obligors, etc.). Traditionally, Coface makes a distinction between frequency risk and event risk: frequency risk is the risk of a sudden material increase in • delinquency by a large number of obligors. This risk is measured for each region and country by monitoring the instantaneous loss ratio. As regards exposure and portfolio monitoring, the Group has set up detailed risk oversight. Accordingly, delinquent payments are analyzed weekly by the Senior Management Committee and monthly by Coface’s Underwriting Committee. Loss ratios for the different underwriting regions are also monitored at the consolidated Coface level; event risk is the risk of abnormally high losses recorded for • the same obligor or group of obligors, or of an accumulation of Coface

catastrophe risk: catastrophe risk is the exposure to an event • of significant magnitude generating a multitude of claims (storm, risk of civil liability, etc.). This risk is therefore reinsured either through the government in the event of a natural disaster or an attack, for example, or through private reinsurers, specifically in the event of a storm or a civil liability claim, or through reinsurance pools. COUNTERPARTY RISK The counterparty risk to which Natixis Assurances is exposed mainly concerns reinsurance counterparties. The selection of reinsurers is a key component of managing this risk: 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 rating of A- or higher; using several reinsurers ensures counterparty diversification • and limits counterparty risk. losses for the same country. Event risk is covered by Coface Re SA reinsurance. In addition to weekly and monthly monitoring of each region and country, Coface has implemented a system based on: the centralization of reserves for claims exceeding a certain • amount per obligor, which are then analyzed ex-post to improve the performance of the information, underwriting and collection business; oversight of underwriting risk, which, above a given level of • Debtor Risk Assessment (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 obligors. • DIVERSIFICATION OF THE CREDIT RISK PORTFOLIO 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. Insurance policies also contain clauses allowing credit limits to be changed mid-contract. Furthermore, the fact that the great majority of Coface’s risks is short-term (95% of total outstandings) allows it to reduce the risk covered for an obligor or group of obligors relatively quickly and to anticipate a decrease in their solvency. Level 2 controls are set up to ensure that the Group’s credit risk standards are observed.

218

RISK REPORT PILLAR III 2019 | GROUPE BPCE

www.groupebpce.com