BPCE - 2019 RISK REPORT Pillar III

OPERATIONAL RISKS

INSURANCE RISKS

The following chart analyzes the breakdown of obligors by total credit risk exposure incurred by Coface at December 31, 2019:

diversification in 2019, mainly in emerging countries, while maintaining exposures to Asia and North America in order to capture higher rates of return and to accommodate the various interest rate hikes or reduce forex hedging costs. Interest rate hedges had been set up in 2018 for some European sovereign debt exposures and were sold in Q1 2019; foreign exchange risk: the majority of Coface’s investment • instruments are denominated in euros. Subsidiaries and branches using other currencies must observe the same principles of congruence. In 2019, Coface systematically set up hedges against the euro in the portfolio combining its European entities, to protect investments in bonds denominated mostly in dollars, Pound sterling, Canadian dollars and Australian dollars; equity risk: exposure is capped at less than 10% of the • portfolio and is concentrated in the euro zone, in connection with its core business. At December 31, 2019, exchange-traded equities represented 6% of the short-term investment portfolio. 50% of the portfolio was hedged through the purchase of Eurostoxx 50 put options. These hedges can be adjusted in line with investments and the amount of unrealized capital gains or losses on equity holdings; counterparty risk: maximum exposure to any given • counterparty is set at 5% of assets under management, with exceptional exemptions for short-term exposures. More than 92% of bond holdings are Investment Grade and therefore have a median rating equal to at least BBB-; liquidity risk: 48% of the bond portfolio had maturities of less • than 3 years at December 31, 2019. The vast majority of the portfolio is listed on OECD markets and carries a liquidity risk that is currently considered as low. Level 2 controls on compliance with Coface’s investment policy are also carried out. In 2019, CEGC issued €250 million in subordinated debt, classified as Tier 2 capital, to diversify its own funds eligible for the Solvency Capital Requirement. UNDERWRITING RISK Underwriting risk is the main risk incurred by CEGC. It is essentially a counterparty risk, as the commitments given by CEGC to beneficiaries of guarantees result in direct exposure to individual or corporate insured parties. These regulated commitments, provisioned under liabilities in the balance sheet, amounted to €2.21 billion at December 31, 2019 (up 10% year-on-year). The total change can be attributed to the increase in guaranteed home loans.

€200m and more 5.5 %

€1 - €100k 7.2 % €101 - €200k 4.7 %

€50m - €200m 8.4 %

€201 - €400k 6.4 %

€401 - €800k 8.1 %

€801 - €1,500k 8.6 %

€5m - €50m 32.6 %

€1,500k - €5m 18.6 %

FINANCIAL RISK Coface has implemented an investment policy that incorporates the management of financial risk through the definition of its strategic allocation, regulations governing insurance companies and constraints related to the management of its liabilities. Management of financial risks is thus based on a rigorous system of standards and controls which is regularly reviewed: interest rate risk and credit risk: the majority of Coface’s • allocations are in fixed-income products, ensuring stable and recurring revenues. The modified duration of the bond portfolio has been deliberately capped at 4 and stood at 3.9 at December 31, 2019. Exposures to Greek sovereign debt were once again nil. The Group expanded its international Compagnie Européenne de Garanties et de Cautions is the Group’s Security and Guarantee insurance platform. It is exposed to underwriting risk, market risk, reinsurer default risk and operational risk. In 2019 underwriting risk was managed effectively, reflected by a loss ratio of 23% of earned premiums (gross reinsurance ratio). The loss ratio on individual loan guarantees was once again very low this year, amid very robust nationwide home loan origination. Under the Solvency II supervisory regime, which came into effect on January 1, 2016, CEGC uses a partial internal model approved by the ACPR. CEGC therefore meets the specific requirement applicable to mortgage loan guarantors to improve the robustness of the French banking system for home loans. CEGC

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RISK REPORT PILLAR III 2019 | GROUPE BPCE