BPCE - 2019 Universal Registration Document

6

RISK REPORT

OPERATIONAL RISKS

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. CEGC 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. 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.

CEGC OUTSTANDINGS (in millions of euros)

Change December 2019 versus December 2018

CEGC activities

December 2019

Individual customers

1,982

10.3% 12.8% 13.4% 17.6% 17.4%

Single-family home builders

24 16 35 18 78 50

Property administrators – Realtors

Corporates

Real estate developers Professional customers

4.1% 5.3%

Social economy – Social housing

Run-off activities

9

(9.6%) 10.0%

TOTAL

2,211

656

UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE

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