BPCE - 2020 Universal Registration Document

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FINANCIAL REPORT

IFRS CONSOLIDATED FINANCIAL STATEMENTS OF GROUPE BPCE AS AT DECEMBER 31, 2020

At each balance sheet date, the Group tests the adequacy of value and deferredprofit sharing is lower than the fair value of its recognized insurance liabilities based on the estimated the technical reserves, the shortfall is recognized in income.

present value of future cash flows from its insurancepolicies and investment contracts containing a discretionary profit sharing feature. The liability adequacy test shows the economic value of the liabilities correspondingto the average derived from stochasticanalyses. If the sum of the surrender

Groupe BPCE has decided to apply the option available under ANC recommendation No. 2017-02 of presenting the insurance businesses separately on the balance sheet and income statement.

NOTES TO THE BALANCE SHEET

9.1

Accounting principles The “Insurancebusiness investments”line on the assets side of the balance sheet includes insurance business assets representative of: financial investments ( i.e. in financial instruments) including • advances to policyholders; financial investments in unit-linked products; • derivatives; • revaluation differences on interest rate risk-hedged • portfolios. Other balances related to the insurance business are aggregated with the balances related to the other balance sheet items by type. Accounting principles Loans and receivables due from banks and customers and certain securitiesnot listed in an activemarket are recordedin “Insurance business investments”. Loans and receivables are initially recorded at fair value plus any costs directly related to their issuance, less any proceeds directly attributableto issuance.On subsequentbalancesheet dates, they are measuredat amortizedcost using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash flows (payments or receipts) to the value of the loan at inception.This rate includesany discounts recordedin respect of loans grantedat below-marketrates, as well as any external transaction income or costs directly related to the issue of the loans, which are treated as an adjustmentto the effective yield on the loan. No internal cost is included in the calculation of amortized cost. When loans are extended under conditions that are less favorable than market conditions,a discount correspondingto the differencebetween the nominal value of the loan and the sum of future cash flows discounted at the market interest rate is deducted from the nominal value of the loan. The market interest rate is the rate applied by the vast majority of local financial institutions at a given time for instrumentsand counterparties with similar characteristics. A discount is applied to loans restructured following a loss event as defined by IAS 39, to reflect the differencebetween the present value of the contractual cash flows at inception and the present value of expected principal and interest repaymentsafter restructuring.The discount rate used is the original effective interest rate. This discount is expensed to “Cost of credit risk” (for the insurer’snet share) in the income INSURANCE BUSINESS INVESTMENTS

On the liabilities side of the balance sheet, the “Liabilities related to insurance policies” line consists of: the technical reserves of insurance companies (as defined • in Appendix A to IFRS 4); insurance and reinsurance liabilities, including amounts due • to policyholders; insurance-related derivatives; • shares of the revaluation of interest rate risk-hedged • portfolios; the deferred profit sharing liability. •

9.1.1

statement and offset against the corresponding outstanding on the balance sheet. It is written back to net interest income in the income statement over the life of the loan using an actuarial method. The restructured loan is reclassified as performing based on expert opinion when no uncertainty remains as to the borrower’s capacity to honor the commitment. External costs consist primarily of commissionspaid to third parties in connection with the arrangement of loans. They essentially comprise commissions paid to business providers. Income directly attributable to the issuance of new loans principally comprises set-up fees charged to customers, rebilled costs and commitment fees (if it is more probable than improbable that the loan will be drawn down). Commitment fees received that will not result in any drawdowns are apportioned on a straight-line basis over the life of the commitment. Expenses and incomearisingon loanswith a termof less than one year at inceptionare deferred on a pro rata basis with no recalculation of the effective interest rate. For floating or adjustable rate loans, the effective interest rate is adjusted at each rate refixing date. Securities recorded as assets are classified into four categories as defined by IAS 39: financial assets at fair value through profit or loss; • held-to-maturity financial assets; • loans and receivables; • available-for-sale financial assets. •

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE

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