GROUPAMA / 2018 Registration document

5 RISK FACTORS AND RISK MANAGEMENT RISK FACTORS 5.1 Groupama draws attention to the risks described below. These risks could materially affect the Company’s activities, consolidated net income, financial position, solvency margin and its ability to achieve estimatedresults. However, the descriptionof risks is not exhaustive.Additional risks and uncertainties not currently known or deemed to be minor could, in the future, prove to be major and materially affect Groupama. The risks described below are inherent to the nature of the Group’s activities and to the economic,competitiveand regulatory environmentin whichGroupamaoperates. Given the multiple possibilities and uncertainties relating to these risks, the impact of the identified risks cannot always be accurately quantified. However, in order to prevent, detect and manage risks on an ongoing basis, Groupama has implemented numerous risk management processes, procedures and controls. As with any control and monitoring system, this should not, however, be considered an absolute guarantee. Rather, it offers reasonable assurance that operationsare secureand results are managed. The organisation of the risk management system is described in detail in sections 3.4.3 and 5.2 of this registration document. In addition, if the risks described in section 5.1result in a quantifiable financial impact or a material contingent liability, these are reflected in the Group’s combined and consolidatedfinancial statements, in accordancewith applicableIFRS accounting standards. The risks presented below are categorised based on their origin. They reflect the current view of the governing bodies as to the potential impactof each riskfor the Groupama group. RISK FACTORS

and impact, but also in respect of insurers’ current and future activities andincome. The potential increase in compensationand claims, the emergence of new kinds of liability, growing uncertainty as to the volume and level of maximum losses may, for example, have a material impact on Groupama’s business activities, consolidated net income and liquidity. Through the diversificationof its portfolio, the individual selectionof risks accepted, the limitation of its exposure to risks (specifically in respect of natural disasters), the managementof overlapping risks and reliance on reinsurancewith, for example in storms, a level of coverage against the occurrence of a bicentenary event and a retention equivalent to a 10-year return period, Groupama significantlyreduces the negative impacts of its exposure. In 2017, the exceptional weather loss experience related to Hurricane Irma had only a limited impact on the accounts, as the reinsurance protection schemes paid off. In 2018, lower-intensity but numerous events that affected mainland France weighed more heavily onthe results. Despitethe carefulattentionpaid to the monitoringof theserisks and the risk control systems put into place, Groupama,because of its historicalcustomerbase and the abundanceof local climateevents, might thereforeexperiencemajor losses in the future on such risks, which would have a substantialnegative impact on its positionand net income. Inadequacy of reserves to address 5.1.1.3 losses in the non-life segments The principles and rules for life and non-life technical reserves are presented in section 3.12 – Technical operations of the consolidated financial statements; their breakdown is detailed in Note 26 tothe consolidated financial statements. In accordance with the sector’s practices and current accounting and regulatory requirements,Groupama establishes reserves both for claims and claims expenses relating to the non-life segments that it insures. However, reserves do not represent an exact calculation of the corresponding liability but, instead, estimates of the claims amount, on a given date, using actuarial projection techniques. These reserve estimates are projections of the likely cost of ultimately settling and administering claims, based on our assessment of facts and circumstances known at that time, an analysis of historical settlement patterns, estimates of trends in claims’ severity and frequency, legal theories of liability and other factors. However,claims reserves are subject to change due to the number of variables that affect the ultimate cost of claims. These factors may be varied, such as the intrinsic change in claims, regulatory changes, judicial trends, changes in interest rates used to discount the annuity reserves, gaps inherent in the time lag between the occurrence of the insured event, notification of the claim andfinal settlementof expenses incurredin resolving claims.

5.1.1

RISK FACTORS RELATING TO THE INSURANCE BUSINESS

5.1.1.1

Cyclical nature of the non-life

segment The cycles associated with the non-life insurance business are of varying length. They may involve unpredictablecatastrophicevents or be impacted by general economic conditions and may result in alternating periods of intense rate competition and, conversely, rate increases. These situations, which may result in lower premium income over the course of certain cycles, may lead to volatility and a worsening of the Group’snet incomeand financialposition.

Natural and human disasters 5.1.1.2.

The increasing number of climate events, on a global level, as well as other risks, such as acts of terrorism, explosions, the appearance and development of pandemics such as the H5N1 and H1N1 viruses and the impact of global warming may have major consequences,not only in terms of their immediatedamage

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REGISTRATION DOCUMENT 2018 - GROUPAMA ASSURANCES MUTUELLES