GROUPAMA / 2018 Registration document

5 RISK FACTORS AND RISK MANAGEMENT RISK FACTORS For 2018, there are several geopolitical and economic matters to report: trade tensions between the world’s largest economies, the ❯ United States andChina, worsened; global growth fell from 3.7% in 2017 to 3.1%; ❯ the political and military conflicts in the Middle East and Africa ❯ continued with their consequences on, among other things, migration flows to Europe; the increase in power of populist, xenophobic parties in the EU ❯ countries; the coming to power in Italy in June 2018of the populist alliance ❯ government between the League and the FiveStar Movement; continuinguncertaintiesand tensions regarding the construction ❯ of Europe; the last quarter of the year marked by uncertainties related to Brexit for both the United Kingdom and its European partners; the “yellow vests” movement started in France in ❯ November 2018 with significant impacts on the country’s economy; an upsurge in cyberattacks; ❯ maintaining of an accommodativemonetary policy (low rates), ❯ but exiting from it presents unknowns with the perception of inflationary tensions. Rising political uncertainty and increased country-specific vulnerabilities led to episodes of increased instability in financial markets in 2018, particularly atthe endof the year (1) . The low rates of return on financial investments and the dependence of the Group’s businesses on consumer behaviour and confidencehave negativelyaffected the Group’s revenues and net income. Financing terms 5.1.2.2 Although the low level of rates is favourable for issuers, the overall decrease in ongoing risks among credit institutions has brought about more restrictive terms for granting loans. At the same time, the succession of unfavourable events for investors in subordinated debt (illiquidity, trading conditions, “bail-in”) implies more difficult issueconditions. Groupama needs liquidity specifically to pay its operating expenses, claims settlements, contract redemptions and its financial expenses. The Group’s primary sources of liquidity are generated by the insurance business, including insurance premiums, annuity products, reserve funds, asset management commissions, cash flow generated by its investment assets as well as by cash and other balance sheet equivalents. These sources of liquidity are supplemented by subordinated debts (TSS, TSDI, and TSR) and

credit facilities (see Notes 21 – Total group's equity and – 24 Financing debts ofthe consolidated financial statements). In addition, the mutual certificates issued by the regional mutuals, in place since 2016, are an additional source of funding for the Group (€540 million at theend of 2018). If current resources were unable to meet the Group’s needs, Groupama would have to identify alternative financing methods that depend on factors that are both external (including market conditions, credit availability and volume of trade) and internal to the Group (financial rating, borrowingcosts, and perceptionsof the short-term andlong-termfinancial outlook). Although Groupama has put proactive management of capital in place, by carrying out exchangeson its financial debts and actively managing its credit line, the Group may nevertheless still not be able to meet its liquidity needs or obtain financingunder favourable terms in theevent ofsignificantstress on liquidity. Insufficient liquidity and/or prolongedrestrictedaccess to financing could materially affect the Group’s business, net income and financial position. However, this restored solvency 5.1.2.3 situation remains sensitive to capital market movements and evolving regulatory interpretations Groupama’sentities involved in the insurancebusiness are subject to the regulatory capital requirements of various local regulators. These capital requirements imposed on insurance companies generally depend on the design of the products, underwriting volumes, assets invested, commitments,reserves and changes in the capital markets, specifically with regard to interest rates and financial markets, subject to specific provisions applicable in certain countries. These regulatory requirementsmay be tightened – even significantly – during periods of volatility and downturn in the financialmarkets and/or when interestrates fall. The Group’s solvency margin is particularly sensitive to conditions on the capital markets (equities, property, credit, and interest rates). Prolonged unfavourable conditions on the capital markets could adverselyimpact the Group’s solvency margin further. The Group monitors its solvency margin and its insurance disintermediationequity on an ongoing basis to ensure compliance with current regulations and to ensure that GroupamaAssurances Mutuelles and its subsidiaries are operating in an appropriate competitive environment. Insurance regulators have broad discretion to interpret, apply, and implementapplicable rules with respect to solvency and regulatory capital requirements.If regulatorycapital requirementsare not met, regulators may impose more conservative calculation methods or any other similar measures to significantly strengthen core equity requirements orrestrict companies’ activities.

(1)

UN’s “World EconomicSituation & Prospects for2019” – 

EconomicAnalysisand Policy Division.

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REGISTRATION DOCUMENT 2018 - GROUPAMA ASSURANCES MUTUELLES

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