GROUPAMA / 2018 Registration document

5 RISK FACTORS AND RISK MANAGEMENT RISK FACTORS Impairment of goodwill, acceleration 5.1.2.6 of the amortisation of Deferred Acquisition Costs (DAC) and Value of Business in Force and/or the derecognition of deferred tax assets and deferred profit sharing Changes in business and market conditionsmay affect the amount of goodwill carried on Groupama’sbalance sheet, the pattern and pace of DAC and VIF amortisationand the valuationof deferred tax assets. The value of certain of the Group’s acquisitions,particularly in the areas most affected by the recent economic and financial crisis, depends directly on the position of the financial markets and level of operating performance.Impairmentsof goodwill on certain Eastern European countries, Greece (2012), and more recently (2016 and June 2017)Turkey were recorded.The impairmenttests conducted as at 31 December 2018 did not result in the recognition ofadditional impairment. In the future, the downturn in operating performance of the Group’s acquisitions or in market conditions, such as a continued environmentof low rates, could result in an impairmentof goodwill, accelerate the DAC and VIF or lead to the derecognition of deferred tax assets. These items could adversely and materially affect theGroup’s net incomeand financial position. Further information on the assumptions and results of the impairment tests is presented in Note 2 – Goodwill to the consolidated financial statements. Fluctuations in interest rates 5.1.2.7 and credit spreads Periods of declining interest rates could have the following major effects onthe Group: lower investment earnings because of the reinvestment of ❯ revenues or repayment of assets (scheduledor early as a result of lower rates) atlevels below its portfolio’s rate ofreturn; reduced spread between interest rates credited to policyholders ❯ and the returnon the investmentportfolio; a modification of rate guarantees included in life insurance and ❯ annuity policies, given the difference in performance of investment portfolios; additional reserves for ordinary annuities affecting income and ❯ for retirementbenefits affectingequity. Conversely,periods of rising interest rates could have the following major effects onthe Group: increased surrenders of life insurance policies and fixed annuity ❯ contracts as policyholderschoose to trade off their investments in favour of higher-yield savings products; loss of competitiveness, which could lead to a loss of market ❯ share fornon-redeemable life insurance liabilities;

the possible realisation of capital losses to meet commitments ❯ by liquidating fixed-term investments when the prices of these assets are unfavourable in order to obtain liquidity. The adverse effect of these capital losses on the return on assets would increase the spread between the rate of return paid to policyholdersand the market rate of return. Although the Group has taken measures to limit and control the adverse effects of fluctuations in interest rates through Asset/Liability Management (see the presentationof Asset/Liability Management and the investment strategy in point (b), Asset/Liability Management and investment strategy of section 3.4.2.2 (c) – Monitoring of entities) that seeks to calibrate the durationof assets to that of liabilities and reduce the volatility of the differential between the actual yield of the asset and the rate expectedand via the use of hedging instruments,Groupamacould be significantly impacted in terms of its growth, level of assets, expenses, losses or financial revenues, which could then materially impact its net income and financialposition (see Analysisof interest rate risk sensitivity in insurance and on financial investments in section 5.2.3.1– Interestrate risk). Similarly, a widening of credit spreads could reduce the value of fixed-income securities held by the Group and increase net revenue from the purchase of new, fixed-income securities. Conversely,a tighteningof credit spreadswould increase the value of fixed-incomesecurities held and would reduce net revenue from the Group’s purchaseof new fixed-income securities. In order to strengthen its market risk control, Groupama rolled out a mechanismto limit risks in its assets across all its entities starting in 2014. Although the credit risk objective is to limit the concentration of issues according to several criteria (country, issuer, ratings, subordinated issues), the current volatility of interest rates and credit spreads, individually or in conjunction with other factors, such as lack of pricing transparency,market illiquidity, falling equity prices and the strengthening or weakening of foreign currencies against the euro, could have a material adverse effect on the Group’s net income and financial position and Groupama’s cash flow through realised losses, impairments and changes in unrealised loss positions. Fluctuations in exchange rates 5.1.2.8 Groupama publishes its consolidated and combined financial statements in euros. Nevertheless, Groupama is exposed to foreign exchange risk: firstly, through its operations and international development in ❯ regions outside the eurozone.In effect, althoughthe Group does business primarily in eurozone countries, about 17% of its premium income at 31 December 2018 (23% on the consolidated scope) was derived from the business of its international subsidiaries (see Note 33 – Analysis of premium income to the consolidatedfinancial statements),and about 6% was denominated in currencies other than the euro (8% on the consolidated scope), including the Turkish lira, Romanian leu, Hungarianforint, Tunisiandinar, and Chineseyuan. For example, the strong fluctuations of the Turkish lira during 2018 led the Group to take ad hoc measures to support its entity in Turkey. Groupama’s shareholders’ equity is therefore subject to fluctuations in exchange rates through the unrealised foreign exchangeadjustment;

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REGISTRATION DOCUMENT 2018 - GROUPAMA ASSURANCES MUTUELLES