GROUPAMA / 2018 Registration document

5 RISK FACTORS AND RISK MANAGEMENT RISK MANAGEMENT AND SENSITIVITY ANALYSES Managing foreign exchange risk (b) Exchange rate risk is currently hedged mainly through currency swaps. The documentation is updated each time the financial statements are closed. These instruments do not correspond to the accountingnotion of hedgingas defined byIFRS. Analysis ofexchange rate sensitivity (c) The following table shows the impacts on income and the revaluation reserve (posted under shareholders’ equity) of a sensitivity analysis carried out in the event of an up or down change of10% in all currencies againstthe euro.

The impacts are shown after taking the following factors into consideration: the rate ofprofit sharing ofthe entityholding the securities; ❯ the current taxrate. ❯ In fiscal year 2018, the profit-sharingrate used for entities holding life insurancecommitmentscorrespondedto a range of 65.36% to 88.03%.

31.12.2018

31.12.2017

Foreign exchange risk

Foreign exchange risk

+10%

-10%

+10%

-10%

(in millions of euros)

Impact on the revaluation reserve

35 12

(35)

34 11

(34)

Equities

(12)

(11)

Equitymutual funds

1

(1)

1

(1)

Bonds

22

(22)

22

(22)

Fixed-income mutual funds Derivative instruments andembedded derivatives Impact on net income Equities Equitymutual funds Bonds Fixed-income mutual funds Derivative instruments andembedded derivatives

Hedging effects are not taken into account when calculating sensitivity. Consequently, the numbers listed above represent maximum risk and the actual impact reported in the Group’s financial statementsis considerably lower. Credit risk 5.2.3.4 The Group’s bond portfolio breakdown by rating and by issuer quality is presented in Notes 7.8.3and 7.8.4 of the annual financial statements. The Group manages credit risk as part of internal constraints. The main objective of these constraints is to limit the concentrationof issues according to several criteria (country, issuer, ratings, subordinated issues). These limits are observed at the level of each insurance entity and at the Group level. Any exceeding of the limits is handled according to whether it is part of an entity or the Group by the corresponding RiskCommittees.

of its spread. The strategy involved fixing the bond’s spread to one year using a dedicated FFI. At the end of the hedge (one year renewable), a finalising balancing payment was paid in return for the gain on the value of the bond hedged for the variation of its spread. This hedge was the subject of specific documentation for accounting hedgesat fair value underIAS 39. All over-the-counter transactions are secured by a “collateralisation” system with the Group’s top-tier banking counterparties. A strategy for exposure to the 10-year swap rate is also being tested. It aims to allow the Group to take duration without exposure to spread risk (sovereign or credit). This operation is carried out using a vehicle paying the Euribor and an FFI exchangingthis compensationfor the 10-yearswap rate.

Risk onbonds ofperipheral countries (b) of the eurozone

The Group’s gross exposure to sovereign debt of peripheral countries of the eurozone (Greece, Italy, Ireland, Spain, Portugal) amounted to €10.827 billion at 31 December 2018, representing 19% of theinterest-bearingproduct portfolio.

Spread hedges (a) Spread widening risk

In addition, a hedging strategy was tested during a pilot operation intended to protect the value of a bond against the risk of widening

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REGISTRATION DOCUMENT 2018 - GROUPAMA ASSURANCES MUTUELLES