GROUPAMA / 2018 Registration document

7 FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

The reserve for payable profit sharing includes the identifiable amounts, from regulatory or contractual obligations, intended for the policyholders or beneficiaries of contracts in the form of profit sharing and rebates, to the extent that these amounts have not been credited to the policyholder’s account or included in “Life technical reserves”. The reserve fordeferred profit sharing includes: the reserve for unconditionalprofit sharing, which is recognised ❯ when a difference is recordedbetween the bases for calculating future rights in the individual company accounts and the consolidated accounts; the reserve for conditional profit sharing, which relates to the ❯ difference in liabilities between the individual company and the consolidated accounts, the payment of which depends on a management decisionor the occurrence of anevent. In the particular case of restatement in the consolidatedaccounts of the capitalisationreserve, a reserve for deferred profit sharing is determined when the Asset/Liability Management assumptions demonstrate a probable permanent write-back of the total capitalisation reserve. The Group recognised no deferred profit sharing onthe restatement ofthe capitalisationreserve. Application of shadow accounting For participatory contracts, the Group has decided to apply shadow accounting, which is intended to pass on to the value of insurance liabilities, deferred acquisition costs and the intangible assets related to insurance policies, the effects of taking into account the unrealisedgains and losses on financial assets valued at fair value. Deferred profit sharing is recognised through the revaluation reserve or the income statement, depending on whether these gains and losses have been recognised in the reserve or in the incomestatement. Shadow accounting is applied on the basis of a profit-sharingrate that is estimated and applied to unrealised gains and losses. This rate is obtained by applying the regulatory and contractual conditions for calculating profit sharing observed in the past three years. In case of an overall unrealised capital loss of the entity’s asset portfolio, the Group records a deferred profit-sharingasset limited to the fraction of deferred profit sharing actually recoverable. A recoverability test based on the projected future performance of insurance portfolios is carried out. This test specifically includes unrealised capitalgains on assetsposted atamortisedcost.

Deferred acquisitioncosts Variable costs directly attributable to the acquisition of life insurance policies are recorded in assets in the consolidated accounts. These amounts may not under any circumstances be greater than thepresent value of future incomefrom the policies. These costs are amortised over the average life of the policies based on the rate of emergence of future margins for each generation of policies; future margins are determined using economic assumptions(profit-sharingrate, future rate of return on assets and lapse rate). Since these acquisition costs are capitalised, the actuarial reserves appearing in the balance sheet are presented asnon-zillmerised. Every year the expected present value of future margins by homogeneous product family is compared with the total of the deferredacquisitioncosts net of amortisationalready recognisedin the past. If this value is lower, an extraordinary impairment charge is recognisedin the income statement. Liabilities adequacy test (c) An adequacy test is performed at each balance sheet date for liabilities under IFRS 4 intended to ensure that insurance liabilities are sufficient with regard to current estimates of future cash flows generated by insurance policies. Future cash flows resulting from policies take into account their related cover and options. If necessary,and for the purposesof this test, the insurance liabilities are reduced by the deferred acquisition costs and the values of business in force recordedat the time of business combinationsor transfersof the relatedpolicies. In case of inadequacy, the potential losses are recognised in full through income. This test is performed at each balance sheet date and for each consolidated entity. Unit-linked policies under IFRS 4 (d) Unit-linked policies under IFRS 4 are either insurance policies containing a significant insurance risk, such as a death risk, or financial contracts with discretionary profit sharing, for which the financial riskis assumedby the policyholder. The technical reserves for unit-linked policies are valued at the market valueof the unitof account at theinventorydate. Embedded derivatives in insurance policies and (e) financial contracts with discretionary profit sharing Embedded derivatives are components of insurance policies that meet the definition ofa derivativeproduct. If the same contract contains a financial component and an insurance component, the financial component is valued separately at fair value when it is not closely tied to the host contract or when the accounting standards do not require recognising all of the rights and obligations associated with the deposit component, in application of the provisions of IFRS 4. In other cases,the entire contractis treated as aninsurance policy.

Other technical reserves Overall managementexpensesreserve

The management expenses reserve is established for all future contract management expenses not covered by mark-ups on premiums or by deductions on investment income provided for by them. This approach is carried out according to the grid of departmental categories.

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REGISTRATION DOCUMENT 2018 - GROUPAMA ASSURANCES MUTUELLES