GROUPAMA / 2018 Registration document

7 FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

NOTE 2

GOODWILL

Goodwill

Note 2.1

31.12.2018

31.12.2017

Foreign exchange adjustment

Gross value

Impairment

Net value

Net value

(in millions of euros)

OPENING VALUE

2,901

(697)

(297)

1,907

1,975

Newlyconsolidated entities Eliminations fromthescope of consolidation

0

France Central andEastern European countries

(7)

(7)

(3)

Turkey

(65)

United Kingdom Other changes during thefiscal year

(7)

(7)

(68)

CLOSING VALUE

2,901

(697)

(304)

1,900

1,907

The grouping within a single cash-generatingunit for all countries of Central and EasternEurope is explainedby commontools and a common platform as well as centralised management bancassurance agreements. Changes during the fiscal year The changes that affected goodwill in the balance sheet correspondto exchange-ratedifferences. Impairment test Goodwill is tested for impairment at least once a year. This test is carried out at thelevel of thecash-generatingunit. As for those insurance entities acquired during the fiscal year where no index on loss in value exists, no impairment test is carried out. Nevertheless, an internal audit is conducted on a simplifiedbasis soas to link into the purchaseprice. Each cash-generating unit provides its underwriting income forecasts calculated based on an estimated increase in premium income and a target combined ratio for the plan period. These assumptions are adapted on the basis of past experience and external constraints imposed by the local market (competition, regulation, market shares, etc.). Financial assumptions (discount rate and yield rate) are fixed by the Group and used to determine the financialincome forecastsand discounted cashflows. The benchmark value in use applied to justify impairment tests corresponds to the current value of future cash flows to be generated bythis cash-generatingunit. As a general rule, theflows used correspondto: an explicit period based on the Group’s operational strategy ❯ planning in the early years. This is subject to a discussion process between local management and the Group;

beyond the explicit horizon, the cash flow column is completed ❯ by a terminal value. This terminal value is based on long-term growth assumptions applied to an updated projection of normativecash flows; the solvencymargin integrated into the business plans is valued ❯ according to the prudential rules established by the Solvency II Directive for subsidiaries whose country is subject to this regulation. In mature countries, the explicit life insurance period is generally 10 years, and 6 years for non-life insurance. It may be extended over a longer period (10 years). In effect, this period is necessary for the market to attain a sufficient level of maturity for the normative cash flow to be representative of recurring long-term performance. The discount rates are set based on risk-free rates for each country, plus a risk premium specific to the insurance business itself. For the eurozone, thediscountrate is 7.5%. For emerging countries, the yield curve used takes into account a higher explicit risk premium and then incorporates future changes in the country’smacroeconomicsituation and the expected higher level of maturity in these economies.This is particularlythe case for the “new countries” of the EuropeanUnion, which are assumed to have a strong possibility of joiningthe eurozone. Overall, the discount rates were maintained at their levels of the previous year, with identical target rates (8% for the Greek subsidiary, 10% for the Romanian subsidiary, and 9% for the Hungarianand Bulgarian subsidiaries). The growth rate applied for valuation after the explicit period depends on market maturity. It is based on indicators resulting from strategic studies. The rates used for Western and Southern Europeanmature markets are within the 1% to 3% bracket. In the emerging markets with a low insurance penetration level this rate may be up to5%.

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REGISTRATION DOCUMENT 2018 - GROUPAMA ASSURANCES MUTUELLES