GROUPAMA / 2019 Universal Registration Document

6 EARNINGS AND FINANCIAL POSITION Management report of the Board of Directors

Supervision of intra-group 6.1.6.3 accounting transactions

Credit risk 6.1.7.4 In a tactical management strategy of the credit asset class, the Groupama AM managementcan be exposed or hedge credit risk by using forward financial instruments like Credit DefaultSwaps. This type of operation only involves assets managed through mutual funds. Spread risk 6.1.7.5 A 10-year swap rate exposure strategy was introduced in 2017 in the form of a test. It aims to allow the Group to take duration without exposureto spread risk(sovereign or credit). This operation is carried out using a vehicle paying the Euribor and an FFI exchangingthis remuneration for the 10-year swap rate. All over-the-countertransactionsare securedby a “collateralisation” system with theGroup’s top-tierbankingcounterparties. 6.1.8.1 The Groupama Assurances Mutuelles income statement includes the technical balance before expenses (premiums, claims, and reinsurance) as a replacement for the Antilles Guyane regional mutual, which is exempt from approval. There was no impact on the net transactions of the Groupama Assurances Mutuelles income statement. However, the substituted transactions led to a symmetrical increase in the gross technical operations of GroupamaAssurancesMutuellesand the outward reinsuranceand retrocessions. Earned premiums thus appear in the individual financial statements for €2,849.7 million, which break down into €40.3 millionin substitutedcontributionsnet of inward reinsurance in quota share of the reinsurer Groupama Assurances Mutuelles and €2,809.4 million in earned premiums (excludingsubstitution). The remainder of the commentary on business activity focuses exclusivelyon net substitution transactions. Earned premiums reached €2,809.4 million, up 3.8% (+€102.9 million) compared with 2018 (€2,706.6 million). This change came mainly from: the switching of all of Amaline’s reinsurance treaties to a new ● quota share agreement 100% transferred to Groupama AssurancesMutuellesby the regional mutuals, i.e. an increase in accepted contributions of €41 million; inward reinsurance from the regional mutuals (excluding the ● takeover of the Amaline portfolio), up €68.8 million (+3.4%) at €2,104.9 million; contributionsceded to Groupama AssurancesMutuelles by the ● Group’s subsidiaries (€489.6 million),a decrease of €3.8 million compared with 2018 (excluding the effect of the transfer of the Amalineportfolio) including-€5.3 millionfromGroupamaGan Vie related to the switchingof the Avenanceagreementat the end of 2018; and revenue related to other operations (professional pools, ● partnerships, etc.),which decreasedby €3.1 million,mainly from ANALYSIS OF THE ANNUAL FINANCIAL STATEMENTS FOR THE FISCAL YEAR 6.1.8 Income (Loss)

Transactions among subsidiaries and Groupama Assurances Mutuelles (internal loans, subsidiary restructurings, capital increases,dividendpayouts, etc.)are subject to decisionsvalidated by the Groupama Assurances Mutuelles Executive Management, and to technical and operational controls by the Group Financial Controlling Department. Controls on these operations are carried out by auditing the consolidated financial statements, i.e. by reconciling intra-group transactions, monitoring any changes in group’s equity, and reviewing the transactions recorded for consistency with legal documentation. 6.1.7.1 The purpose of the hedges that are implemented is to partially hedge the portfoliosagainstthe risk of interest rate increases. This is made possible by converting fixed-rate bonds into variable-rate bonds (“payer swaps”). The strategy consists in transforminga fixed-ratebond into a variable-ratebond, either on a security held or on new investments.They are intended to permit asset disposals in the event of an increase in interest rates by limiting realisations of capital losses, either to pay benefits or to invest at higher rate levels. Hedgingprogrammeswere gradually implementedon behalf of the life insurance companies as from 2005. In accordance with the approval of the Boards of Directors, the swap programme was supplemented in 2012 and partially extended to the Non-Life portion with a tactical management objective. All over-the-countertransactionsare securedby a “collateralisation” system with the Groupama AssurancesMutuelles top-tier banking counterparties. Foreign exchange risk 6.1.7.2 Ownership of international equities entails dollar and yen foreign exchangerisk, which can be hedged through forward sales. These forward sales are terminatedas the underlyingsare disposedof or are renewed to hedge the residual underlyings. The hedging of currency risk on the Hungarian forint has been actively managed since 2015. The holding of bonds issued in foreign currencies (dollar, sterling, Swiss franc) ishedged via currency swaps against the euro. As with interest rate risk, all negotiatedtransactionsare securedby a system of “collateralisation” with leading bank counterparties selected byGroupamaAssurancesMutuelles. Equity risk 6.1.7.3 In 2019, the Group’s equity risk continuedto be activelymanaged, which led to, in particular,the continuationof the hedgingpolicy on protected equity funds,but in a more opportunisticmanner. This laststrategy usesderivativeshoused in mutual funds. FINANCIAL FUTURES POLICY 6.1.7 Interest rate risk

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Universal Registration Document 2019 - GROUPAMA ASSURANCES MUTUELLES