GROUPAMA / 2019 Universal Registration Document

7 FINANCIAL STATEMENTS Consolidated financial statements and notes

Note 2

Goodwill

2.1

Goodwill

31.12.2019

31.12.2018

Foreign exchange adjustment

Gross value

Impairment

Net value

Net value

(in millions ofeuros)

OPENINGVALUE

2,901

(697)

(304)

1,900

1,907

Newly consolidatedentities Eliminationsfrom the scope of consolidation France Central and EasternEuropeancountries

(8)

(8)

(7)

Italy

(102)

(102)

Other changesduring the fiscal year

(102)

(8)

(110)

(7)

CLOSINGVALUE

2,901

(799)

(312)

1,791

1,900

The groupingwithin a single cash-generatingunit for all countriesof Central and Eastern Europe is explained by common tools and a common platform as well as centralised management banking/insurance agreements. Changes during the fiscal year IMPAIRMENT ON THE CASH-GENERATING UNIT (CGU) IN ITALY: The Group applied an impairment of the goodwill of the cash-generating unit formed from the Italian subsidiary for €102 million.This impairmentis done in a highly competitivemarket and is in keepingwith the decisionto conductenhancedmonitoring of the motor insurance portfolio. The implementation of this improvement measure and other technical measures should gradually restorethe subsidiary’s profitability. Impairment test Goodwill is tested for impairment at least once a year. This test is carried outat the level of the cash-generating unit. As for those insuranceentities acquiredduring the fiscal yearwhere no index on loss in value exists, no impairmenttest is carried out. Nevertheless,an internalaudit is conductedon a simplifiedbasis so as to linkin to 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 financial income forecastsand discounted cash flows. The benchmark value in use applied to justify impairment tests corresponds to the current value of future cash flows to be generatedby this cash-generating unit.

As a general rule,the flows usedcorrespondto: an explicit period based on the Group’s operational strategy ● planning in the early years. This is subject to a discussion process between local managementand 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 normative cashflows; the solvencymargin integrated into the business plans is valued ● according to the prudential rules establishedby 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 necessaryfor the market to attain a sufficient level of maturity for the normative cash flow tobe representativeof 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. Forthe eurozone,the discount rate is 7.5%. For emerging countries, the yield curve used takes into account a higher explicitrisk premiumand thenincorporatesfuture changesin the country’s macroeconomic situation and the expected higher level of maturity in these economies.This is particularlythe case for the countriesof the EuropeanUnion, which are assumedto have a strong possibility of joining the eurozone. Discounting rates have overall been held at their levels for the previous fiscal year, with identical target rates (8% for the Greek subsidiary,10% for the Romaniansubsidiary,9% for the Hungarian subsidiary,and 8% forthe Bulgarian subsidiaries).

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Universal Registration Document 2019 - GROUPAMA ASSURANCES MUTUELLES