GROUPAMA / 2019 Universal Registration Document

7 FINANCIAL STATEMENTS Consolidated financial statements and notes

2.4

Information on concentrations

monitoringis performedto track the adequacyof the coveragewith the risksunderwritten. In the case of a natural event, a requirementsanalysis consists of an initial study on the basis of the benchmarked loss, which is re-evaluated on the basis of the change in the portfolio and the French Construction Federation (FFB) index. At the same time, simulation calculations of the exposure of the portfolios are performedusing stochasticmethodsthat result in the productionof a curve showing the change in the potential maximum loss as a function of different scenarios. The results are cross-checked, analysed and discounted every year to allow the Group to opt for appropriate reinsurancesolutionswith a reducedmargin oferror. 3 The general system for managing risks relating to Asset/Liability Managementand investment operations is specified in the Group Asset/LiabilityManagementand investmentrisk policy approvedby the Groupama Assurances Mutuelles Boardof Directors. There are several categories of major market risks to which Groupama mightbe subject: interest rate risk; ● risk of variation in theprice of equity instruments (stocks); ● foreign exchange risk; ● credit risk; ● risk on property assets. ● 3.1.1 During a period of interest rate volatility, the Group’s financial margins might be affected. Specifically, a drop in interest rates would have a negative effect on the profitabilityof the investments. As such, during a period of low interest rates, the financial performance of the Group might be affected. Conversely, in the event of an increase in rates, the Group may have to face a rush of redemptionsfor these policies, which would lead to the sale of a portion of the bond portfolio under unfavourable marketconditions. The consequencesof interest rate changes would also impact the SCR andMCR coverage rates. 3.1.2 Several years ago, the Group implemented systematic studies on the exposureof the Group’s subsidiaries to marketrisks. 3.1.2.1 ASSET/LIABILITY MANAGEMENT Asset/liabilitysimulationspermit an analysis of the behaviourof the liabilities in different interest-rate environments, particularly the ability tomeet the remuneration requirements for the policyholder. These simulations allow the Group to develop strategies designed to reduce the impact of contingencieson the financial markets on both the resultsand on the balance sheets. Market risks Interest rate risk 3.1 Type of and exposure to interest rate risk Group risk management

of insurance risk The Group is potentially facing a concentration of risks that will accumulate. There aretwo types of overlapping risks: the risks of underwritingoverlaps in which the insurancepolicies ● are underwrittenby one or more of the Group’s entities for the same risk; the risk of claim overlaps in which the insurance policies are ● underwritten by one or more entities of the Group on different risks, which may be affected by claims resulting from the same loss event, or the same initial cause. 2.4.1 Overlapping risks can be identified at the time of underwriting or during ongoingmanagement of the portfolio. A major role in the process of identifying overlaps during underwriting is assumed by the Group, through risk inspections, verification of the absence of overlapping co-insurance or inter-network insurance lines, identification of overlapping commitmentsby site. In addition, the underwritingprocedures for certain risk categories help to control overlapping risks at the time of underwriting. The procedures applicable to property damage underwriting include: the verification of overlapping geographical risks at the time of ● underwriting for major risks (agricultural risks, agri-business risks,industrialrisks, municipalities); initial elimination during the underwriting process of cases of ● inter-network co-insurance overlapping risks. These Directives are defined in internal procedural guidelines. The procedures in force for managing overlapping portfolio risks cover: identification of the inter-network co-insurance overlapping risks; ● inventories of commitments by site for agri-business risks; in ● addition, high-risk business sectors for which the Group insures the property damage and/or third-party liability risks are specifically monitored by the relevant specialist Insurance Division; statements of commitments for risks of storms, hail, ● greenhouses,frost and commercial forestry, which are used to calculate theexposure of these portfolios to storm risk. 2.4.2 Protection consists of implementing reinsurance coverage, which will first be adapted to the total amount of the potential loss and, second, correspondsto the kind of risk covered. The loss may be human in origin (fire, explosion, accident involving people) or of naturalorigin (weather event, such as storm, hail, etc.). The underwritinglimits (maximumvalues insuredper risk in property insurance or per person for life and health insurance) are used in the context of catastrophic scenarios and compared with losses that have already occurred. Once these amounts have been defined, they are increased by a safety margin. Moreover, specific Identification Protection

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Universal Registration Document 2019 - GROUPAMA ASSURANCES MUTUELLES