GROUPAMA / 2020 UNIVERSAL REGISTRATION DOCUMENT

7 FINANCIAL STATEMENTS Consolidated financial statements and notes

3.3

Derivatives

Valuation (b) The cost of the property is the amount at which the property was recorded at the time of initial recognition, minus cumulative amortisation and corrected for any reserves for impairment. Acquisition cost of the property is the outcome either of outright acquisition,or acquisitionof a company that owns the property. In the latter case, the cost of the property is equal to its fair value on the date of acquisition of the owner company. Each component is identified by itsduration and depreciation rate. The residual value of the shell component cannot be valued with sufficient reliability, particularly given the uncertainties about the holding horizon; thus this component is amortised on the basis of the acquisition cost. Rent income is recorded using the straight-line method over the term of the lease agreement. The realisable value of investment properties is determinedon the basis of the five-year independent appraisal conducted by an expert approved by domestic regulators (Autorité de Contrôle Prudentiel et de Résolution, in France). During each five-year period, the real estate is subject to an annual appraisal certified by the expert. Subsequent expenditure (c) Subsequent expendituremust be added to the book value of the property: if it is probable that these expenses will allow the asset to ❯ generate economic benefits; during each five-year period, the real estate is subject to an ❯ annual appraisal certified by the expert. Reserves for impairment (d) On each period end date of its financial statements, the Group determineswhether there is evidence of potential loss of value on property recorded at depreciated cost. If this is the case, the realisable value of the property is calculatedas being the higher of two values: the sale price net of sale costs and the value in use. If the realisable value is less than the net book value, the Group recognises a loss of value in the income statement for the difference between the two values, and the net book value is discounted to reflect only the realisable value. When the value of the property increasesat a later time, the reserve for impairment is written back through income. Derecognition (e) Gains or losses from the disposal of property investments are recorded in the income statement on the date of realisation and represent the difference between the net sale price and the net book value of the asset.

General information 3.3.1 A derivative is a financial instrument with the following three features: its value fluctuates on the basis of the change in a specific ❯ variable known as the “underlying asset”, it requires a zero or low initial net investment compared with ❯ other instruments that react in the same way to market changes; it is settled at a future date. ❯ All derivatives are recorded on the balance sheet at their fair value on the original date and during their subsequent revaluation. Changes in fair value are posted to income except for derivatives designated as cash flow hedges and net foreign investments. Hedging derivatives 3.3.2 The use of hedge accounting is subject to obligations regarding documentation and periodic demonstration of the efficacy of the hedge. Hedging derivatives are recorded at fair value with changes in the income statement,except for cash flow hedges and hedges of net foreign investmentsconsideredas effective, for which the changes in fair value are deferred into equity until the cash flows hedges are recognised in the income statement or when the foreign subsidiary is sold. For a fair value hedge of an available-for-saleasset, changes in fair value of the hedged item are recognised in income or loss so that they exactly offset the changes in the hedging derivative. The ineffective portion of hedges is recognised in the income statement. Embedded derivatives 3.3.3 Embedded derivatives are components of compound financial instruments that meet the definition of a derivative product. They are separate from the host contract and recognised as derivatives when the following three conditions are met: the economic features and the risks of the embeddedderivative ❯ are not closely linked to the economic features and risks of the host contract; a separate instrument containing the same conditions as the ❯ embedded derivative meets the definition of a derivative; the hybrid instrument is not valued at fair value with recognition ❯ of the changes in the fair value through the income statement. When one of these conditions is not met, there niso separation.

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Universal Registration Document 2020 - GROUPAMA ASSURANCES MUTUELLES