GROUPAMA / 2020 UNIVERSAL REGISTRATION DOCUMENT

7 FINANCIAL STATEMENTS Consolidated financial statements and notes

Shadow accounting is applied on the basis of a profit-sharing rate that is estimatedand applied to unrealisedcapital gains and losses. This rate is obtained by applying the regulatory and contractual conditions for calculating profit sharing and is determined either using the actual profit-sharing rates observed over the last three years or using a prospective sharing rate based on three-year business plans in the event of significant expected changes. In case of an overall unrealised capital loss of the entity’s asset portfolio, the Group records a deferred profit-sharingasset limited to the fraction of deferred profit-sharing actually realisable. A recoverability test based on the projected future performance of insurance portfolios is carried out. This test specifically includes unrealised capital gains on assets posted at amortised cost.

Unit-linked policies under IFRS 4 (d) Unit-linked policies under IFRS 4 are either insurance policies containing a significant insurance risk, such as a death risk, or financial contracts with discretionary profit sharing, for which the financial risk is assumed by the policyholder. The technical reserves for unit-linked policies are valued at the market value of the unit of account at the inventory date. Embedded derivatives in insurance policies (e) and financial contracts with discretionary profit sharing Embedded derivatives are components of insurance policies that meet the definition of a derivative product. If the same contract contains a financial component and an insurance component,the financial componentis valued separately at fair value when it is not closely tied to the host contract or when the accountingstandardsdo not require recognisingall of the rights and obligations associated with the deposit component, in application of the provisions of IFRS 4. In other cases, the entire contract is treated as an insurance policy. Financial contracts under IAS 39 3.12.3 Liabilities related to financial contracts without discretionary profit sharing must be recognisedon the basis of the principleof deposit accounting. Thus the premiums collected and the benefits are booked on the balance sheet. Managementcharges and expenses for the contracts are recorded in income. Unearned income is deferred over the estimated life of the contract. This category primarily includes unit-linked policies and indexed policies that do not meet the definition of insurance policies and financial contracts with discretionary profit sharing. Commitments under these policies are valued at the unit-linked fair value in inventory. The additional costs directly related to management of the investments of a contract are booked as assets if they can be identified separately and reliably valued, and if it is probable that they will be recovered.This asset, equating to the contractual right acquired by the Group over income resulting from managementof investments, is depreciatedover the duration of this management and symmetrically with recognition of the corresponding income. Inward reinsuranceis booked treaty by treaty without differenceon the basis of an assessment of the business accepted. These operations are classified according to the same rules as those described for insurance policies or financial contracts in paragraph 3.12.1. In the absence of sufficient information from the outward reinsurer, estimates are made. An asset deposit is recorded for the amount of the counterparty given to the ceding and retroceding companies. Securities used as hedges are recorded in the statement of commitments given and received. Reinsurance operations 3.12.4 Inward reinsurance (a)

Other technical reserves Overall management expenses reserve

The management expenses reserve is established for all future contract-management expenses not covered by mark-ups on premiumsor by deductionson investment income stipulated in the contracts. This approach is carried out according to the grid of

departmental categories. Deferred acquisition costs

Variable costs directly attributableto the acquisitionof life insurance policies are recorded as assets in the consolidated financial statements. These amounts may not under any circumstancesbe greater than the present value of futuriencome from the policies. These costs are amortised over the average life of the policies based on the rate of emergence of future margins for each generation of policies; future margins are determined using economic assumptions (profit-sharingrate, future rate of return on assets and lapse rate). Since these acquisition costs are capitalised, the actuarial reserves appearing on the balance sheet are presented as non-zillmerised. Every year the expected present value of future margins by homogeneous product family is compared with the total of the deferredacquisitioncosts net of amortisationalready recognisedin the past. If this value is lower, an extraordinaryimpairmentcharge is recognised on the income statement. Liabilities adequacy test (c) An adequacy test is performed at each balance sheet date for liabilities under IFRS 4 intended to ensure that insurance liabilities are sufficient with regard to current estimates of future cash flows generated by insurance policies. Future cash flows resulting from policies take into account their related cover and options. If necessary,and for the purposesof this test, the insurance liabilities are reduced by the deferred acquisition costs and the values of business in force recordedat the time of business combinationsor transfers of the related policies. In case of inadequacy, the potential losses are recognised in full through income. This test is performed at each balance sheet date and for each consolidated entity.

167 Universal Registration Document 2020 - GROUPAMA ASSURANCES MUTUELLES