GROUPAMA / 2020 UNIVERSAL REGISTRATION DOCUMENT

7 FINANCIAL STATEMENTS Consolidated financial statements and notes

Note 2

Goodwill

2.1

Goodwill

31.12.2020

31.12.2019

Foreign exchange adjustments

Impairment

Net value

Net value

Gross value

(in millions of euros)

OPENING VALUE

2,901

(799)

(312)

1,791

1,900

Additions to the scope Removals from the scope France Central and Eastern European countries

(18)

(18)

(8)

Italy

(126)

(126)

(102)

Other changes during the fiscal year

(126)

(18)

(144)

(110)

CLOSING VALUE

2,901

(925)

(330)

1,646

1,791

imposed by the local market (competition, regulation, market shares, etc.). The financial assumptions relating to discount rates are set by the Group and are used to determine discounted cash flows. The benchmark value in use applied to justify impairment tests corresponds to the current value of future cash flows to be generated by this cash-generating unit. As a general rule, the flows used correspond to: an explicit period based on the Group’s operational strategy ❯ planning in the early years. This is subject to a discussion process between local management and 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 cash flows; the solvencymargin integrated into the business plans is valued ❯ according to the prudential rules established by the Solvency 2 Directive for subsidiaries in a country subject to thriesgulation. In mature countries, the explicit life insurance period is generally 10 years, and 6 years for non-life insurance. It can be extended for longer (10 years). In effect, this period is necessary for the market to attain a sufficient level of maturity for the normativecash flow to be representative of 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. For the eurozone, the discount rate is 7.5%. For emerging countries, the yield curve used takes into account a higher explicit risk premiumand then incorporatesfuture changesin the country’s macroeconomic situation and the expected higher level of maturity in these economies.This is particularlythe case for European Union countries that are assumed to have a strong possibility of joining the eurozone.

The groupingwithin a single cash-generatingunit for all countriesof Central and Eastern Europe is explained in particular by centralised management bancassurance agreements. Changes during the fiscal year The only changes that affected goodwill in the balance sheet were the impairment loss on the cash-generatingunit (CGU) in Italy and exchange rate differences. The Group appliedan impairmentof €126 millionon the goodwill of the cash-generating unit relating to the Italian subsidiary. This impairment loss is part of a prudential approach to the country’s economic environment, which leads to anticipation of a deterioration of the motor insurancemarket. Against the backdrop of the Covid-19health crisis, this already highly competitivemarket is experiencingstrong tensions on the level of premiums that could weigh on the technical profitability of the sector. Since the 2019 fiscal year, the Italian subsidiary has undergone profound restructuring (portfolio monitoring, risk selection, restructuring of claims management, etc.), which musmt aintain its profitability. Impairment test Goodwill is tested for impairment at least once a year. This test is carried out at the level of the cash-generating unit. As for those insuranceentities acquiredduring the fiscal year where no index on loss in value exists, no impairment test is carried out. Nevertheless,an internal audit is conductedon a simplifiedbasis so as to link to the purchase price. Each cash-generating unit provides its forecasts of underwriting and financial income (rate of return). Technical assumptions are determinedbased on estimated growth in premium income and a combined ratio target for the plan period. These assumptions are adapted on the basis of past experience and external constraints IMPAIRMENT ON THE CASH-GENERATING UNIT (CGU) IN ITALY

172 Universal Registration Document 2020 - GROUPAMA ASSURANCES MUTUELLES