GROUPAMA / 2020 UNIVERSAL REGISTRATION DOCUMENT

8 ADDITIONAL INFORMATION Regulatory environment

8.3

REGULATORY ENVIRONMENT

the SCR (Solvency Capital Requirement), which represents the ❯ capital requirement. Determination of the SCR requires calculating the impact on own funds at the end of the year of a market, subscription, counterparty default, or operational event occurring once every 200 years. All potentially significant and reasonably quantifiable risks must be taken into account in the capital requirementsince all are likely to affect the solvencyof the organisation. The SCR can be calculated using a standard formula calibrated uniformly across the European market. The standard formula can be adjusted using undertaking-specific parameters(USP) with the authorisationof the supervisor.Lastly, the SCR can also be calculated using an internal model developed by the insurer with the authorisation of thseupervisor. Pillar 2 defines qualitative risk management objectives and supplements Pillar 1. It enables the supervisoryauthority to assess the Company’sgovernancesystem. If there are proven deficiencies in this area, or if certain risks are improperly taken into account or not at all, the supervisor has the option of requiring add-on capital relative to the SCR. Pillar 2 leads companies to implement more efficient risk management through, in particular, the definition of a risk policy, mappingof processes,risks, and controls, a permanent control plan, and specific governancewith effective management, composed of at least two effective Managers, and a Manager for each of the four key functions (risk management, compliance verification, internal audit, and actuarial). All countries in which the Group carries out insurance businesses have regulationsin place to protect policyholders,as insurance is a complex service to understand. At the EU level, the distribution of insurance policies is now regulated by the InsuranceDistributionDirective(IDD) of 20 January 2016, transposedin France by way of order and decree in Book V of its Insurance Code, and supplementedby level 2 implementing texts (Commission ImplementingRegulation on the duty to advise in life insurance, the standardised insurance product information document (IPID), conflictsof interest, and product governance)and level 3 implementing texts (FAQ of the EIOPA and the European Commission). The aim of these texts is to strengthen the protectionof insurance consumersand to standardisethe rules applicable to all insurance distributors (insurance intermediariesand salespeopleof insurance companies). Their scope concerns: all insurance networks (brokers, general agents, insurance ❯ agents, and salespeople of insurance companies); all types of products (non-life and life) excludingmajor risks, with ❯ provisions common to non-life and life insurance and provisions specific to life insurance (insurance investment products); all types of customers(individuals,professionals,and companies ❯ excluding major risks); all marketingmethods (face-to-face,home, and distance selling, ❯ including Internet and comparison tools). DISTRIBUTION OF INSURANCE 8.3.2

The Group and GroupamaAssurancesMutuelles primarily operate insurance businesses,which are subject to specific regulationsand oversight by supervisoryauthorities in each of the countries where they are carried out. Given that the headquarters of Groupama AssurancesMutuelles, the lead company of the Groupamagroup, is in France, and the regional mutuals and the main subsidiariesof the Group are also based in France, the Group is mainly regulated by the French prudential control authority (ACPR). Some entities carry out a businesssubject to the oversightby the French financial markets authority (AMF). Given the location of the Group’s entities, mainly in France and in European Union countries, the regulation of the Group’s insurance business is primarily EU-based. Non-EU countries have also adopted specific insurance regulations. These regulations mainly concern the authorisation of insurance companies, solvency rules and the monitoring of compliancewith them, shareholders’equity levels, and the distribution of insurance products. The objectiveof Directive2009/138/ECof the EuropeanParliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance, transposed into French law by Order 2015-378of 2 April 2015, is “to improve consumer protection, modernise supervision, increase market integration, and strengthen the international competitiveness of European insurers”. Under this scheme, called “Solvency 2”, insurers are responsiblefor taking into account all types of risks to which they are exposed and managing these risks effectively. In addition, insurance groups are now supervised by a “group supervisor” to better supervise the Group as a whole. The Groupama group is supervised by the ACPR. One of the main objectives of the Solvency II Directive is to establish a solvency system that is more suited to the actual risks to insurance companies.Solvency 2 therefore focuses not only on a capital requirement calculation but also on the governance system, risk management,risk and solvencyassessment via ORSA, internal control, internal audits, and the actuarial function. Solvency 2 is based on a three-pillarstructure, similar to that of the Basel 2 agreements for banking businesses: Pillar 1: quantitativerequirementsregarding technical provisions, ❯ the Solvency Capital Requirement, and eligible items; Pillar 2: prudential supervision by supervisory authorities, ❯ oversight of governance, internal control, and risk; Pillar 3: public disclosure to improve market discipline. ❯ In terms of the quantitativerequirementsunder Pillar 1, Solvency 2 sets two levels of prudence: the MCR (MinimumCapital Requirement),which correspondsto ❯ the amount of own funds that the undertakingmust hold at all times, failing which immediateaction by the supervisoryauthority may result in a transfer of the portfolio. The MCR is calculated quarterly; SOLVENCY RULES 8.3.1

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Universal Registration Document 2020 - GROUPAMA ASSURANCES MUTUELLES