Groupama // 2021 Universal Registration Document

7 FINANCIAL STATEMENTS Combined financial statements and notes

Other underwriting reserves Overall management expenses reserve

No reserve for financial contingencies is recorded when the actuarial reserves have been funded on the basis of discount rates at most equal to the forecast yield rates, prudently estimated, of the assets assigned to represent them. Profit-sharing reserve The profit-sharing reserve consists of a reserve for profit-sharing payable and potentially as a reserve for deferred profit sharing. The reserve for payable profit sharing includes the identifiable amounts, from regulatory or contractual obligations, intended for the policyholders or beneficiaries of contracts in the form of profit sharing and rebates, to the extent that these amounts have not been credited to the policyholder’s account or included in “Life underwriting reserves”. The reserve for deferred profit sharing includes: the reserve for unconditional profit sharing, which is recognised ❯ when a difference is recorded between the bases for calculating future rights in the individual company accounts and the combined financial statements; the reserve for conditional profit sharing, which relates to the ❯ difference in liabilities between the individual company and the combined financial statements, the payment of which depends on a management decision or the occurrence of an event. In the particular case of restatement in the combined financial statements of the capitalisation reserve, a reserve for deferred profit-sharing is determined when the Asset/Liability Management assumptions demonstrate a probable permanent write-back of the total capitalisation reserve. The Group recognised no deferred profit-sharing on the restatement of the capitalisation reserve. Application of shadow accounting For participatory contracts, the Group has decided to apply shadow accounting, which is intended to ensure the value of insurance liabilities, deferred acquisition costs and the intangible assets related to insurance policies, reflect the effects of including unrealised gains and losses on financial assets valued at fair value. Deferred profit-sharing is recognised through the revaluation reserve or the income statement, depending on whether these gains and losses have been recognised in the reserve or in the income statement. Shadow accounting is applied on the basis of a profit-sharing rate that is estimated and applied to unrealised 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-sharing asset 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.

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

departmental categories. Deferred acquisition costs

Variable costs directly attributable to the acquisition of life insurance policies are recorded as assets in the combined financial statements. These amounts may not under any circumstances be greater than the present value of future income 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-sharing rate, 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 deferred acquisition costs net of amortisation already recognised in the past. If this value is lower, an extraordinary impairment charge 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 purposes of this test, the insurance liabilities are reduced by the deferred acquisition costs and the values of business in force recorded at the time of business combinations or 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. 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 underwriting 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 and (e) financial contracts with discretionary profit sharing Embedded derivatives are components of insurance policies that meet the definition of a derivative product.

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Universal Registration Document 2021 - GROUPAMA ASSURANCES MUTUELLES