Groupama // 2021 Universal Registration Document

7 FINANCIAL STATEMENTS Combined financial statements and notes

monitoring is performed to track the adequacy of the coverage with the risks underwritten. In the case of a natural event, a requirements analysis consists of an initial study on the basis of the benchmarked loss, which is re-evaluated on the basis of the change in the portfolio and the French Construction Federation (FFB) index. At the same time, simulation calculations of the exposure of the portfolios are performed using stochastic methods that result in the production of a curve showing the change in the potential maximum loss as a function of different scenarios. The results are cross-checked, analysed and discounted every year to allow the Group to opt for appropriate reinsurance solutions with a reduced margin of error. 3. The general system for managing risks relating to Asset/Liability Management and investment operations is specified in the Group Asset/Liability Management and investment risk policy approved by the Groupama Assurances Mutuelles Board of Directors. There are several categories of major market risks to which Groupama might be subject: interest rate risk; ❯ risk of variation in the price of equity instruments (shares); ❯ foreign exchange risk; ❯ credit risk; ❯ risk on property assets. ❯ 3.1.1 During a period of interest rate volatility, the Group’s financial margins might be affected. Specifically, a drop in interest rates would have a negative effect on the profitability of investments. As such, during a period of low interest rates, the financial performance of the Group might be affected. Conversely, in the event of an increase in rates, the Group may have to face a rush of redemptions for these policies, which would lead to the sale of a portion of the bond portfolio under unfavourable market conditions. The consequences of changes in interest rates would also impact SCR/MCR hedging. 3.1.2 Several years ago, the Group implemented systematic studies on the exposure of the Group’s subsidiaries to market risks. (a) ASSET/LIABILITY MANAGEMENT Asset/liability simulations permit an analysis of the behaviour of the liabilities in different interest-rate environments, particularly the ability to meet the remuneration requirements for the policyholder. These simulations allow the Group to develop strategies designed to reduce the impact of contingencies on the financial markets on both the results and on the balance sheets. Market risks Interest rate risk 3.1 Type of and exposure to interest rate risk Group risk management

2.4

Information on concentrations of

insurance risk The Group is potentially facing a concentration of risks that will accumulate. There are two types of risk overlap: the risk of underwriting overlap whereby insurance policies are ❯ underwritten by one or more of the Group’s entities for the same risk; the risk of claim overlap whereby insurance policies are ❯ underwritten by one or more entities of the Group on different risks, which may each generate claims resulting from the same loss event, or the same initial cause. 2.4.1 Such overlapping risks can be identified at the time of underwriting or during ongoing management of the portfolio. A major role in the process of identifying overlaps during underwriting is assumed by the Group, through risk inspections, verification of the absence of overlapping co-insurance or inter-network insurance lines, identification of overlapping commitments by site. In addition, the underwriting procedures for certain risk categories help to control overlapping risks at the time of underwriting. The procedures applicable to property damage underwriting include: verification of overlapping geographical risks at the time of ❯ underwriting for major risks (agricultural risks, agri-business risks, industrial risks, local authorities); prior elimination during the underwriting process of cases of ❯ inter-network co-insurance overlapping risks. These directives are defined in internal procedural guidelines. The procedures in force for managing overlapping portfolio risks cover: identification of the inter-network co-insurance overlapping risks; ❯ inventories of commitments by site for agri-business risks; in ❯ addition, high-risk business sectors for which the Group insures the property damage and/or third-party liability risks are specifically monitored by the relevant specialist Insurance Division; inventories of commitments for risks of storms, hail, ❯ greenhouses, frost and commercial forestry, which are used to calculate the exposure of these portfolios to storm risk. 2.4.2 Protection consists of implementing reinsurance coverage, which will first be adapted to the total amount of the potential loss and, second, corresponds to the kind of risk covered. The loss may be human in origin (fire, explosion, accident involving people) or of natural origin (weather event, such as storm, hail, etc.). The underwriting limits (maximum values insured per risk in property insurance or per person for life and health insurance) are used in the context of catastrophic scenarios and compared with losses that have already occurred. Once these amounts have been defined, they are increased by a safety margin. Moreover, specific Identification Protection

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Universal Registration Document 2021 - GROUPAMA ASSURANCES MUTUELLES