Groupama // 2021 Universal Registration Document

8 ADDITIONAL INFORMATION Regulatory environment

8.3

REGULATORY ENVIRONMENT

The Group and Groupama Assurances Mutuelles primarily operate insurance businesses, which are subject to specific regulations and oversight by supervisory authorities in each of the countries where they are carried out. Given that the headquarters of Groupama Assurances Mutuelles, the lead company of the Groupama group, is in France, and the regional mutuals and the main subsidiaries of the Group are also based in France, the Group is mainly regulated by the French prudential control authority (ACPR). Some entities carry out a business subject to the oversight by 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 compliance with them, shareholders’ equity levels, and the distribution of insurance products. The objective of Directive 2009/138/EC of the European Parliament 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 2015-378 of 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 II”, insurers are responsible for 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 II therefore focuses not only on a capital requirement calculation but also on the governance system, risk management, risk, and solvency assessment via ORSA, internal control, internal audits, and the actuarial function. Solvency II is based on a three-pillar structure, similar to that of the Basel 2 agreements for banking businesses: Pillar 1: quantitative requirements regarding 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. ❯ SOLVENCY RULES 8.3.1

In terms of the quantitative requirements under Pillar 1, Solvency II sets two levels of prudence: the MCR (Minimum Capital Requirement), which corresponds to ❯ the amount of own funds that the undertaking must hold at all times, failing which immediate action by the supervisory authority may result in a transfer of the portfolio. The MCR is calculated quarterly; 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 requirement since all are likely to affect the solvency of 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 authorisation of the supervisor. Lastly, the SCR can also be calculated using an internal model developed by the insurer with the authorisation of the supervisor. Pillar 2 defines qualitative risk management objectives and supplements Pillar 1. It enables the supervisory authority to assess the company’s governance system. 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, mapping of processes, risks, and controls, a permanent control plan, and specific governance with 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 regulations in 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 Insurance Distribution Directive (IDD) of 20 January 2016, transposed in France by way of order and decree in Book V of its Insurance Code, and supplemented by level 2 implementing texts (Commission Implementing Regulation on the duty to advise in life insurance, the standardised insurance product information document (IPID), conflicts of interest, and product governance) and level 3 implementing texts (FAQ of the EIOPA and the European Commission). DISTRIBUTION OF INSURANCE 8.3.2

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Universal Registration Document 2021 - GROUPAMA ASSURANCES MUTUELLES