UNIVERSAL REGISTRATION DOCUMENT 2023

7 FINANCIAL STATEMENTS Combined financial statements and notes

3.3

Derivative instruments and embedded derivatives General information

(b) Impairment of financial instruments Impairment applies to debt instruments, loans, and receivables recognised at amortised cost or at fair value through OCI. It reflects expected credit losses on these financial assets. PRINCIPLE INTRODUCED BY IFRS 9 The amount of impairment of a financial instrument depends on its stage of impairment. Stage 1 applies to financial assets from their initial acquisition date and corresponds to instruments whose credit risk has not experienced a material increase since their initial recognition. Financial instruments with a low credit risk at the reporting date are also presumed not to have experienced a material increase in credit risk. Stage 2 relates to financial assets with a credit risk that has increased materially since initial recognition. Stage 3 relates to financial assets for which one or more credit events have occurred since initial recognition. The credit risk of a financial instrument is considered low if the financial instrument carries a low risk of default, the borrower has a strong ability to meet its short ‑ term contractual obligations, and this ability will not necessarily be diminished by adverse changes in longer ‑ term economic and commercial conditions, even if it may be. The impairment recorded for financial instruments in stage 1 corresponds to the amount of expected credit losses over the 12 months following the reporting date. When a financial asset moves to stage 2, the expected credit loss is measured over its useful life. The expected credit loss of a financial asset in stage 3 is measured over its useful life. RECOGNITION An impairment for expected losses is recognised on the acquisition of the financial instrument. It is a function of the probability of default and the expected loss in the event of default (net of any recovery). These parameters are estimated based on multiple macroeconomic scenarios weighted by occurrence. The estimated impairment is recognised in profit or loss for the period. It is revalued at each reporting date to take into account changes in credit risk. Allowances and write ‑ backs recorded in respect of expected credit losses are recognised in profit or loss with the following offsetting entries: for financial instruments valued at amortised cost, a value adjustment on the asset side; ❯ for financial instruments measured at fair value through OCI, the reserve for unrealised gains or losses on these instruments. ❯

3.3.1

Derivatives are financial assets or liabilities classified by default as derivatives held for trading unless they qualify as hedging derivatives. They are recorded on the balance sheet at their fair value both at inception and when they are subsequently revalued. Changes in fair value are posted to the income statement, except for derivatives designated as hedging derivatives.

3.3.2 Hedging derivatives There are three types of hedging relationships:

The use of hedge accounting is subject to documentation obligations as soon as the hedging relationship is established. This documentation describes, in particular, the nature of the hedged risk, the economic relationship between the hedged item and the hedging instrument (demonstrating, in particular, the expected offset between changes in the value of the hedged item and the hedging instrument) and indicates how the effectiveness of the hedging relationship will be assessed. (a) Fair value hedges Where the hedging instrument hedges an equity instrument measured at fair value through OCI, it is remeasured at fair value through other comprehensive income, without recycling to profit or loss. In other cases of fair value hedges, changes in the fair value of the hedging instrument, as well as changes in the fair value of the hedged risk component of assets and liabilities, are recognised in profit or loss. (b) Cash flow hedges Cash flow hedge accounting consists in recognising the effective portion of changes in the fair value of the hedging instrument in equity. The ineffective portion is immediately recognised in profit or loss. Deferred amounts in equity are reported in profit or loss when the hedged cash flows affect profit or loss. If the cumulative gain or loss on the hedging instrument is greater than the change in the fair value of the hedged item, the corresponding ineffectiveness is recognised in profit or loss. If the cumulative gain or loss on the hedging instrument is less than the change in the fair value of the hedged item, no ineffectiveness is recognised. cash flow hedge: a hedge of the exposure to variability in future cash flows of a recognised asset or liability or a highly probable forecast transaction; ❯ hedge of a net investment in a foreign operation. ❯ fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment; ❯

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Universal Registration Document 2023 GROUPAMA ASSURANCES MUTUELLES