Groupama // Universal Registration Document 2022
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GROUP RISK FACTORS The Group’s main risks
5.1.1.3 Equities risk The Group is exposed to the risk of losses on the market value of equities due to fluctuations in financial markets (individual position of assets or reflection of wider market movements). As of 31 December 2022, equities represented 8.8% of the Group’s assets in terms of economic exposure. As at 31 December 2022, a 25% decrease in the value of equities would have had a rather moderate impact of 3 basis points on the Group’s solvency ratio, while a 25% increase in the value of equities would have resulted in a decrease in the Group’s solvency ratio of 8 basis points. As of 31 December 2022, the regulatory solvency ratio was 282%. The Equities risk is considered “moderate”. Property risk The Group is exposed to property risk, presented as an insufficient return on assets (lower income and/or realised gains) or a decrease in unrealised capital gains (or an increase in unrealised losses). A decrease in returns could have a moderate impact on net income, and a decrease in unrealised gains (or an increase in unrealised losses) could directly affect the Group’s solvency. A 20% decrease in the valuation of investment property would have a 5 ‑ point impact on the Group’s solvency. As of 31 December 2022, the regulatory solvency ratio was 282%. The Group’s property assets are mainly held by subsidiaries in France. As of 31 December 2022, property assets represented 9.1% of the Group’s portfolio. The property risk is considered “moderate”. Fluctuations in exchange rates Groupama publishes its combined financial statements in euros. Nevertheless, Groupama is exposed to currency risk. In the first place, through its business activities and international development in regions outside the eurozone. Although the Group does business primarily in eurozone countries, about 15% of its premium income as at 31 December 2022 was derived from the business of its international subsidiaries (see Note 35 – Analysis of premium income), and about 8% of premium income was denominated in currencies other than the euro, including the Romanian leu, Hungarian forint, Tunisian dinar, and Chinese yuan. In addition, holding investment assets in foreign currencies such as the US dollar, the Hungarian forint, and the pound sterling also exposes the Group to changes in the value of these currencies against the euro that have an impact on the Group’s net income and financial position. The currency risk is considered “moderate”. 5.1.1.4 5.1.1.5
5.1.1.2 Credit risk The Group is sensitive to the significant and generalised widening of spreads across all private and sovereign issuers. The high ‑ inflation environment, particularly affecting energy prices, could weigh on the financial health of companies and therefore lead to a rise in the spreads of corporate bonds (more pronounced increases for lower ‑ rated issuers). The increase in rates in 2022 led to a significant increase in financing costs for all players (private and sovereign), which is also a factor of vulnerability for the most indebted issuers and therefore a rise in spreads. Such developments could have a significant negative impact on the Group’s solvency. As of 31 December 2022, the regulatory solvency ratio was 282%. The vast majority of the Group’s bond portfolio consists of public and private eurozone issues, with ratings of A or higher predominating at 68.8%, BBB ratings at 29.3%, and ratings below BBB or not rated at 1.8% as at 31 December 2022. Despite the quality of these ratings, given the current context of financial markets and the global environment, the credit risk is considered “significant”. Conversely, a sudden, significant, and persistent rise in interest rates with a short ‑ term limited impact on the interest paid to policyholders, could lead to redemptions on savings in euros, requiring some of the bond portfolios to be realised at a loss. This redemption risk could also eventually lead to liquidity risk in extreme circumstances, but this is limited by the large share of cash assets (2.7% of assets) and the contained weight of assets lacking instant liquidity, such as property (9.1%) and unlisted equities and infrastructure (around 3%), as at 31 December 2022 at the Group level. As at 31 December 2022, a decrease or increase in interest rates 50 basis points would not have an impact on the Group’s solvency ratio, in particular because of the increase in interest rates in 2022, making it possible to achieve a certain balance between life and non ‑ life insurance business activities that react inversely to interest rate fluctuations. As of 31 December 2022, the regulatory solvency ratio was 282%. In the Non ‑ Life business activities, the Group’s results are sensitive to rising interest rates if these are combined with persistent inflation leading to higher costs and a recessionary environment leading to a decline in insurance capacity. In this context, in the event of price adjustment difficulties, the Group could see an erosion of its margins. The Group is mainly exposed to the risk of eurozone interest rate fluctuations through its fixed ‑ rate bond portfolio and its commitments. Although simulations show small changes in solvency in the event of moderate interest rate increases or decreases at current levels, interest rate volatility is very high in the current economic environment. The risk is therefore generally considered “significant”.
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Universal Registration Document 2022 - GROUPAMA ASSURANCES MUTUELLES
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