NATIXIS - 2018 Registration document and annual financial report
RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management
event risk represents the risk of abnormally high losses a recorded for the same debtor or group of debtors, or of an accumulation of losses for the same country. Event risk is covered by Coface Re reinsurance. In addition to weekly and monthly monitoring of each region and country, Coface has implemented a system based on: the centralization of reserves for claims exceeding a certain a amount per debtor which are then analyzed ex-post to improve the information, underwriting and recovery activity’s performance; monitoring at the risk underwriting level, which, above a given a level of DRA-based outstandings, generates an approval and the establishment of an overall budget by Coface’s Underwriting Department; and a DRA-based risk assessment system covering all debtors. a Diversification of the credit risk portfolio Coface maintains a diversified credit risk portfolio, in order to minimize the risk of debtor default, a slowdown in a given business sector, or an adverse event in a given country having a disproportionate impact on its overall claims expense. The insurance policies also contain clauses allowing credit limits to be changed mid-contract. Furthermore, the fact that the vast majority of Coface’s risks are short-term (95% of total outstandings) allows it to reduce the risk covered for a debtor or a group of debtors relatively quickly and to anticipate a decrease in their solvency. Level 2 controls are set up to ensure that the Group’s credit risk standards are observed. The following chart shows the breakdown of debtors by total credit risk exposure incurred by Coface at December 31, 2018:
catastrophe risk: catastrophe risk is the exposure to an event a of significant magnitude generating a multitude of claims (storm, risk of civil liability, etc.). This risk is therefore reinsured either through the government in the event of a natural disaster or an attack, for example, or through private reinsurers, specifically in the event of a storm or a civil liability claim, or through reinsurance pools. Counterparty risk The counterparty risk to which Natixis Assurances is exposed mainly concerns reinsurance counterparties. The selection of reinsurers is a key component of managing this risk: Natixis Assurances deals with reinsurers that are subject to a a financial rating by at least one of the three internationally recognized rating agencies, and that have a Standard & Poor’s equivalent rating of A- or higher; using several reinsurers ensures counterparty diversification a and limits counterparty risk. Coface Through its activities, Coface is exposed to five types of risk: strategic risk, credit risk, financial risk, operational risk and compliance risk, and reinsurance risk. The two main types of risk are credit risk and financial risk. Credit Risk Credit risk is defined as the risk of loss, due to non-payment by a debtor, of a receivable owed to a policyholder of the group. Coface manages credit risk through a number of procedures, whose scope includes the approval of the terms of policies relating to products, pricing, monitoring of credit risk hedges and portfolio diversification. Credit risk can be exacerbated due to the concentration of exposure (country, sector, debtor, etc.) and is modeled as premium risk, reserve risk and disaster risk. Traditionally, Coface makes a distinction between frequency risk and event risk: frequency risk represents the risk of a sudden material a increase in delinquency by numerous debtors. This risk is measured for each region and country by monitoring the instantaneous loss ratio and the (1) monthly indicator that breaks down the changes in domestic/export credit by DRA and busi (2) ness sector, by acceptance rate on the DRA scale, or by product line (deposit, single risks). As regards exposure and portfolio monitoring, the Group has set up a refined management of its risks based on a sector/country breakdown. Accordingly, delinquent payments are analyzed weekly by the Senior Management Committee and monthly by Coface’s Underwriting Committee. This risk is mitigated by Coface Re S.A. reinsurance. Loss ratios for the different underwriting regions are also monitored at the consolidated Coface level;
3
8.5% €401 - 800 K 8.8% €801 - 1,500 K 6.7% €201 - 400 K 4.9% €101 - 200 K
7.2% €1 - 100 K
8.8% €50m - 200m 5.0% ≥ €200m
31.2% €5m - 50m
18.9% €1,500 K - 5m
The instantaneous loss ratio is a weekly indicator that reproduces the change in the loss ratio. It is monitored for each region and each country and (1) is reported weekly by Coface to allow underwriters to monitor the change in their portfolio and detect any deterioration and therefore introduce corrective actions as early as possible. Debtor Risk Assessment, an assessment using a Group-wide grid. (2)
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Natixis Registration Document 2018
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