NATIXIS - 2018 Registration document and annual financial report

3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

liquidity risk: liquidity risk; At December 31, 2018, 51% of the a bond portfolio had a maturity of less than three years. The vast majority of the portfolio is listed on OECD markets and carries a liquidity risk that is currently considered as low. Level 2 controls on compliance with Coface’s investment policy are also carried out. CEGC Compagnie Européenne de Garanties et Cautions is the Group’s multiple business line security and guarantee platform. It is exposed to underwriting risk, market risk, reinsurer default risk and operational risk. In 2018 underwriting risk was managed effectively, reflected by a level of claims at 21% of earned premiums. The claims expense on loan guarantees for retail customers was particularly low this year. Under the Solvency II supervisory regime, which came into effect on January 1, 2016, CEGC uses a partial internal model. The ACPR (French Prudential Supervisory Authority for the Banking and Insurance Sector) approved the model in March 2017. It meets the specific requirement applicable to mortgage loan guarantors to improve the robustness of the French banking system for home loans. Significant changes to the model were presented and approved at the Board of Directors Meeting in November 2018. The pricing of loan guarantees for retail customers was increased and implemented in April 2018. Underwriting risk Underwriting risk is the main risk incurred by CEGC. It is essentially a counterparty risk, as the commitments given by CEGC to beneficiaries of guarantees result in direct exposure to underwriters. These regulated commitments recorded on the liabilities side of the balance sheet amounted to €2.01 billion at December 31, 2018 (up 8.7% compared with end-2017). This increase was in line with fiscal year 2017, driven mainly by mortgage guarantees for individual customers.

Financial risk Coface has implemented an investment policy that incorporates the management of financial risk through the definition of its strategic allocation, regulations governing insurance companies and constraints related to the management of its liabilities. Management of financial risks is thus based on a rigorous system of standards and controls which is regularly reviewed: interest rate risk and credit risk: The majority of Coface's a allocations are in fixed-income products, ensuring stable and recurring revenues. The overall maximum sensitivity of the bond portfolio has been deliberately capped at 4 and stood at 3.5 at December 31, 2018. Coface still has no exposure to Greek sovereign debt, while investments were made in Portugal over the course of the year. The Group continued to increase its international diversification in 2018, particularly in the developed countries of Asia and in the euro zone, in order to benefit from higher rates of return and to accommodate the various interest rate hikes or lower the cost of current hedging. Interest rate hedges were applied to a portion of exposure to European sovereign debt; foreign exchange risk: the majority of Coface’s investment a instruments are denominated in euros. Subsidiaries and branches using other currencies must observe the same principles of congruence. In 2018, Coface systematically set up hedges against the euro in the portfolio combining its European entities, to protect investments in bonds denominated in dollars, Pound sterling, Canadian dollars and Australian dollars; equity risk: exposure is capped at less than 10% of the a portfolio and is concentrated in the euro zone, in connection with its core business. At December 31, 2018, listed equities represented 6% of the investment portfolio. These investments were subject to hedging for 30% of the invested portfolio through the purchase of put options on Eurostoxx indices. This hedging can be adjusted in line with investments and the amount of unrealized capital gains or losses on shares held; counterparty risk: the maximum exposure to any given a counterparty is set at 5% of assets under management, with exceptional exemptions for short-term exposures. More than 90% of the bonds are Investment Grade and therefore have a median rating equal to at least BBB-;

CEGC’S OUTSTANDINGS (IN MILLIONS OF EUROS) R

Change December 2018 versus December 2017

CEGC’s activities

December 2018

Individual customers

1,798

8.4% 5.0%

Single-family home builders

21 14 30 15 75 47 10

Property administrators—Realtors

27.3%

Corporates

3.4% 0.0% 7.1%

Real estate developers Professional customers

Social economy—Social housing

11.9% 100.0%

Run-off activities

TOTAL

2,010

8.7%

162

Natixis Registration Document 2018

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