NATIXIS - 2018 Registration document and annual financial report

5 FINANCIAL DATA

Consolidated financial statements and notes

Use of estimates and judgment 6.23 In preparing its financial statements, Natixis is required to make certain estimates and assumptions based on available information that is likely to require expert judgment. These estimates and assumptions constitute sources of uncertainty which may affect the calculation of income and expenses in the income statement, the value of assets and liabilities in the balance sheet and/or certain disclosures in the notes to the financial statements. As a result, future results of certain operations may differ significantly from the estimates used in the financial statements at December 31, 2018. Accounting estimates which require assumptions to be made are mainly used to measure the items set out below: Financial instruments recorded at fair value The fair value of hybrid market instruments not traded on an active market is calculated using valuation techniques. Valuations produced using valuation models are adjusted, depending on the instruments in question and the associated risks, to take account of the bid and ask price for the net position, model risks, assumptions regarding the funding cost of future cash flows from uncollateralized or imperfectly collateralized derivatives, as well as counterparty and input risks. The fair values obtained from these methods may differ from the actual prices at which such transactions might be executed in the event of a sale on the market. The valuation models used to price illiquid financial instruments are described in Note 8.5. Some of the unlisted equity instruments categorized under IFRS 9 as “Financial assets at fair value through profit or loss” or “Financial assets at fair value through non-recyclable other comprehensive income” consist of investments in non-consolidated companies. The fair value of investments in unlisted non-consolidated companies is obtained principally by using valuation methods based on multiples or DCF (discounted cash flow). Use of these methods requires certain choices and assumptions to be made in advance (in particular, projected expected future cash flows and discount rates). Impairments for expected credit losses The impairment model for expected credit losses is based on parameters and assumptions that affect provisions and value adjustments for losses. These parameters and assumptions are based on current and/or historical data, which also include reasonable and justifiable forecasts such as the estimating and weighting of future economic scenarios. Natixis also considers the opinions of its experts when estimating and applying these parameters and assumptions. Under IAS 39, Natixis assessed whether there was any objective evidence of impairment for loans and receivables, either on an individual basis or collectively by risk category. To identify evidence of impairment, Natixis analyzed trends in a number of objective criteria, but also relied on the judgment of its own expert teams. Similarly, Natixis may use its own expert judgment to adjust the amount of expected losses under the Basel framework, on which the amount of collective impairment is based.

Value of cash-generating units (CGUs) All goodwill is assigned to a CGU so that it may be tested for impairment. The tests conducted by Natixis consist in comparing the carrying amount of each CGU (including goodwill) with its recoverable value. If the recoverable value is the same as the value in use, it is determined by discounting the annual free cash flows to infinity (see Note 3.5) . Use of the discounted cash flow method involves: estimating future cash flows. Natixis has based these a estimates on forecasts included in its business units’ medium-term plans spanning five years; projecting cash flows for the last year of the plan to perpetuity, a at a rate reflecting the expected annual growth rate; discounting cash flows at a specific rate for each CGU. a Fair value of loans and receivables recognized at amortized cost (excluding loans reclassified under the amendment to IAS 39 and IFRS 7) The fair value of loans not quoted on an active market is determined using the discounted cash flow method. The discount rate is based on an assessment of the rates used by the institution during the period for groups of loans with similar risk characteristics. Loans have been classified into groups with similar risk characteristics based on statistical research enabling factors having an impact on credit spreads to be identified. Natixis also relies on expert judgment to refine this segmentation. Employee benefits Natixis calls on independent actuaries to calculate its principal employee benefits. These commitments are determined using assumptions such as the salary growth rate, discount rates and rates of return on plan assets (see Note 12.2.3) . These discount rates and rates of return are based on observed market rates at the end of each calculation period (e.g. the yield curve on AA Corporate bonds for discount rates). When applied to long-term benefit obligations, these rates introduce uncertainty into the valuations. Insurance-related liabilities Insurance technical reserves are calculated using assumptions and estimates that may lead to adjustments in amounts reported over the subsequent period: for personal protection insurance, claims reserves are a calculated by modeling claims experience; for life insurance, underwriting reserves are computed based a on economic and financial assumptions, mortality and morbidity tables, and behavioral statistics, for example concerning surrenders; for general insurance, technical reserves comprise provisions a for unearned premium income (calculated on an accrual basis and representing the portion of premiums issued during the period that relate to a period after the reporting date) and reserves for claims to be paid, corresponding to known and unknown claims that have occurred but not yet been settled at the reporting date;

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Natixis Registration Document 2018