NATIXIS // 2021 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2021 Consolidated financial statements and notes

Liabilities related to insurance policies 7.10.4 Policies managed by the insurance subsidiaries of the Coface and Natixis Assurances sub-groups meet the definitions of insurance policies and investment contracts with a discretionary participation feature set out in IFRS 4. Accordingly, they result in the recognition of technical reserves in liabilities. These reserves are measured in accordance with French GAAP pending the entry into force of IFRS 17 dealing with the technical liabilities of insurance companies. Technical reserves for insurance policies meet the commitments of insurance companies with regard to policyholders and contract beneficiaries. In accordance with IFRS 4, insurance technical reserves are calculated using methods stipulated by local regulations. A liability adequacy test is carried out in order to ensure that the insurance liabilities as presented in the consolidated financial statements are sufficient to cover future cash flows estimated at that date. The test is based on a stochastic or deterministic valuation model of discounted future cash flows. Technical reserves for life-insurance policies are primarily composed of mathematical reserves corresponding to the surrender value of the contract. Insurance offered primarily covers death, disability, work disability, dependency, damage to persons or property, health, legal protection and financial loss. Related technical reserves are calculated using specialized tables (life, experience and Bureau Commun des Assurances Collectives/BCAC tables). Technical reserves for non-life insurance policies include reserves for unearned premium income and for claims to be paid (not discounted). Reserves for unearned premium income are prorated separately for each insurance policy. They correspond to the portion of premium income remaining between the fiscal year-end and the premium due date. Claims reserves include an estimate of claims reported but not settled at the reporting date. In addition to the amount of claims payable, a provision is set aside for unknown claims, calculated on a statistical basis by reference to the final amount of claims to be paid following settlement of risks and after any debt recovery measures. Reserves also include economic hazards related to end-of-year premiums as well as a reserve for management fees.

In addition to this statistical estimation, specific reserves are recognized for major disasters based on the probability of default and of severity, estimated on a case-by-case basis. Policy acquisition costs are expensed to the period. In particular, for non-life insurance policies, expenses are recognized according to the rate of acquisition of the premiums: the share of deferred acquisition costs is calculated on a pro rata basis of the unearned premiums at the closing date of the period. Pursuant to paragraph 30 of IFRS 4, insurance policies and investment contracts with discretionary participation (life insurance) are measured using shadow accounting, which consists in recognizing the portion of unrealized gains or losses potentially attributable to policyholders as a deferred profit-sharing reserve. The deferred profit-sharing reserve thus reflects the potential entitlement of policyholders to unrealized gains for financial investments or their portion of unrealized losses. Considering the pay-out ratio in the 2021 budget and in accordance with the pay-out ratio recorded for 2021, the deferred profit-sharing rate adopted at December 31, 2021 was 89% compared with 87% as at December 31, 2020. In the event of net unearned losses, a deferred profit-sharing asset is recognized up to the amount for which future deferred profit-sharing of policyholders is estimated to be highly probable. Deferred profit-sharing assets and liabilities arise mainly on: the revaluation of “available-for-sale financial assets” and “financial V assets at fair value through profit or loss”; the revaluation of real estate assets held to cover insurance V policies; the restatement in the consolidated financial statements of the V capital reserve and the liquidity risk reserve. The change in the deferred profit-sharing asset and liability is recognized: in equity when it relates to changes in the value of V “available-for-sale assets”; in income when it relates to changes in the value of assets at fair V value through profit or loss or investment property held to cover insurance policies, as well as changes in provisions for prolonged declines in value in available-for-sale assets.

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Application of the shadow accounting mechanism resulted in the recognition of a deferred profit-sharing liability on December 31, 2021, as on December 31, 2020.

(in millions of euros)

2020

2021

Total net deferred profit-sharing asset Total net deferred profit-sharing liability

-

-

4,222

4,692

In the case of deferred profit-sharing assets, a recoverability test is carried out. Deferred profit-sharing may be recovered depending on the intention and ability of companies to steer future compensation of contracts according to resources. These are sensitive to: changes in the equity and bond markets; V changes in net inflows, which result from the commercial appeal of V policies and the propensity of policy holders to renew their contracts;

available reserves and own resources within companies to hold V assets for a period compatible with changes in liabilities and consistent with market cycles. Prospective analysis of the deferred profit-sharing asset’s recoverability is therefore carried out to demonstrate the ability and intention of companies to meet liquidity requirements over the remaining recoverability period without selling investments in unrealized losses. This process corresponds to a forward-looking view of future cash flows, built following regulatory and contractual conditions applied to contracts and with the help of economic scenarios based on historical probability.

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2021