NATIXIS_REGISTRATION_DOCUMENT_2017

5 FINANCIAL DATA

Statutory Auditors’ report on the consolidated financial statements

Valuation of financial instruments classified in Level 3 of the fair value hierarchy

Risk identified and main judgements

Our audit approach

As part of its Corporate and Investment Banking activity, the Natixis Group holds on its balance sheet a significant portion of financial instruments classified in Level 3 of the fair value hierarchy. The determination of the fair value of Level 3 financial instruments is based on valuation techniques that include a significantamount of judgementin the choice of methodologies and data used: determinationof valuation inputs that are not observableon the market; use of internalvaluationmodels; estimation of additional valuation adjustments,to reflect certain market,counterpartyor liquidityrisks. We considered financial instrumentsclassified in Level 3 of the fair value hierarchy to be a key audit matter due to the material natureof the exposuresand the use of judgementin determining fair value. At December 31, 2017, Level 3 financial instruments represented assets of €12,114 million and liabilities of €3,414 million. Please refer to Notes 5.6, 5.23, 6.7.5 and 6.18 to the consolidated financial statements for more details.

We familiarized ourselves with the internal control procedures governingthe identification,valuationand recognitionof financial instrumentsclassifiedin Level 3; for example,we spokewith the departments in charge of first- and second-level controls and acquired information about the work carried out during the closingof the accounts. We tested the controls we considered relevant to our audit, particularlythose relatedto: the validation and periodic review, by the Risk Division, of a valuationmodels, the independentverificationof the valuationinputs, a the determinationof the main valuation adjustments, as well a as the value adjustmentsmade. We carried out these checkswith the assistanceof our valuation experts, with whom we also carried out independentvaluations by examining, on a sample basis, the assumptions, methodologiesand models used to estimate the main valuation adjustments. We also examined, on a sample basis, any variances in margin calls with Natixis'marketcounterparties,which helpedus assess the appropriatenessof the valuations.

Insurance technical reserves

Risk identified and main judgements

Our audit approach

As part of its insurance business, the Natixis Group recognizes technical reserves that represent its commitments towards policy holders. We consideredthe valuationof these reserves to be a key audit matter insofar as they represent a significant amount in the Group’s accounts and since some of these reserves require the exercise of judgement in determining the assumptions (e.g. experiencetables and behavioralstatistics)or calculationmodels used. Insurance company technical reserves totaled €76,602 million at December 31, 2017, including €51,493 million in reserves for the life insurance business. Please refer to Notes 2.8, 5.23, 6.9.3, 6.15, 7.5 and 15.3 to the consolidated financial statements for more details.

We used the actuarial specialistswithin our firms to assist us in auditingthese items. The main audit procedures applied included, depending on the type ofrisks covered by the reserves: Reviewing the general terms and conditions of insurance a policiessold by the Group, Assessing the methods and assumptions used to calculate a those reserves, including their consistency with applicable regulations, market practices and economic and financial conditions, Testing on the basis of reconciliation, recurrence tests, or a samples, the reliability of information relating to insurance policies recorded in the management systems and used to assesstechnicalreserves, Carrying out an independentrecalculationof certain reserves, a basedon a sampleof policiesif necessary, Assessing calculation methods and the result of the liability a adequacytest, as requiredunder IFRS 4. We also verified the information on insurance liabilities a disclosed in the notes to the Group’s consolidated financial statements.

340

Natixis Registration Document 2017