NATIXIS - Universal registration document and financial report 2019

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Main internal models used by Natixis

3.2.3.7 Main internal models: PD, LGD, CCF and volatility discounts (EU CRE)

Modeled input

Portfolio

Number of models Description/Methodology

PD

Sovereigns

1

Expert analysis-based rating models using macroeconomic criteria and the assessment of legal and political risks Expert analysis-based rating models using quantitative criteria (accounting balance sheet) and qualitative criteria (questionnaire). Model by type of counterparty and by geographic area Expert analysis-based rating models by business sector for corporates and statistical models for SMEs (scores) Quantitative model based on internal and external defaults. The assessment of LGD during periods of decline is included insofar as all defaults are included for the LGD model Qualitative model based on internal and external defaults by type of counterparty. LGD assessed in this model include defaults occurring in periods of decline Statistical models (decision trees or assessment of recoverable assets) by type of financed asset. The safety buffers included in the LGD models serve to cover periods of decline (primarily via bootstrap techniques) Models used to assess assets on resale. Assumptions of asset disposals are based on adverse scenarios Expert analysis-based rating models by type of financed asset Statistical models by business sector

Banks

3

Corporates (incl. SMEs) 12

Specialized financing 6

Retail SMEs

10

3

LGD

Sovereigns

1

Banks

1

Corporates (incl. SMEs) 2

Specialized financing 4

CCF

Corporate Financing (incl. SMEs), financial institutions and sovereigns Financial and other collateral

1

Model calibrated on internal defaults and segmentation by type of product and type of counterparty

Volatility correction

4

Stochastic models based on historical market prices with assumptions based on internal data and expertise

The model mainly applies the following elements: pricing models for reassessing products on various trajectories; V modeling the close-out netting framework; V distribution models of the factors distributed and called during the V valuation stage.

Main models used for counterparty risk Calculating the EEPE requires simulating the potential changes in risk factors at future dates over a large number of scenarios using a Monte Carlo approach. The mark-to-market value of each transaction is then remeasured at each simulated time horizon and under each scenario. For offsetting, exposure is then calculated by price aggregation taking into account the legal framework (master agreements and credit support annex) allowing price offsetting and offsetting for collateral exposures. The exposure value for a given counterparty is equal to the sum of the exposure values calculated for all offsetting sets.

Model by asset class Interest rate/currency distribution model Basis interest rate/currency distribution model Equity distribution model Commodity futures distribution model

Credit distribution model Inflation distribution model

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019