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Risks and control Risk factors

Insurance 1.5 The Group transfers its risks to the insurance market when this is the most efficient solution. Default by one or more of the Group’s insurers could therefore lead to financial losses. The Group’s policy is to implement preventive programs and purchase insurance coverage to protect its assets and revenue. This policy is embedded within a Group doctrine, which takes into account current conditions in the insurance market. It is determined, coordinated and overseen by the Risks and Insurance Department. It defines insurance criteria for the most significant risks, such as property and business interruption, as well as general and product liability. For other types of coverage, such as automobile fleet insurance, the Risks and Insurance Department advises the individual operating units on policy content, broker selection and which market to consult. These are called “high-frequency” risks, for which claims are monitored internally and appropriate action taken. The 2016 policies were renewed as 2017 policies. The captive insurance company set up to cover property risks was highly successful and delivered real benefits for the Group. Companies acquired during the year have been integrated into existing insurance programs. The Group’s non-excluded property and casualty risks and business interruption risks arising from accidental damage to insured assets are covered by a worldwide insurance program. The programs meet the insurance criteria laid down by the Department, specifically: all policies are “all risks” policies with named exclusions; „ claims limits of liability are based on worst-case scenarios „ where safety systems operate effectively; deductibles are proportionate to the size of the site „ concerned and cannot be qualified as self-insurance. These criteria take into account current insurance offerings, which exclude certain risks and cover natural disasters like floods, storms, earthquakes or tsunamis only up to a certain amount. In extreme scenarios, such events could have a substantial uninsured financial impact in terms of both reconstruction costs and lost production costs. The Risks and Insurance Department’s policy is based on the findings of the annual audits carried out by independent prevention experts recognized by the Group’s insurers. These audits give a clear picture of the risk exposure of the main sites in the event of a fire or other incident, and provide an Property and business 1.5.1 interruption insurance

estimate of the financial consequences in a worst-case scenario. Individual claims in excess of €12.5 million are transferred to the insurance market for all Group subsidiaries. Claims up to this amount are self-insured through the Group’s captive insurance company, which purchases reinsurance coverage against increases in frequency and/or severity rates. Liability insurance 1.5.2 A program provides coverage for third-party personal injury and property damage claims for which the Group would be legally held liable. This program comprises several programs for the lower tranches of coverage. The first program covers all subsidiaries and has a coverage limit of €100 million. Subsidiaries situated in the geographical territory of the United States and Canada Delegation have a deductible of USD 50 million. The program’s exclusions are consistent with market practice and concern in particular potentially carcinogenic substances and gradual pollution. In order to satisfy local regulatory requirements, a policy is taken out in each country in which the Group has a significant presence. Local policies are backed up by the master policy issued in Paris, which can be activated when local coverage proves inadequate. The second program covers subsidiaries located in the geographic area covered by the United States and Canada Delegation and has a coverage limit of USD 50 million. This program is structured differently to deal with the specific nature of liability risks in the United States. It is divided into several lines of coverage, requiring it to be placed, if needed, on the London insurance market. Exclusions are in line with current market practice in the United States and primarily concern contractual liability, pollution and third-party consequential loss. In addition to the two programs described above, a number of supplementary programs have been set up in order to bring the total coverage limit to a level considered compatible with the Group’s businesses. Within the operating units, action is taken to raise awareness of liability risks, and the units are motivated to control costs by assuming a deductible that does not, however, constitute self-insurance. The Group also runs a risk prevention program at its operating units with the support of the Environment, Health and Safety Department. Exceptions 1.5.3 Joint ventures and companies not controlled by the Group are excluded from the above programs and purchase separate insurance coverage.

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