HERMÈS - 2018 Registration document

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Overview of the group

Risk factors

1.9.5 INSURANCE POLICY AND RISK HEDGING The Hermès Group’s policy regarding insurance is to transfer any expo- sure that is liable to produce amaterial impact on profits to the insurance market. The Group insurance programmes represent most of the insu- rance coverage for the subsidiaries. They are placed via the intermediary of brokers who are amongst the ten largest French brokers and with first-rate insurance companies. The main international insurance pro- grammes favour an “all risks except” approach and cover: 1) property damage and operating losses that may affect production sites, logistics centres, distribution centres or premises in France and in other countries. The policy underwritten by FM Global was renewed for a one-year term. The upper cover limit is €500 million. The deductibles for direct damage vary from €15,000 to €250,000 and from €70,000 to three days’ gross profit for operating losses. In Japan, the Group has had an earthquake insurance policy for seve- ral years covering €40million in direct damage and operating losses. This insurance is accompanied by a prevention/engineering compo- nent: 57 production and distribution sites were the subject of a pre- vention inspection in 2018. The recommendations issued are moni- tored using a stringent, formally documented system. This policy has been renewed for 2019, with the same levels of coverage; 2) civil liability for damages to persons, property and intangibles caused to third parties in the conduct of business operations or by products. These policies were taken out for three years at 1 January 2016 with AIG Europe and Zurich Insurance for cover amounts which take into account the nature of the Group’s operations; the maximum cover per event is €70 million, and the deductibles vary from €1,000 to €10,000; This policy was renewed from 1 January 2019 for a period of two years, with the ceiling raised to €100 million; 3) the transport of products between the production sites and to the distribution network. A policy has been taken out with Chubb; 4) responsibilities in relation to the environment. This policy was taken out with AIGEurope on 1 January 2017 for a period of 24months. The coverage limit is €10 million per claim and €20 million for the period, and the deductible thresholds are €25,000; This policy was renewed from 1 January 2019 for a period of three years, with the guarantee ceiling raised to €15 million per claim and €25 million for the period; 5) cyber risks. Like each year since 1 January 2013, the policy with Zurich Insurance was renewed for a period of one year, covering the reconstruction of data, operating losses following a security incident, civil liability, and costs, notably defence and notification costs. Other contracts had been subscribed to fulfil specific requirements, par- ticularly in the context of building operations (new work or renovation) carried out as project managers. Moreover, the Hermès Group has for many years subscribed to third-party liability insurance for Corporate Officers with AIG Europe and other prominent insurers, in amounts dee- med appropriate for our business. In 2018, these policies were not the subject of significant claims.

INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS ESTABLISHED BY THE COMPANY

1.9.6

The internal control and risk management systems relating to the pre- paration and processing of accounting and financial information are described in section 1.10.

Objectives of risk management at Hermès International

1.9.6.1

Riskmanagement systems are designed to frequently examine themajor risks. This includes methods for identifying and prioritising risks and for handling themain internal andexternal risks at theappropriateoperating level in order to reduce the Company’s exposure.

Major risk identification

Risk re- assessment

Risk ranking

Risk management system at Hermès International

Definition of a risk control strategy

Management of main risks

1.9.6.2 Control environment While Hermès has attained the stature of an international group, it has also retained its human dimension, with family ideals. The Company is dedicated to a culture and spirit of craftsmanship and seeks to cultivate strong values among its employees. Among these values, quality is paramount - the very essence of Hermès’ business. The Group’s commitment to quality applies not only to its products and services, but also to its management methods. Hermès attaches great importance to its Senior Executives’ Managerial skills. The Hermès culture, which is propagated mainly through integration programmes for new managers and special training, imparts to each individual a thorough understanding of their role in the organisation and the need to abide by the Group’s code of conduct and rules of beha- viour. The quality-oriented values and mentality shared by all employees serve as a solid foundation to underpin behaviours and observance of stringent internal control policies and procedures. The way in which these values work together and their balance are contingent on the

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2018 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL