BPCE - 2018 Registration document

FINANCIAL REPORT IFRS Consolidated Financial Statements of Groupe BPCE as at December 31, 2018

Note 9

Insurance businesses

Highlights Insurance businesses cover life insurance and non-life insurance activities. In Groupe BPCE these activities are performed by dedicated subsidiaries subject to the specific regulations applicable to the insurance sector. On November 3, 2017, the European Commission adopted the amendment to IFRS 4 applying IFRS 9 “Financial Instruments” with IFRS 4 “Insurance Contracts” with specific provisions for financial conglomerates, applicable as of January 1, 2018. On November 14, 2018, the IASB decided to delay the implementation of IFRS 17 “Insurance Contracts” by one year to January 1, 2022. It also decided to defer the expiry of insurance companies’ temporary exemption from IFRS 9 to January 1, 2022, to align it with the application of IFRS 17. As Groupe BPCE is a financial conglomerate, it elected to apply this provision to its insurance businesses, which continue to be covered by IAS 39. The entities concerned are listed in Note 13.4 on the scope of consolidation. Financial assets and liabilities of insurance businesses are therefore recognized in accordance with the provisions of IAS 39. They are classified into categories defined by this standard, which calls for specific approaches to measurement and accounting treatment. Pending amendments to IFRS 4, insurance liabilities continue to be measured broadly in line with French GAAP. In accordance with Phase I of IFRS 4, insurance contracts are classified into three categories: policies that expose the insurer to a significant insurance risk ● within the meaning of IFRS 4: this category comprises policies covering provident insurance, pensions, property and casualty and unit-linked savings carrying a minimum guarantee. These policies continue to be measured under the rules provided under local GAAP for measuring technical reserves; financial contracts such as savings contracts that do not expose ● the insurer to a significant insurance risk are recognized in accordance with IFRS 4 if they contain a discretionary profit-sharing feature, and continue to be measured in accordance with the rules for measuring technical reserves provided under local GAAP;

financial contracts without a discretionary profit-sharing feature, ● such as unit-linked policies without a non-unit-linked component and without a minimum guarantee, are accounted for in accordance with IAS 39. Most financial contracts issued by Group entities contain discretionary profit-sharing features. The discretionary profit-sharing feature grants life insurance policyholders the right to receive a share of the financial income generated, in addition to guaranteed benefits. For these contracts, in accordance with shadow accounting principles defined by IFRS 4, the provision for deferred profit sharing is adjusted to include the policyholders’ share in the unrealized capital gains or losses on financial instruments measured at fair value in application of IAS 39. The share of the gains or losses attributable to policyholders is determined on the basis of the characteristics of contracts likely to generate such gains or losses. Any change in deferred profit sharing is taken to other comprehensive income where it results from changes in the value of available-for-sale financial assets and to income where it arises from changes in the value of financial assets at fair value through profit or loss. At each balance sheet date, the Group assesses whether its recognized insurance liabilities are adequate, based on the estimated present value of future cash flows from its insurance policies and investment contracts containing a discretionary profit sharing feature. The liability adequacy test shows the economic value of the liabilities corresponding to the average derived from stochastic analyses. If the sum of the surrender value and deferred profit sharing is lower than the fair value of the technical reserves, the shortfall is recognized in income. Groupe BPCE has decided to apply the option available under ANC recommendation No. 2017-02 of presenting the insurance businesses separately on the balance sheet and income statement.

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Registration document 2018