2020 Universal registration document and annual financial report - BNP PARIBAS 327

5risks and CaPital adequaCy Pillar 3

5

Capital management and capital adequacy

➤ FIGURE 5: DISTRIBUTION RESTRICTION THRESHOLDS

Total CapitalTier 1CET1

0.02%

4.50%

2.50%

0.70%

1.50%

6.00%

2.50%

0.94%

0.02%

1.50%

0.02%

8.00%

2.50%

1.25%

1.50%

BNP Paribas capital ratios at 31 December 202012.8%

9.22%

10.96%

13.27%

14.2% 16.4%

Capital surplus over the thresholds for distribution restriction 350 bps

EUR 24.6bn 330 bps

EUR 22.6bn 310 bps

EUR 21.5bn

Capital Requirements

Countercyclical buffer

G-SIBs buffer

Conservation buffer

P2R

Pillar 1

The capital surplus over the thresholds for distribution restriction is the lesser of the three amounts calculated respectively in relation to CET1, Tier 1 and total capital requirements. At 31 December 2020, the Group had a surplus of total capital of EUR 21.5 billion compared to the distribution restriction thresholds.

BNP Paribas ratios are monitored and managed centrally, on a consolidated basis. Where a French or international entity is required to comply with banking regulations at its own level, its ratios are also monitored and managed directly by the entity (see paragraph Capital management at local level).

Requirements applicable to the Insurance business

Since 1 January 2016, BNP Paribas insurance business is governed by Solvency II, the standard for calculating the solvency coverage ratio (Directive 2009/138/EC as transposed into French law).

The objective of Solvency II is to:

■ integrate the concepts of risks and risk appetite to which insurance companies are exposed;

■ harmonise the insurance regulatory regimes across Europe;

■ give more power to supervisory authorities.

Solvency II is divided into three pillars aiming to:

■ Pillar 1: assess solvency using what is known as an economic capital- based approach;

■ Pillar 2: implement qualitative requirements, i.e. governance and risk management rules that include a forward-looking approach to risk assessment. This assessment is called ORSA (Own Risk & Solvency Assessment);

■ Pillar 3: improve the transparency of the insurance business by making solvency the cornerstone of disclosures to the public and the supervisory authority.

The BNP Paribas Cardif group complies with this regulation both in terms of risk management and governance, as well as calculation and reporting. Solvency II-related data as at 31 December 2019 are available in the Solvency and Financial Condition Report (SFCR) for the BNP Paribas Cardif group, published on the institutional website https://www.bnpparibascardif.com/en/.

Insurance risks are introduced in section 5.10 Insurance risks.

Solvency II sets out two capital requirements:

■ the Solvency Capital Requirement (SCR);

■ the Minimum Capital Required (MCR) or, for groups, the SCR Group Minimum.

The SCR (Solvency Capital Requirement) is the level of own funds required to absorb a full series impacts after accounting for the correlation between risks. It is calibrated to cover such an event with a return period of 200 years within a one-year timescale (Value at Risk at 99.5%). The BNP Paribas Cardif SCR is evaluated by means of the standard formula laid down by the regulation.

The Capital Management Policy of BNP Paribas Cardif aims notably to ensure that the prudential solvency requirement are met, to cover at least 100% of the SCR defined within the scope of the ORSA assessment and to structure own funds so that the best balance can be found between the share capital, subordinated debt and other own funds elements, complying with the limits and levels laid down by regulations.