2018 Registration document and annual fi nancial report - BNP PARIBAS 439
5RISKS AND CAPITAL ADEQUACY PILLAR 3
5
Insurance risks
➤ TABLE 100 : NON- INVESTMENT GRADE FINANCIAL ASSETS MEETING THE SPPI CRITERION [Audited]
Rating In millions of euros
31 December 2018 1 January 2018
Gross book value Market value Gross book value Market value
BB+ 408 408 612 624
BB 179 179 323 323
BB- 2 2 4 4
B - - - -
Unrated 2,091 2,091 2,649 2,649
TOTAL 2,679 2,679 3,588 3,600
INSURANCE UNDERWRITING RISK [Audited]
Underwriting risk arises mainly from the surrender risk in the savings business line, and in creditor insurance contracts for the protection business.
There are three types of underwriting risk:
SAVINGS SURRENDER RISK Savings contracts include a surrender clause allowing policyholders to request reimbursement of all or part of their accumulated savings. The insurer is thus exposed to the risk of surrender volumes being higher than the forecasts used for ALM purposes, leading to potential capital losses on asset disposals needed to fi nance excess surrenders.
The surrender risk is limited, however, as:
■ policyholder behaviour is monitored on an ongoing basis, in order to regularly align the duration of assets with that of the corresponding
liabilities and reduce the risk of abrupt, large-scale asset sales. Changes in assets and liabilities are projected over periods of up to forty years, in order to identify treasury mismatches and over or under covered maturities giving rise to a liquidity risk. These analyses are then used to determine the choice of maturities for new investments and the assets to be sold;
■ the guaranteed revaluation of policies is completed by a participating benefi t feature partly discretionary, that raises the total return to a level in line with market benchmarks and reduces the risk of an increase in surrenders. The policyholders surplus reserve is the mechanism in France that enables the surplus actually paid out to be pooled and spread between generations of policyholders;
■ the return on fi nancial assets may be protected through the use of hedging instruments.
➤ TABLE 101 : AVERAGE REDEMPTION RATES FOR BNP PARIBAS CARDIF GROUP GENERAL FUNDS(*) [Audited]
Annual redemption rate
2018 2017
France 5.2% 6.4%
Italy 8.9% 8.9%
Luxembourg 5.8% 6.5%
(*) Individual savings.
SAVINGS UNIT-LINKED CONTRACTS WITH A GUARANTEED MINIMUM BENEFIT The insurer s liabilities are covered by the assets held, that are used as a valuation reference. The consistency of this coverage is controlled at monthly intervals.
Certain unit-linked commitments provide for the payment of a death benefit at least equal to the cumulative premiums invested in the
contract, whatever the conditions on the fi nancial markets at the time of the insured s death. The risk on these contracts is both statistical (probability of a claim) and fi nancial (market value of the units).
The capital guarantee is generally subject to certain limits. In France, for example, most contracts limit the guarantee to one year (renewable annually), an age limit of eighty to benefi t from the guarantee and a maximum of EUR 765,000 per insured.
