RISK FACTORS AND RISK MANAGEMENT PROCEDURES
Risk factors
An increase in interest rates may also have a significant negative
impact on the fair value of the Group’s fixed income portfolio, leading
to a decrease in unrealised gains which could negatively impact its
capital, solvency position and net income.
The health crisis and its consequences on the French, European and
International economies have had an impact on the activity levels of
the Group’s business lines. During the year 2020, several lockdowns
were imposed in many countries around the world, notably in France
and Italy, Crédit Agricole Assurances Group’s two main markets,
leading to a decline in life insurance inflows and a slowdown in new
business in the protection of assets and individuals segments. Thus,
in 2020, savings and retirement business was down 28.4% from the
very high level of 2019 and new business in property and casualty
insurance reached 91% of 2019 production.
In addition, an increase in interest rates could increase the cost
of the debt securities the Group may issue to finance the Group’s
operations or its regulatory capital requirements. For example,
Crédit Agricole Assurances placed an issue of one billion euros of
subordinated bonds eligible for Tier 2 capital, with a maturity of
ten years, and bearing interest at a rate of 1.500%, obtained in a
favorable environment of low interest rates.
The health crisis and its effect on the economy in France, Europe and
internationally have had a significant impact on the level of activity of
the Group. In 2020 and 2021, several confinements were decreed in
several countries around the world, and in particular in France and
Italy, the two main markets of Crédit Agricole Assurances, resulting
in a drop in life insurance inflows and a slowdown in property and
casualty new business. Thus in 2020, premium income from the
retirement savings segment was down 28.4% compared to the
very high level of 2019 and new business in property and casualty
insurance reached 91% of 2019 production.
The fixed income portfolio sensitivity to changes in interest rates
provides an assessment of this risk’s impact. According to this
sensitivity analysis, which is conducted net of the impact on deferred
policyholder surplus and tax, as of 31 December 2021, a 100 basis
points increase in risk-free rates would have decreased the Group’s
net income by €63 million and equity by €2,049 million. As at the
same date, a 100 basis points decline in risk-free rates would have
increased the Group’s net income by €85 million and equity by
€2,053 million.
Uncertainties continue to weigh on the evolution of the health
situation in Europe, with the arrival of new variants of the coronavirus,
and the implementation of new measures in France as well as in
other European countries (generalized use of telework, pass –
compulsory health and vaccination in many public places, etc.),
and the doubts surrounding the long-term effectiveness of the new
vaccines deployed since the start of 2021, thus lead to uncertainties
about the way out of the crisis.
The Covid-19 pandemic has negatively
affected, and may continue to negatively
affect, the business, operations and
financial performance of the Crédit Agricole
Assurances Group
In December 2019, a new coronavirus strain (COVID-19) appeared
in China. The virus spread to many countries around the world,
leading the World Health Organisation to describe the situation as a
pandemic in March 2020. The pandemic has had, and is expected to
continue to have, significant negative impacts on the world economy
and financial markets.
General economic, market and political
conditions may adversely affect the market
value of the Crédit Agricole Assurances
Group’s investments and its business
5
The spread of COVID-19 and resulting government control and travel
restrictions implemented around the world have caused disruption to
global supply chains and economic activity. The outbreak has led
to supply and demand shocks, resulting in a marked slowdown
in economic activity, due to the impact of containment measures
on consumption, as well as production difficulties, supply chain
disruptions and a slowdown of investment. In 2020, financial markets
have been significantly impacted, with increased volatility, stock
market indices declining precipitously, falls in commodity prices and
credit spreads widening for many borrowers and issuers.
The market value of the Crédit Agricole Assurances Group’s
investments could be impacted by the general situation of financial
markets, or by the situation of particular sectors or geographic
markets to which the Group is exposed. As of 31 December
2021, the Group’s investments by asset class (excluding unit-
linked products) consisted of 79% fixed income products, 8% real
estate and 7% equities, and 6% others. At that same date, the
breakdown of Group’s investment portfolio (consisting of assets
owned directly, excluding Mudum Seguros and CA Assicurazioni as
well as derivatives, repurchase agreements, and Intragroup loans)
by economic sector included 32% government, 23% financial and
securitization, 25% corporate, 10% agencies and 9% real estate.
The Group’s investments by geographic area (consisting of assets
owned directly, excluding Mudum Seguros and CA Assicurazioni
as well as derivatives, repurchase agreements, Intragroup loans)
at the same date included 64% of investments in France, 21% in
the Euro zone (excluding France), 5% Europe non Euro zone, 7%
Americas and 3% other. The Group’s total exposure to sovereign
debt was €71.5 billion, of which 71% was exposure to France, 12%
exposure to Italy, 6% exposure to Belgium, 6% exposure to Spain,
1% exposure to Austria and 4% exposure to other countries.
The pandemic and its impact on the global economy and financial
markets have had and are likely to continue to have a material adverse
impact on the Group’s business, operating income and financial
condition. As an illustration, and even if the impacts of changes in
the fair value of assets accounted for at fair value through profit or
loss are reversible, and have moreover largely reduced over the rest
of the year thanks to the recovery of the markets, in the first quarter
of 2020, when the crisis occurred, adverse market conditions had
a negative impact of €306 million on Crédit Agricole Assurances’
contribution to Crédit Agricole S.A.’s revenues, compared to the
first quarter of 2019. As of the end of March 2020, life insurance
outstandings decreased to €299 billion from €304 billion at the end
of 2019 largely as a result of adverse changes in market valuations,
before returning to €308 billion at the end of 2020. In terms of
solvency, the Solvency II ratio of the Group was 227% at the end
2020, down from 263% at the end of 2019, mainly as a result of
unfavorable economic conditions.
A
wide variety of factors could negatively impact economic
conditions and consumer confidence resulting in volatile financial
markets. Among other things, these factors include concerns
over the creditworthiness of certain sovereign issuers, high-levels
of corporate indebtedness, the impact of Brexit, the fluctuations
CRÉDIT AGRICOLE ASSURANCES S.A. 2021 Universal Registration Document
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