2012 Registration document and annual financial report - BNP Paribas

5RISKSAND CAPITAL ADEQUACYInsurance risksASSET VALUE RISKBNP Paribas Cardif has limited exposure to the risk of a fall in asset values(fixed-income, credit, equities, real estate). The mechanism involved ininsurance contracts with a participation feature consists of passing onmost of the change in the value of assets held in the general euro fundto the deferred participation reserve attributable to the policyholders.➤ TABLE 56: CARDIF ASSURANCE VIE UNREALISED GAINS AND LOSSESIn millions of euros 31 December 2012 31 December 2011Bonds Govies 3,442 629Agencies & supra sovereign 449 144Financial Corporate 1,119 ( 1,481)Covered 637 ( 159)Other Corporate 1,075 410TOTAL 6,722 (457)Equity 210 ( 805)Real estate 675 573Alternatives 12 27Other 20 ( 36)TOTAL OTHER ASSETS 916 ( 241)TOTAL 7,638 ( 698)5INSURANCE UNDERWRITING RISKUnderwriting risk arises mainly in the Savings Business Line due tosurrender risk, and the Protection business, which accounts for some5% of the insurance subsidiaries’ liabilities. The value at risk over oneyear at 99.5% amounted to EUR 1, 325 million or 28% of BNP ParibasCardif’s total value at risk.There are three types of underwriting risk:SAVINGS - SURRENDER RISKSavings contracts include a surrender clause allowing policyholders torequest reimbursement of all or part of their accumulated savings. Theinsurer is exposed to the risk of surrender volumes being higher thanthe forecasts used for ALM purposes, which may force it to sell assetsat a loss.The surrender risk is limited, however, as:■ policyholder behaviour is monitored on an ongoing basis, in order toregularly align the duration of assets with that of the correspondingliabilities and reduce the risk of abrupt, large-scale asset sales.Changes in assets and liabilities are projected over periods of up to40 years, in order to identify mismatches giving rise to a liquidity risk.These analyses are then used to determine the choice of maturitiesfor new investments and the assets to be sold. Short-term (one year)liquidity analyses are also carried out, which include various surrenderrate increase assumptions to ensure that the Group can withstandstress situations. In 2012 liquidity study, 60% of Cardif Société Vie’sassets were liquid in the short-term, mainly comprising issuers ratedAAA to A;■ in addition to the guaranteed return, policyholders are paid dividendsthat raise the total return to a level in line with market benchmarks.These dividends, which are partly discretionary, reduce the risk ofan increase in surrender rates in periods of rising market interestrates. The policyholders’ surplus reserve is the mechanism in Francethat enables the surplus actually paid out to be pooled and spreadbetween generations of policyholders. It is one of Cardif Société Vie’sessential strengths;■ the return on financial assets is protected mainly through the use ofhedging instruments.In 2012, despite the adverse environment, BNP Paribas Cardif generatedmore than EUR 1,436 million of net new business on the general funds.3202012 Registration document and annual financial report - BNP PARIBAS