Interim financial report, First half 2019

The information contained in this document is a free translation of the Coface Group's Interim Financial Report for the first semester 2019 ("Rapport Financier, premier semestre 2019") and while efforts are made to provide an accurate translation, there may be material errors, omissions or inaccuracies in the reporting.

In no way does Coface assume any responsibility for any investment or other decisions made based upon the information provided on this translation. The original language version of the document in French prevails over the translation.

This document is publicly available at www.coface.com/Investors.

NOTE

COFACE SA (hereinafter, the "Company") is a public limited company (société anonyme) with a Board of Directors (conseil d'administration) incorporated under the laws of France, having its head office at 1 Place Costes et Bellonte, 92270 Bois Colombes, France and registered with the Nanterre Trade and Companies Register under number 432 413 599. Unless stated otherwise, references in this document to the "Group" or the "Coface Group" are references to the Company and its subsidiaries, branches and holdings.

At the date of June 30, 2018, the Company's share capital amounted to €307,798,522 divided into 153,899,261 shares with a nominal value of €2 (two) each, all of the same class, and all of which are fully subscribed and paid up.

Presentation of financial and other information

This report includes free English language translations of the audited consolidated financial statements of COFACE SA as of and for the year ended December 31, 2018 and for the six months ended June 30, 2018 and 2019. The annual consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS") and the interim financial statements were prepared in accordance with International Accounting Standard ("IAS") 34. COFACE SA publishes its consolidated financial statements in euros. Sums of aggregates and totals in this report may not match exactly due to rounding.

This report presents certain figures on an actual historical value basis, on a "constant scope" basis or on a "constant exchange rate" basis. Where figures are presented at constant scope, the previous year's figures (N-1) are adjusted to reflect the entities that entered or left the scope of consolidation during the most recent year (N). The Coface Group believes that comparing periods at constant scope and exchange rate is helpful in enabling investors to understand the effect of exchange rate fluctuations and changes in scope of consolidation on its financial results. However, figures adjusted for the effects of changes in the scope of consolidation and in exchange rates should not be substituted for the IFRS data.

Forward-Looking Statements

This report includes information on the Coface Group's outlook and future areas of development. These forward-looking statements may be identified by the use of the future or conditional tenses, or forward-looking terminology such as "considers", "anticipates", "thinks", "aims", "expects", "intends", "should", "plans", "estimates", "believes", "hopes", "may" or, in each case, their negative, or other variations or other comparable terminology. These forward-looking statements do not constitute historical data and should not be interpreted as a guarantee that the stated facts and data will take place or be achieved. They appear in a number of places throughout this report and include statements regarding the Coface Group's intentions; estimates and objectives with regard, in particular, to the Coface Group's market, strategy, growth, results, financial position and cash flow.

These forward-looking statements are based on data, assumptions and estimates that the Coface Group deems reasonable. They may evolve or be modified due to uncertainty linked, in particular, to the economic, financial, competitive or regulatory environment. Furthermore, the forward-looking statements contained in this report also involve risks, both known and unknown, uncertainty and other factors that were they to occur, could affect the Coface Group's future results, performance and achievements. Such factors may include, in particular, changes in the economic and business climate as well as the risk factors presented in chapter 5 of the Registration Document filed with the French Financial Markets Authority (Autorité des Marchés Financiers) on April 3, 2019 under the number D.19-0261.

Risk Factors

You are strongly encourages to carefully consider the risk factors presented in the aforementioned sections of the Registration Document filed with the French Financial Markets Authority (Autorité des Marchés Financiers) on April 3, 2019 under the number D.19-0261.

The occurrence of all or any of these risks is liable to have an adverse effect on the Coface Group's business, financial position or financial results. Additional risks that are not known at the date of this report, or that the Coface Group currently considers immaterial, may have the same adverse on the Coface Group, its business, financial position, operating results or growth prospects, as well as on the market price of its shares listed on Euronext Paris (ISIN: FR0010667147).

All this information is available on the website of the Company (www.coface.com/Investors) and the AMF (www.amf france.org).

I.		Half-year activity report8
	a)	Economic environment in the first half8
	b)	Significant events in the period9
	c)	Events after 30 June 20199
	d)	Comments on the results as at 30 June 2019 10
	e)	Group cash and capital 18
	f)	Risk factors21
	g)	Future risks and uncertainties21
	h)	Outlook21
	i.	Economic environment 21
	ii.	Outlook for the Group22
II.		Consolidated financial statements 26
		Basis of preparation26
		Effects of the first application of IFRS 16 "Leases" on the balance sheet 30
		Consolidated income statement 32
		Consolidated statement of comprehensive income33
		Statement of changes in equity34
		Consolidated statement of cash flows35
III.		Notes to the consolidated financial statement 38
		Note 1. Goodwill 38
		Note 2. Other intangible assets38
		Note 3. Insurance business investments38
		Note 4. Receivables arising from banking sector43
		Note 5. Cash and cash equivalents43
		Note 6. Share capital44
		Note 7. Provisions for liabilities and charges44
		Note 8. Financing liabilities 45
		Note 9. Lease liabilities45
		Note 10. Liabilities relating to insurance contracts46
		Note 11. Payables arising from banking sector activities46
		Note 12. Revenue47
		Note 13. Claim expenses48
		Note 14. Overheads by function49
		Note 15. Income and expenses from ceded reinsurance 49

	Note 16. Investment income, net of management expenses (excluding finance costs)50
	Note 17. Other operating income and expenses50
	Note 18. Breakdown of net income by segment50
	Note 19. Earnings per share 53
	Note 20. Related parties53
	Note 21. Off-balance sheet commitments55
	Note 22. First-time consolidation of Coface PKZ 56
	Note 23. IFRS 1756
	Note 24. Brexit57
	Note 25. Events after the reporting period57
IV.	Statutory auditors' review report on the half-yearly consolidated financial statements (under
	preparation) 60
V.	Statement of the person responsible for the financial statements64
VI.	Key Indicators66
VII.	Appendix : Calculation of financial ratios78

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I. Half-year business review

I. Half-year activity report

As each quarter, in June the Coface Group economic research team revised their global growth forecasts for 2019 and presented their first growth forecasts for 2020.

a) Economic environment in the first half

In view of the ongoing risk signals (trade war between the United States and China with its negative impact on trade, energy price uncertainties due to Middle East tensions, Brexit outlook, etc.), household and business confidence has continued to fall since the start of the year, both in the Eurozone and in most other large advanced economies.

In the wake of the difficulties encountered in the automotive industry, Germany was downgraded from A1 to A2, given this sector's weight in the country's economy and its impact on other sectors, such as the metalworking and the chemical industries. In April, German industrial production was down 2.0% year-onyear, while automotive production declined by 12%. All surveys conducted with economic players revealed their concern for the upcoming months. In fact, German growth should fall from 1.5% to 0.8% between 2018 and 2019. Recession should be avoided thanks to the resilience of services and, most importantly, the construction industry. Austria was also downgraded to A2 due to the integration of its economy in the German production chain, while the Czech Republic and Slovakia slipped from A2 to A3.

The economic slowdown is now also being felt even in the United States. US growth should decrease slightly, from 2.9% in 2018 to 2.5% in 2019. Indeed, the positive investment effects from the Trump administration's tax reductions in the autumn of 2017 is waning, while concerns are growing over the impact of the trade war with China, ongoing for more than a year. For the moment, American households seem to remain upbeat, thanks in particular to the good employment data and the associated growth in their income. The unemployment rate stabilised at 3.6% in May, its lowest level for 18 years. However, the situation could change for households once the rise in import tariffs on Chinese goods is reflected in consumer prices.

The performance of large emerging economies has been uneven. In principle, the rise in commodity prices is favourable to exporting countries. In that context, Saudi Arabia, which is benefiting from the recent rise in oil prices, was upgraded from C to B. However, other exporting countries still encountered difficulties. Argentina thus remained in deep recession due to the implementation of the drastic reform program aimed at correcting public finance imbalances. As for Brazil, the country is still not out of the slump. In the same region, Mexico has suffered from the adverse situation of its oil sector and from the negative influence of its big neighbour, the United States. Lastly, Russia maintained its low growth, in line with internal demand and the impact of the OPEC+ agreement on oil production. On the importers side, Turkey was confronted with the severe correction of its external imbalances, along with an increase in the cost of its energy imports and a fall in confidence. In India, due to internal factors, growth continued to slow down, albeit from a high level.

Like India, Asia, while remaining the main global economic growth centre, experienced a moderate slowdown. This was particularly the case for China, whose annual growth rate now stands at around 6% vs.7%, trend of previous years. The trade war with the United States is partly to blame, even though internal causes (corporate indebtedness, overcapacity, saturation of the automotive market) are also having an impact. Chinese exports to the United States have thus fallen 10% over the first four months of 2019. Sales of electronic goods, which account for 51% of the \$200 billion of American imports, have been the hardest hit as they are now taxed at 25%. Due to the regional scope of the production chain for these goods, other countries in the region, such as Singapore, Malaysia, South Korea, Taiwan, Thailand and Japan, suffered the same slowdown. Conversely, Vietnam benefited from the transfer of certain Chinese production, while the Philippines and Indonesia maintained strong growth due to their lower integration in the regional production chain.

b) Significant events in the period

Acquisition of SID – PKZ (Slovenia)

On 15 April 2019, Coface announced the acquisition of SID - PKZ, the market leader in credit insurance in Slovenia. The business will operate under the new brand name Coface PKZ. Founded by SID Bank in 2005, SID - PKZ recorded €14.3m of gross written premium in 2018. The transaction will have a neutral impact on Coface's solvency ratio. A badwill* of €3m has been recognized in the income statement. The contribution of Coface PKZ (excluding the impact of badwill) in the group's net income as of 30 June 2019 is not significant.

* Badwill is based on preliminary estimates and could vary pending final analysis

Coface launches credit insurance offer in Greece

The country has undertaken reforms which pave the way for a promising credit insurance market. This opening of an entity in the country extends Coface's historically strong presence in the Mediterranean and Africa region, which represented 27% of the Group's revenues in 2018.

Coface South Africa new partnership

Following the strategic partnership signed on 16 November 2018, Coface South Africa, the South African subsidiary of Compagnie française d'assurance pour le commerce extérieur, opened its capital up to 2.5% to the South African investment fund - B-BBEE Investment Holding Company, Identity Capital Partners (Pty) Ltd. The opening of Coface South Africa's capital could be increased by up to 25% over a 10-year horizon. In addition, Coface has a call option for the shares of these minority shareholders. The impact of this transaction on the financial statements for the year is not significant.

Takeover of the minority shareholders of its Brazilian subsidiary SBCE (Seguradora Brasileira C.E.)

Coface do Brazil, the South American subsidiary of Compagnie française d'assurance pour le commerce extérieur, has acquired the minority shareholders in its Brazilian subsidiary SBCE (Seguradora Brasileira C.E.). This acquisition of 24.2% of the capital was made from two local banks, each owning 12.1%. This operation is part of the Group's desire to rationalise its presence in Brazil. The purchase of minority interests without any change in the integration method has no impact on the net result.

Integration into the SBF120 index

The Index Steering Committee of Euronext has decided to include COFACE SA in the SBF120 index and this decision was effective on Monday 26 June 2019. The SBF 120 is one of the leading Paris stock market indices. It tracks the top 120 companies, in terms of market capitalization and liquidity.

This entry follows the increased market capitalization and share liquidity of Coface, which reflect the strengthening of its fundamentals since the launch of its Fit to Win strategic plan.

c) Events after 30 June 2019

There has been no significant change to the Group's financial or commercial position since 30 June 2019.

On 25 July 2019, Coface submitted to the ACPR, the French Prudential Supervision and Resolution, its Partial Internal Model.

d) Comments on the results as at 30 June 2019

The changes at constant FX and perimeter, presented for comparison purposes in the tables below, take account of the consolidation of Coface PKZ as of 1 April 2019.

i. Revenue

The Group's consolidated revenue increased by 6.6% at constant FX and perimeter (+7.0% at current FX and perimeter); from €685.0m for the half year ended 30 June 2018 to €732.6m for the half year ended 30 June 2019.

The exchange rate effect was negative by 0.1 point. This limited impact conceals significant disparities between currencies. The strengthening of the US dollar (the portfolio's main foreign currency) and Asian currencies against the euro offset the sharp depreciation of the Argentinian peso (which has fallen almost continuously since the first half of 2018) and, to a lesser extent, that of the Turkish lira. The strengthening of the dollar is attributable to the robust American economy, while the Euro was penalised by the resurgence of political uncertainties in Europe (Brexit, European elections against the backdrop of rising populism, etc.).

The table below shows the changes in the Coface Group's consolidated revenue by business for the half years ended 30 June 2018 and 2019:

	As at 30 June		Change
Change in consolidated revenue by activity (in millions of euros)	2019	2018	in €m	as a %	as a %: at constant FX and perimeter
Insurance	699.3	651.4	47.9	7.4%	6.9%
of which Earned premiums (1)	605.3	560.7	44.6	8.0%	7.5%
of which Services (2)	94.0	90.7	3.3	3.7%	2.8%
Factoring	33.3	33.6	-0.3	-0.8%	0.6%
Consolidated revenue	732.6	685.0	47.6	7.0%	6.6%

(2) Sum of revenue from services related to Credit Insurance ("Insurance fees and commissions" and "Other insurance- related services") and services provided to customers without credit insurance (access to information on corporate solvency and marketing information - "Business information turnover" and debt collection services - "Receivables management").

Insurance

Revenue from the insurance business (including bond and Single Risk) rose by 6.9% at constant FX and perimeter (+7.4% at current FX and perimeter), from €651.4m for the half year ended 30 June 2018 to €699.3m for the half year ended 30 June 2019.

Gross earned premiums increased by 7.5% at constant FX and perimeter (+8.0% at current FX and perimeter) to €560.7 million for the half year ended 30 June 2018 to €605.3 million for the half year ended 30 June 2019. Emerging markets saw a return to sustained growth, while new business progressed in mature markets.

Production of new contracts, representing €64.6 million (annualised value) in the first half of 2019, rose compared to the half year ended 30 June 2018 (€61.8 million) due to the performance of mature Western European countries (chiefly France) and Northern Europe (Germany in particular). The retention rate (annualised value of policies effectively renewed during the period over the value of the policies scheduled for renewal over the same period) remained at the record level of 93.0% in the half year ended 30 June 2019, without any detriment to prices. Pricing pressure was less pronounced at 30 June 2019 (-1.1%) as at 30 June 2018 (-1.7%) due to price rises in the United States and slighter drops in Germany and Italy, despite a lowclaim environment. Premium volume continued to reflect past growth activity in policyholders' businesses (+2.1%), however lower level than the record reached in the first half of 2018 (+ 3.4%).

Revenue from the services business increased by 2.8% at constant FX and perimeter (+3.7% at current FX and perimeter), from €90.7 million for the half year ended 30 June 2018 to €94 million for the half year ended 30 June 2019.

Factoring

Revenue from the factoring business (exclusively in Germany and Poland) posted a slight 0.6% rise at constant FX and perimeter (-0.8% at current FX and perimeter), from €33.6 million for the half year ended 30 June 2018 to €33.3 million for the half year ended 30 June 2019.

Revenue in Germany declined by 1.8% at constant scope, after a review of the portfolio aimed at improving profitability. The amount of factoring receivables has stabilised. A proven organisational structure has been in effect since 1 July 2019.

In Poland, the receivables portfolio continued to grow, generating a 7.5% increase in revenue at constant FX (+5.8% at the current FX).

Change in revenue by region

The following table shows the changes in consolidated revenue (net of intra-group flows) within the Group's seven geographic regions between the periods ended 30 June 2018 and 2019:

	As at 30 June		Change
Change in consolidated revenue by region of invoicing (in millions of euros)	2019	2018	in €m	as a %	as a %: at constant FX	as a %: at constant FX and perimeter
Western Europe	147.5	143.2	4.3	3.0%	2.7%	2.7%
Northern Europe	156.1	152.2	3.9	2.6%	2.6%	2.8%
Mediterranean & Africa	190.9	184.6	6.4	3.4%	4.6%	4.6%
North America	68.1	58.1	9.9	17%	10%	10%
Central Europe	71.5	67.1	4.4	6.6%	7.7%	2.0%
Asia-Pacific	58.7	46.0	12.7	28%	21%	21%
Latin America	39.8	33.8	5.9	18%	34%	34%
Consolidated revenue	732.6	685.0	47.6	7.0%	7.1%	6.6%

All regions have posted increased revenue at constant FX and perimeter. Growth was particularly strong in Asia-Pacific (+21%) and North America (+10%). These two regions combined accounted for nearly half of the Group's growth in terms of volume.

In Western Europe, revenue rose by 2.7% (+3.0% at current FX and perimeter) following the improvement in commercial performance, particularly with the signing of agreements for major international programs. The region's growth is also attributable to the performance of the Single Risk business in the UK.

Northern Europe posted an increase in revenue of 2.8% (+2.6% at current scope). In Germany, factoring revenue continued to recede while credit insurance revenue increased through new production. Moreover, the slide in prices was less pronounced. For the region as a whole, the retention rate exceeded 95%.

Revenue in the Mediterranean & Africa region rose by 4.6% (+3.4% at current FX and perimeter), still driven by clients' business growth and good portfolio development in 2018. Conversely, commercial performance was mediocre in the first half of the year. In Italy and Spain, a rise in terminations slowed the growth of the portfolio. Conversely, in Israel and Turkey, the portfolio continued to grow thanks to good commercial performance.

In North America, revenue rose by 10% (+17% at current FX and perimeter). Beyond the strong exchange rate effect, the credit insurance portfolio is now favourably-positioned thanks to a better retention rate and the growth of new business. Prices are increasing in the United States.

In Central Europe, revenue rose by 2.0% (+6.6% at current FX and perimeter due to the contribution of Coface PKZ starting in the second quarter), boosted by the strong growth of the credit insurance portfolio in 2018. Nevertheless, due to very tight risk control, particularly in Poland, commercial performance declined in the first half of 2019. However, factoring revenue continued to grow. The exchange rate effect has been significant given the depreciation of the Polish, Romanian and Russian currencies.

The revenue of the Asia-Pacific region rose by 21% (+28% at current FX and perimeter) sustained by the strong growth of the credit insurance portfolio in 2018, which continued in 2019 thanks, in particular, to good control of portfolio renewals. Excluding the favourable impact of lower premium refunds granted in the first half of 2019, growth would come to 12%.

In Latin America, revenue rose by 34% (+18% at current FX and perimeter). The region benefited from the signing of major global contracts and lower premium refunds. The region's portfolios comprise numerous foreign currency-denominated contracts (particularly in US dollars). The strong volatility of exchange rates thus distorts growth rates. Adjusted for this effect, the growth rate would be 27%.

ii. Underwriting income

Underwriting income before reinsurance

Underwriting income after reinsurance stands at €149.2 million for the half year ended 30 June 2019, representing a 22% increase compared to the first half of 2018 (€122.2 million). This performance was mainly due to the €47.6 million growth in revenue.

The 2.9 point improvement in the combined ratio before reinsurance, standing at 74.8% in the first half of 2019 (77.6% for the half year ended 30 June 2018) was attributable to a 1.5 point drop in the loss ratio, combined with a 1.4 point drop in the cost ratio. The latter benefited from positive operational leverage, as the rise in costs was half that of revenue.

Loss experience

The Group's loss ratio before reinsurance, including claims handling expenses, improved by 1.5 points, going from 42.4% for the half year ended 30 June 2018 to 40.9% for the half year ended 30 June 2019. Capitalising on disciplined underwriting, the Group continued to benefit from stringent management of past claims, thus maintaining recoveries at a high level. The loss level remained under control across all geographic regions. Latin America was the only region where the loss ratio slightly exceeded the 50% mark.

Loss Experience		As at 30 June	Change
(in millions of euros and %)	2019	2018	in €m	as a %
Claims expenses incl. claims handling costs	247.4	237.5	9.8	4.1%
Loss ratio before reinsurance	40.9%	42.4%		-1.5 pts

Earned premiums	605.3	560.7	44.6	8.0%

In Western Europe, the loss ratio stands at 31.2% (-3.4 points) for the half year ended 30 June 2019, as the region is still benefiting from recoveries on highly reinsured optional policies.

Thanks to an improvement in the loss experience on products combining factoring services and credit insurance, Northern Europe saw its ratio drop by 11 points to 43.1%.

In the Mediterranean & Africa region, the loss ratio declined by 7.3 points to 46.6%. Italy and Portugal benefited from stringent management of past claims, while South Africa was penalised by a major claim during the half year.

In North America, the loss ratio rose 28 points but remained under control at 40.2%, while the region had posted a particularly low ratio at 30 June 2018 (12.2%) thanks to the gains recognised in respect of prior underwriting periods.

The loss ratio of the Central Europe region improved by 10.1 points to 42.2%, due in particular to the favourable development of past claims in Russia.

After having benefited from significant recoveries in 2018 in respect of claims recorded in previous years, the loss ratio of the Asia-Pacific region naturally deteriorated, to 24.1% (+22.1 points), while nonetheless remaining at a highly satisfactory level.

In Latin America, the loss ratio stood at 50.4% on 30 June 2019, down 5.9 points. Argentina's loss ratio had deteriorated in 2018 due to an unfavourable economic context.

Change in loss experience by region of		As at 30 June	Change (% points)
invoicing (as a %)	2019	2018
Western Europe	31.2%	34.7%	-3.4 pts
Northern Europe	43.1%	54.2%	-11 pts
Mediterranean & Africa	46.6%	53.9%	-7.3 pts
North America	40.2%	12.2%	28 pts
Central Europe	42.2%	52.3%	-10.1 pts
Asia-Pacific	24.1%	2.1%	22.1 pts
Latin America	50.4%	56.3%	-5.9 pts
Loss ratio before reinsurance	40.9%	42.4%	-1.5 pts

Overheads

	As at 30 June		Change
General expenses (in millions of euros)				as a %: at
	2019	2018	as a %	constant FX
				and perimeter
Internal general expenses	271.1	262.1	3.4%	2.8%
of which claims handling costs	15.9	14.7	8.0%	8.1%
of which investment management expenses	2.0	2.0	2.1%	2.0%
Commissions	81.6	78.0	4.6%	3.9%
Total general expenses	352.7	340.1	3.7%	3.1%

Overheads, including claims handling expenses and internal investment costs, are up 3.1% at constant FX and perimeter (+3.7% at current FX and perimeter) from €340.1 million for the half year ended 30 June 2018 to €352.7 million for the half year ended 30 June 2019.

Contract acquisition commissions are up 3.9% at constant FX and perimeter (+4.6% at current scope and exchanges rate), from €78.0 million for the half year ended 30 June 2018 to €81.6 million for the half year ended 30 June 2019. This increase, which was driven by the brokerage-based Asia-Pacific and North American markets, was less significant than the increase in earned premiums (+7.5% at constant FX and perimeter), as the in-sourcing of agents in North America helped generate savings.

Internal overheads, including claims handling expenses and investment management expenses, grew 2.8% at constant FX and perimeter (+3.4% at current FX and perimeter) from €262.1 million for the half year ended 30 June 2018 to €271.1 million for the half year ended 30 June 2019.

Contract acquisition commissions rose 6.2% at constant FX and perimeter (+7.0% at current FX and perimeter), from €138.8 million for the half year ended 30 June 2018 to €148.4 million for the half year ended 30 June 2019. This increase is mainly due to the payment of compensation to agents, who are now in-sourced, in the North America region. In addition, the high inflation, particularly in Argentina, required wage increases. The ramp-up of the Coface Technologies IT centre in Bucharest – which centralises certain development functions that were previously outsourced – continued. Moreover, improved operating performance over the past two years has led to greater contributions to long-term variable compensation schemes for executives.

Other internal overheads fell. IT costs thus dropped 2.6% at constant FX and perimeter, to €24.1 million (-1.7% at current FX and perimeter). Other expenses (taxes, information purchases, rental expenses, etc.) are down by 0.6% at constant FX and perimeter (-0.3% at current FX and perimeter) from €98.8 million for the half year ended 30 June 2018 to €98.5 million for the half year ended 30 June 2019.

In the first half of 2019, Coface continued to invest in a disciplined manner in its strategic and regulatory projects, for an additional amount of €3.3 million.

The gross cost ratio has improved by 1.4 points from 35.3% at 30 June 2018 to 33.9% in the first half of 2019, thanks to a rise in revenue which exceeded the rise in overheads. The growth in earned premiums has thus had a favourable impact of 2.7 points, partly offset by the rise in internal overheads (0.7 point) and the increase in contract acquisition commissions (0.6 point).

In Western Europe, overheads remained virtually stable at +0.4% at constant FX and perimeter (+0.7% at current FX and perimeter), thanks to savings in rent and rental expenses following the renegotiation of the lease on the Bois-Colombes head office which houses the French and regional teams. IT costs also fell.

In North America, overheads dropped 2.3% at constant FX and perimeter (-1.8% at current FX and perimeter). Savings were made in information purchases, collection costs and consulting fees.

In the Mediterranean & Africa region, overheads rose slightly, by 1.5% at constant FX and perimeter (+0.6% at current FX and perimeter). Contract acquisition commissions increased at a slower pace than revenue.

In Central Europe, they rose 9.4% at constant FX and perimeter (+14% at current FX and perimeter). The region had benefited from reversals of restructuring provisions in the first half of 2018. IT costs also increased.

In North America, overheads increased 14% at constant FX and perimeter (+21% at current FX and perimeter), as the region now bears the cost of in-sourced agents' compensation. On the other hand, contract acquisition commissions remained stable despite the sharp increase in premiums.

In Latin America, overheads increased 35% at constant FX and perimeter (+21% at current FX and perimeter). The high inflation observed in Argentina required wage increases. As a result of the dynamic growth in income, taxes on premiums continued to increase in Argentina and Brazil. The central overheads re-invoiced to the region also rose.

In Asia-Pacific, overheads increased 1.2% at constant FX and perimeter (+6.2% at current FX and perimeter). This rise mainly concerned external commissions, while revenue grew sharply.

Underwriting income after reinsurance

Underwriting income after reinsurance stands at €99.5 million for the half year ended 30 June 2019, representing a 13% increase compared to the first half of 2018 (€88.3 million).

The 47% rise in the cost of reinsurance, standing at -€49.8 million at 30 June 2019 (-€33.9 million at 30 June 2018), is primarily due to the increase in earned premiums, resulting in more premiums being ceded to reinsurers. The drop in the amount of claims ceded to reinsurers is attributable to an improvement in the loss experience, as well as recoveries on highly reinsured optional policies.

	As at 30 June		Change
(in thousands of euros and %)	2019	2018	(en milliers d'euros)	(en %)
Revenue	732,580	684,963	47,617	7.0%
Claims expenses	-247,368	-237,546	-9,822	4.1%
Policy acquisition costs	-123,146	-117,452	-5,694	4.8%
Administrative costs	-135,009	-126,694	-8,315	6.6%
Other insurance activity expenses	-32,694	-46,629	13,935	-30%
Expenses from banking activities, excluding cost of risk	-6,770	-5,897	-873	15%
Cost of risk	-1,158	-1,744	586	-34%
Expenses from services activities	-37,205	-26,772	-10,433	39%
UNDERWRITING INCOME BEFORE REINSURANCE	149,229	122,229	27,001	22%
Income and expenses from ceded reinsurance	-49,763	-33,946	-15,817	47%
UNDERWRITING INCOME AFTER REINSURANCE	99,466	88,283	11,183	13%
Combined ratio after reinsurance	76.0%	77.0%	-	-

iii. Investment income, net of management expenses (excluding finance costs)

Financial markets

The first half of 2019 was marked by a slowdown in global growth and a rise in uncertainties with the risk of a trade war between the United States and China. The outlook for the manufacturing industry remained gloomy in the Eurozone, while macroeconomic statistics in China were disappointing, despite the stimulus policies implemented by the Chinese authorities. Only the United States seemed to be doing well, as growth remained solid. However, this growth is expected to slow in the upcoming quarters.

The markets remained riveted to the statements of Central Banks, which seem to want to adopt a more expansionist monetary policy, both in the United States (owing to the decline in inflation and expected inflation) and in the Eurozone (because levels are moving further and further away from the inflation target).

These shifts in monetary policy expectations have led to a dramatic fall in bond yields on both sides of the Atlantic. The US 10-year rate ended the half year below the 2% mark at 1.99%, i.e. a drop of 69 basis points compared to end-2018. The German 10-year rate fell into negative territory for the second time in its history, reaching record levels and ending the half year at -0.32%. Similarly, the French 10-year rate fell below the 0% mark, ending the half-year at -0.01%.

The search for returns, combined with the expected drop in interest rates naturally benefited the equity markets. After a sharp upswing in the first quarter, the markets remained relatively stable in the second quarter, but with high volatility from one month to the next due to the US-China trade war. For the half year as a whole, the global equity index thus rose 14.9%, (+6.5% in Japan, +9.2% for emerging markets, +13.2% in Europe and +17.6% in the United States.

Financial income

Against the economic background of a global fall in interest rates, the Coface Group has decided to reduce its exposure to developed-country sovereign bonds and money-market products, in favour of investment-grade corporate bonds and emerging-market sovereign bonds.

The total value of the portfolio increased by €76 million during the first half of the year, mainly due to expectations of the easing of monetary policies, which resulted in a fall in government borrowing rates and corporate bond credit spreads.

The following table shows the financial portfolio by main asset classes:

Market value (in millions of euros)	30.06.2019	31.12.2018
Listed shares	152	162
Unlisted shares	15	16
Bonds	1,854	1,775
Loans, deposits and UCITS money-market funds	523	525
Investment property	237	227
Total investment portfolio	2,780	2,705
Associated and non-consolidated companies	130	129
Total	2,910	2,834

In the first half of 2019, the results of the investment portfolio amounted to €28.9 million, of which €5.4 million in realised gains and impairment/reversals, compared to €25.1 million, of which €3.8 million in realised gains and impairment/reversals for the first half of 2018. Despite a market context that increased the value of the financial portfolio through a fall in interest rates, the Group managed to improve its accounting rate of return excluding realised gains, which went from 0.8% in the first half of 2018 to 0.9% for the same period in 2019.

Investment portfolio income	As at 30 June
(in million euros)	2019	2018
Shares	6.2	4.0
Fixed-income instruments	19.1	16.3
Investment property	3.5	4.7
Total investment portfolio o/w realised gains	28.9 5.4	25.1 3.8
Associated and non-consolidated companies	(3.4)	0.3
Net foreign exchange gains and derivatives	(5.4)	(10.3)
Financial investment charges	(3.5)	(2.1)
Total	16.6	12.9

After income from investments in companies, foreign exchange and derivatives income, financial expense and investment costs, financial income for the first half of 2019 stands at €16.6 million compared to €12.9 million for the same period in 2018.

The economic rate of return of financial assets before non-consolidated companies revenues, net foreign exchange and derivatives gains and financial investment charges was therefore 3.3% for the first half of the year, versus 0.2% for the same period in 2018. During the first half of the year, the economic return was positively impacted by the increase in revaluation reserves on all asset classes.

		As at 30 June	Change
(in millions of euros)					as a %: at
	2019	2018	in €m	as a %	constant FX and
					perimeter
Consolidated operating income	117.2	100.4	16.8	17%	17%
Operating income including financial costs	106.7	91.0	15.7	17%	17%
Other operating incomes and expenses	1.1	-0.8	1.9	NS	NS
Operating income including financial costs and
excluding other operating incomes and	105.6	91.8	13.8	15%	15%
expenses

iv. Operating income

Consolidated operating income stands at €117.2 million, up 17% compared to the half year ended 30 June 2018 (€100.4 million).

Current operating income, including finance costs and excluding non-recurring items (other operating income and expenses), increased by 15%, going from €91.8 million for the half year ended 30 June 2018 to €105.6 million for the half year ended 30 June 2019.

The combined ratio after reinsurance improved by 1 point, going from 77.0% for the half year ended 30 June 2018 to 76.0% for the half year ended 30 June 2019. The net loss ratio deteriorated by 0.8 point while the cost ratio improved by 1.8 points. The increase in the net loss ratio, compared to the drop in the gross ratio, is due to the recoveries recorded on optional policies.

Other operating income and expenses amounted to +€1.1 million, breaking down as follows:

A capital gain of €2.4 million on the sale of the building that housed the Italian and regional teams;
Restructuring expenses amounting to -€1.3 million.

All regions contributed positively to operating income.

Change in consolidated operating income by		As at 30 June		Share of half
region			Change	yearly total at
(in millions of euros)	2019	2018		June 30, 2019
Western Europe	3.9	9.9	-6.0	3%
Northern Europe	37.6	23.5	14.0	29%
Mediterranean & Africa	44.5	29.1	15.4	34%
North America	10.8	23.1	-12.3	8%
Central Europe	18.4	14.5	3.9	14%
Asia-Pacific	16.0	14.3	1.7	12%
Latin America	0.1	3.3	-3.1	0%
Total (excluding inter-regional flows and
holding costs not rebilled)	131.4	117.7	13.6	100%

v. Net income for the year

The effective tax rate of the Coface Group fell from 31.7% for the half year ended 30 June 2018 to 29.2% for the half year ended 30 June 2019, thanks to the return to better fortunes of the emerging markets.

Net income (attributable to equity holders of the parent) amounted to €78.5 million at 30 June 2019, up 25% compared to the first half of 2018 (€62.8 million).

e) Group cash and capital

Equity

Under IFRS, Coface SA shareholders' equity attributable to owners of the parent totalled €1,815 million at the end of June 2018, up slightly compared to the end of December 2018, when it stood at €1,806 million.

Goodwill

Goodwill, amounting to €155.4 million, is stable overall compared with 31 December 2018 (€155.1 million).

Debt

Coface Group indebtedness, excluding current operating debts, consists of financial debt and operational debt in connection with the refinancing of the factoring business.

The financing of the factoring business accounted for €2,196 million at 30 June 2019 compared with €2,198 million at 31 December 2018 (i.e. down €2 million).

The gross financial indebtedness, excluding the financing of the factoring business, accounted for €381.1 million at 30 June 2019 compared with €388.7 million at 31 December 2018. The variation of -€7.6 million is essentially due to the adjustment in connection with the amount of the accrued coupon (payment made on 27 March 2019) of the subordinated debt. The Group's gross debt-to-equity ratio stands at 21%, i.e. the same level as at 31 December 2018.

Solvency of the Group

In accordance with the regulations, the Group measures its financial strength based on the capital requirement (amount of equity required to cover its managed risks) according to the Solvency II Regulation standard formula for its insurance business and according to bank regulations for the Group's financing companies. The change in capital requirement depends on numerous factors and parameters linked to changes in the loss ratio, underwriting volumes, risk volatility, the sequencing of loss settlement and the asset types invested in the Company's balance sheet (see the 2018 Registration Document, Section 5.2.2 "Risks related to hedging the Group's solvency" – SCR ratio).

For insurance activities, pursuant to the Solvency II Regulation which became effective on 1 January 2016, the Group proceeded on 30 June 2019 with the calculation of the solvency capital requirement (SCR) under the standard formula introduced by European Directive No. 2009/138/EC. The Group's SCR evaluates the risks linked to pricing, underwriting, establishment of provisions, as well as market risks and operational risks. It takes account of frequency risks and severity risks. This calculation is calibrated to cover the risk of loss corresponding to a 99.5% quantile at a one-year horizon.

The Group also calculates the capital requirement for the factoring business. It is estimated by applying a 10.5% rate to the risk-weighted assets (or RWA). RWAs are calculated on the basis of the factoring exposure, by applying weighting as a function of the probability of default and the expected loss in case of default.

The amount of the capital requirement for the insurance business and the capital requirement for the factoring business is comparable with the available capital.

The Group has carried out an estimate¹ of its capital requirement and solvency ratio as at 30 June 2019. The estimated total capital requirement as at 30 June 2019 is €1,322 million (compared to €1,238 million² as at 31 December 2018), including €1,065 million corresponding to the insurance SCR (estimated using the Solvency II standard formula) and €257 million to the capital required by the financing companies.

Available capital as at 30 June 2019 is estimated at €2,144 million (compared to €2,091 million as at 31 December 2018). Available capital should be compared with the sum of the insurance SCR and the capital requirement for factoring.

As of 30 June 2019, the capital requirement solvency ratio (ratio between the Group's available capital and its capital requirement for insurance and factoring), is estimated at 162%³ (compared with 169% at the end of 2018).

*Capital requirement by the financing companies using the Standard Formula

¹ Capital requirements as at 30 June 2019 have been estimated using the Standard Formula, a simplified approach for certain modules and for treatment of the supposed renewed and rolling reinsurance.

² Includes €251 million estimation taking into account the anticipated transition to a Standard approach to credit risk under the CRD 4 regulation. Definitive 2018 capital requirement solvency ratio is 169%.

³ This estimated solvency ratio constitutes a preliminary calculation based on Coface's interpretation of the Solvency II Regulation; the result of the final calculation may differ from the result of this preliminary calculation. The estimated Solvency ratio is not audited.

Return on equity

The return on equity ratio is used to measure the return on the Coface Group's invested capital. Return on average tangible equity (or "RoATE") is the ratio between net income for the period and the average of accounting equity (attributable to equity holders of the parent) excluding intangible items (intangible asset values).

The table below presents the elements used to calculate the Coface Group's RoATE over the December 2018 to June 2019 period:

(in millions of euros)	As at 30 June 2019	As at 31 December 2018
Accounting equity (attributable to equity holders of the parent) including net income (attributable to equity holders of the parent) – A	1,815	1,806
Intangible assets – B	219	221
Tangible equity – C (A – B) As at 30 June 2019, tangible equity include the annualized net income – C (A-B+E)	1 674	1 586
Average tangible equity – D ([Cn+Cn-1]/2)	1,630	1,585
Net income (attributable to equity holders of the parent) – E	79	122
RoATE – E/D As at 30 June 2019, net income is annualized – E x 2/D	9.6%	7.7%

f) Risk factors

As a result of its activities, the Coface Group is exposed to five major types of risk (strategic risk, credit risk, financial risk, operational and non-compliance risk and reinsurance risk) of which credit risk and financial risk are the most significant. Credit risk is the risk of losses arising from non-payment by a debtor of a receivable owed to one of the Group's policyholders. The financial risk is the risk of losses due to unfavourable variations in interest rates, exchange rates or the market value of securities or property investments. For the efficient management of its operations and processes, the Coface Group has set up its own risk management structure.

Because the Coface Group is a listed company, the main risk factors and uncertainties faced by the Group are described in detail in Chapter 5 "Main risk factors and their management inside the Group" of the Coface Group's Registration Document filed with the AMF on 3 April 2019 under number D.19-0261.

During the first half of 2019, in a continuation of the actions to reduce the risks taken in 2016 in the various sensitive geographic regions and in economic sectors deemed to be at risk, the Group is managing risk according to plan.

g) Future risks and uncertainties

The factoring companies have applied IFRS 9, "Financial Instruments" since 1 January 2018.

Application of the aforementioned standard to the insurance entities is deferred to 2022, i.e. at the same time as IFRS 17, "Insurance Contracts", on the recognition of insurance contracts. These two important standard projects could have a significant impact on the recognition of liabilities linked to insurance policies and the classification of financial assets.

IFRS 16 "Leases" came into force on 1 January 2019. With respect to Coface's activities, the effects of the implementation of IFRS 16 relate mainly to real estate assets leased as offices for operating requirements. The other leases relate to IT equipment and company cars. At 1 January 2019, an impact of €85 million was recorded under the "Property, plant and equipment" item to recognise rights of use.

h) Outlook

i. Economic environment

According to the Coface Group's forecasts, global growth should slow down in the more protectionist environment, before stabilizing (2.7% in 2019 and 2020, after 3.1% in 2018). Growth should be more dynamic in emerging countries (from 4.3% in 2018 to 4.0% in 2019 and 4.3% in 2020), and is expected to remain significantly higher than in advanced countries (with 2.2% in 2018 to 1.8% in 2019 and 1.2% in 2020).

US growth should weaken markedly at the end of the period (2.5% in 2019, then 1.3% in 2020) and fall in line with the average figures recorded in advanced economies in the second year.

In the Eurozone, growth of 1.3% is expected in 2019 and 1.4% in 2020, compared with 1.8% in 2018. Coface forecasts the French economy to grow 1.4% in 2019 and 1.2% in 2020, and the German economy to grow 0.8% in 2019 and 1.2% in 2020.

Overall, emerging countries should continue to post sustained growth in 2019 and 2020. Barring worsening trade relations between China and the United States, growth should remain dynamic in emerging Asia (5.6% in 2019 and 2020, after 5.9% in 2018). However, business is expected to slow slightly in China (from 6.6% in 2018 to 6.3% in 2019 and 6.0% in 2020). This moderation is expected to be driven by the deferred impact of the import tariffs imposed by the United States and the poor performance of the automotive market, despite more accommodating policies, with the authorities postponing any reduction of financial vulnerabilities. The other countries in the region integrated in the electronic production chain should recover in 2020 from the slight slowdown of 2019. India is expected to continue to grow, despite internal challenges (from 7.1% in 2018 to 7.0% in 2019 and 7.5% in 2020).

Latin America's economic situation should recover at the end of the period, with growth of 1.4% in 2018, falling to 0.7% in 2019 and rising to 1.9% in 2020. This should be influenced by an Argentinian recovery (from - 2.5% in 2018 to -1.5% in 2019 and 2.0% in 2020), thanks to a let-up in economic policies intended to restore economic balance. The Brazilian recovery (from 1.1% in 2018 to 0.8% in 2019 and 2.0% in 2020) should strengthen, driven by the rise in household consumption, in line with the improved labour market, as well as investment, following the clarification of the budget situation with the adoption of pension reform. Growth in Chile, Peru and Colombia should remain above 3%. Only Mexico should continue to see weak growth due to the North American slowdown. Activity in Central/Eastern Europe should slow in 2019 (2.3% after 3.7% in 2018) influenced by the West European downturn, particularly in Germany, before an upswing in 2020 (2.8%). Strong domestic demand, boosted by a low unemployment rate and sharp growth in income should only partly offset poor export performance, in the context of a sluggish European market. Russia, for its part, (expected growth of 1.4% in 2019 and 1.8% in 2020) should continue to suffer from a lack of investor confidence (due to ongoing sanctions) and household confidence (due to the stagnation of real income), while oil revenues should stagnate due to the OPEC+ self-limitation agreement and stabilising prices.

In South Africa, growth is expected to increase slightly at the end of the period (0.5% in 2019 and 1.4% in 2020), although still well below the average growth rate in emerging countries. Lastly, oil exporting countries in the Middle East are likely to continue to benefit from favourable oil prices. Recovery should continue in Iraq, while an improvement is likely in Iran and Libya.

Our scenario comprises a fair number of uncertainties, mainly linked to the outcome of the trade war between China and the United States. Is the pause agreed by the two countries' leaders at the G20 summit in Osaka in June 2019 a prelude to an agreement, or only a way of gaining time? Given the drop recorded in the 1st halfyear, Coface is already expecting a slight fall (-0.7%) in world trade this year. The volatility of commodity prices is another uncertain factor, along with financial market developments and US dollar trends. However, in the light of the expected slowdown in the American economy and the upcoming presidential election in late 2020, American economic policy is likely to loosen, driving the dollar down. In principle, such a development should be favourable to the emerging markets which offer the best returns.

GDP growth rate estimation for 2019 (source Coface)

ii. Outlook for the Group

The complexity of the international environment has not abated over the past quarter. The lack of significant progress in talks between China and the United States has been accompanied by the weakest growth in China for many years. The resignation of Theresa May came at a time when UK economic indicators are deteriorating. Finally, it has been difficult to build consensus on leadership within the European institutions. Central banks, on the other hand, confirmed their accommodative bias, leading to a further sharp easing of interest rates. At sectoral level, the distribution and the automotive sector have made little progress in resolving their long-term strategic difficulties.

Within this environment, the continued development of Coface's risk policy remains unchanged. In this context of a progressively slowing economy, targeted opportunities have emerged, in certain sectors and countries, to underwrite business at rates more tailored to the level of risk. This also demonstrates the relevance of an agile organisation and consistency in our approach to risk.

The partial internal model has been filed with the French insurance regulator. The objectives of the second pillar of Fit to Win (capital efficiency) have been reinforced.

Finally, all the objectives of the Fit to Win plan are on track to be delivered.

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II. Consolidated financial statements

Basis of preparation

These IFRS condensed interim financial statements of the Coface Group as at June 30, 2019 are established in accordance with IAS 34 – Interim Financial Reporting, as adopted by the European Union. The interim financial statements include:

the balance sheet;
the income statement;
the consolidated statement of comprehensive income;
the statement of changes in equity;
the statement of cash flows;
the notes to the financial statements.

They are presented with comparative financial information at January 1, 2019 and December 31, 2018 for balance sheet items and for the 6 months ended June 30, 2018 for income statement items.

The balance sheet at January 1, 2019 includes the effect of the first application of IFRS 16 "Leases".

The accounting principles and policies used for the interim financial statements at June 30, 2019 are the same, except for the new standard IFRS 16, as the ones used for the year ended December 31, 2018. They are prepared in accordance with the International Financial Reporting Standards (IFRS) as published by IASB and adopted by the European Union⁴ . They are detailed in the note "Applicable Accounting Standards" of consolidated financial statements for the year ended December 31, 2018.

These condensed consolidated financial statements were reviewed by Coface Group's Board of Directors on 25 July 2019. They were also previously reviewed by the Audit Committee on 24 July 2019.

⁴ The standards adopted by the European Union can be consulted on the website of the European Commission at: http://ec.europa.eu/finance/ company-reporting/ifrs-financial-statements/index_fr.htm