FRENCH UNEMPLOYMENT INSURANCE INVESTOR PRESENTATION September - - PowerPoint PPT Presentation

Investor Presentation - September 2017 1

September 2017

FRENCH UNEMPLOYMENT INSURANCE

INVESTOR PRESENTATION

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TABLE OF CONTENT

Compensation by unemployment insurance Management of the insurance entrusted to the social partners Two public operators are in charge of collection and payment of benefits Continuity and sustainability of the scheme are guaranteed

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COMPENSATION BY UNEMPLOYMENT INSURANCE

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COMPENSATION BY UNEMPLOYMENT INSURANCE FOR 2015

*at 12/31/2016

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MANAGEMENT OF THE INSURANCE ENTRUSTED TO THE SOCIAL PARTNERS

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TO CARRY OUT OPERATIONS OF CONTRIBUTION COLLECTION AND BENEFIT PAYMENT

UNÉDIC MANDATES TWO PUBLIC AGENCIES

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CONTINUITY AND SUSTAINABILITY OF THE SCHEME ARE GUARANTEED

Collective negotiation every 2 to 3 years to ensure financial balance “over the cycle”

– A legal obligation for a balanced budget (Labour Code Art. L 5422-12) – Definition of the mechanisms for a 2 to 3 years term, depending upon the financial situation of the unemployment insurance, the job market and unemployment figures – Adjustable variables in order to reach equilibrium:

• Contribution rate
• Compensation rights
• Amount and duration of benefits

A scheme with a tacit guarantee from the French government

– Compulsory nature of the unemployment insurance (Labour Code Art. L 5422-13) – Ministerial approval of the insurance agreements (Labour Code Art. L 5422-21) – Unédic is substituted by the government take-over should the social partners and employers’ organisations fail and reach an agreement or obtain its governmental approval

Bonds issuance supported by an explicit State guarantee, renewed since 2011

• Amending Finance Law of 30 December 2016 (article 36): authorisation to provide guarantee
• Ministerial Order granting the guarantee (6 March 2017)

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Improvement of the macroeconomic situation in france Unédic Research and forecast Contribution steady increase Unedic cyclical and structural debt Expenditures closely tied to the economic situation A “leverage effect” upon the balance of unemployment insurance scheme Position in the economic cycle and cyclical balance Unedic structural balance since 1990 New 2017 rules for Unemployment insurance scheme Savings generated by the new convention

Financial Forecast

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Opinion survey index of business leaders

Long term average Business climate Employment climate

Source : INSEE

IMPROVEMENT OF THE MACROECONOMIC SITUATION IN FRANCE

After years of relative growth, various indicators show significant improvement of the situation

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Evolution of business failures

Source : Banque De France

IMPROVEMENT OF THE MACROECONOMIC SITUATION IN FRANCE

After years of relative growth, various indicators show significant improvement of the situation

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GDP growth

Long term average Business climat Employement climat

Source : OECD

Japan United Kingdom United States France

After years of relative growth, various indicators show significant improvement of the situtaion

IMPROVEMENT OF THE MACROECONOMIC SITUATION IN FRANCE

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Source : INSEE

Unemployement level (ILO) The amelioration of the situation is starting to produce effects on employment

9.2%

IMPROVEMENT OF THE MACROECONOMIC SITUATION IN FRANCE

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UNÉDIC RESEARCH AND FORECAST Forecast updated three times a year

– Based on macro-economic fundamentals from the Consensus of Economists:

• Forecast in change of GDP rate
• CPI
• Some hypotheses used by Unédic in its forecast model can differ from the State macro economic

framework – Monitoring of the working population, wage rate change, unemployment benefits paid, etc.

A steering tool for social partners

– Forecasts reviewed by unemployment insurance managers. – A reference for the social partners negotiating the agreements:

Unédic has an obligation to conduct a 3 year forecast and analysis of cyclical effects on its finances

– Finance Law for 2014-2019 Art. 29: “Unédic reports every year to the Parliament and the Government, before the 30 June at the latest, its three year financial forecast, detailing in particular the cyclical effects of salaried employment evolution on the financial balance of the unemployment insurance scheme”

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CONTRIBUTIONS STEADY INCREASE

Unédic revenue shows stable and steady increase despite a period of economic difficulties

Sources: Unédic, INSEE, Consensus Forecasts June 2017, Unédic Calculations Note: Unédic forecasts are based on hypotheses which may differ from the State macro economic framework

2012 2013 2014 2015 2016 2017 (f.) 2018 (f.) 2019 (f.) 2020 (f.)

Annual revenues (€M)

32,466 33,274 33,936 34,520 35,146 35,935 37,044 37,909 38,845

Wage bill growth

2.2% 1.2% 1.6% 1.7% 2.4% 2.7% 2.5% 2.5% 2.8%

GDP growth (in volume)

0.2% 0.6% 1.0% 1.0% 1.1% 1.5% 1.5% 1.5% 1.5%

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EXPENDITURE CLOSELY TIED TO THE ECONOMIC SITUATION

Contribution and expenditure relative to GDP

Sources: Unédic, INSEE, Consensus Forecasts June 2017, Unédic Calculations Note: Unédic forecasts are based on hypotheses which may differ from the State macro economic framework

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UNEDIC FINANCIAL SITUATION FORECAST

Significant improvement of Unédic financial forecast

Sources: Unédic, INSEE, Consensus Forecasts June 2017, Unédic Calculations Note: Unédic forecasts are based on hypotheses which may differ from the State macro economic framework

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A “LEVERAGE EFFECT” UPON THE BALANCE OF UNEMPLOYMENT INSURANCE With the current parameters of unemployment insurance (contribution rate and compensation rate), the contributions of roughly 9 affiliated employees are necessary to compensate 1 jobseeker

1 employee losing his job has a compounded negative effect upon the finances of unemployment insurance:

• 1 contributor

+ 9 contributions consumed 1 jobseeker finding a job has an enhanced positive effect upon unemployment insurance finances: + 1 contributor + 9 contributions available There usually is a delay of 6 months to a year before this levered effect can be noticed

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UNÉDIC CYCLICAL AND STRUCTURAL DEBT RESEARCH

Unédic research and analysis on the cyclical and structural balance of its debt

– Unédic has to keep a balanced budget over the economic cycle – The social partners have made the choice to prioritize their mission and the social nature of unemployment insurance which is to serve a replacement revenue to eligible jobseekers and help them return to employment – 2014 Finance Law prompted Unédic to conduct further analysis on its debt and the identification

• f its structural and cyclical components

– Unédic uses the methodology used by international organizations (IMF, OECD…) to measure the cyclical component of its year-end result based on the analysis of the “output gap” estimating the present position in the economic cycle

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POSITION IN THE ECONOMIC CYCLE AND CYCLICAL BALANCE

Output gap

Sources : European commission

Since 2009, the cyclical balance of Unédic has been continuously negative due to prolonged negative output gap

• ver the period.

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STRUCTURAL AND CYCLICAL BALANCE

Structural and cyclical balance relative to the economic cycle

Structural deficit = €1,5bn Surplus

Deficit

Structural balance: years or surplus compensate for years

• f deficit.
• > indebtedness

remains at zero Negative structural balance or structural deficit : years of surplus can not compensate enough for years of deficit.

• > indebtedness increases

Financial situation

Cyclical deficit Financial situation

time

Source : Unédic

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UNÉDIC STRUCTURAL BALANCE SINCE 1990

Structural balance

Sources: Unédic, INSEE, Consensus Forecasts June 2017, Unédic Calculations Note: Unédic forecasts are based on hypotheses which may differ from the State macro economic framework

Between 2010 and 2016, the structural balance of Unédic was negative and represents up to -1,5bn Euros on average each year.

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UNÉDIC STRUCTURAL BALANCE COULD BE STABILIZED AROUND 2022

Structural balance and 2017 collective negociation

The Social Partners last negociation was conducted bearing in mind Unédic structural deficit around €1.5bn Specific rules between European States are being reformed and could generate additionnal savings worth €480M Other expenditure involving the French State responsability (the entertainment temporary worker status, equal share of Pole emploi

• perating costs between the State and

Unédic…) could further improve Unédic structural balance and produce regular surplus for debt reduction

2017 Agreement new set of measures +930M€

Reform of cross- border workers between European States +480M€

Structural balance of Unédic stabilized in the medium term

Sources : Unedic

About €1.5bn

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SAVINGS GENERATED BY THE NEW 2017 RULES FOR UNEMPLOYMENT INSURANCE

• The 2017 agreement should generate up to €300M each year thanks to the

0,05% additional exceptional contribution paid by employers for the next three years. Considering the same legal framework, 10% of the additionnal revenue will be redistributed to Pôle emploi.

• Meanwhile, from 2018 to 2020, thanks to the new set of measures, Unédic

expenditures are projected to progressively decrease by €280-400M per year.

• Implemented in October 2017 but only producing effects as of 2019, raising

the eligibility for receiving longer unemployment benefits to people aged 53 years old or older (instead of 50 years old) will further decrease Unédic

• expenditures. Eventually, the measure should achieve full effects by 2022 and

represents savings of €900M.

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SAVINGS GENERATED BY THE NEW 2017 RULES FOR UNEMPLOYMENT INSURANCE

Sources : Unédic, Unédic calculations June 2017 Note: Unédic studies are based on hypotheses which may differ from the State macro economic framework

Projected savings generated between 2018 and 2022

Full effect

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Unédic funding programmes at a glance Investment-grade rating reflects Unédic rigorous management Funding Programme for 2017 Unedic aiming for longer average maturity funding Unédic EMTN programme 2016 Unédic NEU MTN programme 2016 Unédic 2017 new primary issuance Bond issues welcomed by institutional investors Unédic rating

FINANCIAL MANAGEMENT

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UNEDIC’S 3 FUNDING PROGRAMMES AT A GLANCE

Funding Programmes NEU CP (ex Billet de trésorerie) NEU MTN (ex BMTN) EMTN

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INVESTMENT-GRADE RATING REFLECTS UNÉDIC RIGOROUS MANAGEMENT Capital market financing

– EMTN Programme (€ 37 billion) – Explicit guarantee – NEU MTN (ex BMTN) Programme (€ 8 billion) – Implicit guarantee – NEU CP French Commercial Paper Programme (€ 10 billion)

Active management of the French CP Programme

– Setting of a duration target and active maturity management – Setup of a liquidity buffer

Risk management

– No foreign exchange risk – Interest rate risk managed through issuance along the yield curve of the rates representing the economic outlook for Unédic

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FUNDING PROGRAMME FOR 2017 NEU CP (French commercial paper, ex-Billets de trésorerie)

– Daily issue of commercial paper

NEU MTN (ex-BMTN)

– Fixed rate, in Euros, maturity up to 7 years – No explicit guarantee – ECB-eligible (Tier-1) – 0% risk weight

EMTN programme of €5bn for 2017

– Fixed rate, in Euros, maturity up to 15 years – First demand guarantee from the French State – ECB-eligible (Tier-1) – 0% risk weight

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UNEDIC AIMING FOR LONGER AVERAGE MATURITY FUNDING

• Unedic objective is to structure

its debt by the economic cycle and extend the average maturity of its outstanding debt

• 4 months average maturity for the
• utstanding NEU CP
• 2 years 10 months average maturity for the
• utstanding NEU MTN
• 6 years 7 months average maturity for the
• utstanding EMTN
• 6 years average maturity for the overall
• utstanding debt of Unédic
• The maximum maturity for new EMTN and

NEU MTN issuance is 15 years and 7 years respectively

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UNÉDIC EMTN PROGRAMME 2016

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UNEDIC NEU MTN (EX BMTN) PROGRAMME 2016

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FOR MORE INFORMATION, VISIT UNEDIC INVESTORS WEBSITE

https://www.unedic.org/investors

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DISCLAIMER

This document is a draft for discussion purposes only, it is highly confidential and proprietary and should not be transmitted to any person other than its original addressee(s) without the prior written consent

• f Unédic. Prices and margin are meant to be indicative only and are subject to change at any time

depending on market conditions. Unédic cannot be held responsible for any financial loss or other consequences of the implementation of the transactions described in this document. The French Autorité des Marchés Financiers granted its visa under number 17-100 dated 17 March 2017 with respect to a base prospectus (hereinafter referred to as the “Base Prospectus”) which details this operation. The Base Prospectus is available at no cost at Unédic registered office, 4, rue de Traversière, 75012 Paris, France and on its website www.unedic.org. You are invited to report to the section “risks” of the Base Prospectus before taking a decision with respect to the implementation of the transactions described in this document or in the Base Prospectus. Should you so require, you should contact your financial, legal

• r tax advisor, or any other specialist, in order to confirm that any decision taken is consistent with your

personal financial situation.