French unemployment insurance - unedic.org · – Unédic has to keep a balanced budget over the...

Investor Presentation – March 2018 1

March 2018

FRENCH UNEMPLOYMENTINSURANCE

INVESTOR PRESENTATION


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

Possible future changes of the french unemployment insurance

Unédic institution


MANAGEMENT OF THE INSURANCE ENTRUSTED TO THE SOCIAL PARTNERS


TO CARRY OUT OPERATIONS OF CONTRIBUTION COLLECTION AND BENEFIT PAYMENT

UNÉDIC MANDATES TWO PUBLIC AGENCIES


CONTINUITY AND SUSTAINABILITY OF THE SCHEME ARE GUARANTEED

Collective negotiation every 2 or 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 levels

– Adjustable variables in order to reach equilibrium:

• Contribution rate

• Unemployment insurance eligibility criteria

• Amount and duration of benefits

• …

A scheme with a tacit guarantee from the State

– 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 29 December 2017 (article 82): authorisation to provide an explicit guarantee

– Ministerial Order granting the guarantee (pending)


FROM THE PRESIDENTIAL ELECTION CAMPAIN TO APPLICABLE MEASURES

During the election campaign, President Macron announced new plans for unemployment insurance:

– Opening up unemployment benefits to new populations including independant and resigning workers

– Changes in payroll charges substituting contributions paid by the employees by increasing CSG taxes (General Social Contribution)

The social partners reached an agreement at the end of February 2018 regarding the possible changes to the scheme

Unédic has been involved in the expert group in charge of documenting baseline data for the dialogue:

– Legal implications

– Financial risks of the changes

– Verification and evaluation of the data gathered in the baseline data…

The new plans could lead to a stronger involvement of the State in the French unemployment insurancemanagement

In order to define a possible new role for Unédic and open new rights for resigning workers, new specific lawsshould be passed during the summer

POSSIBLE FUTURE CHANGES OF THE FRENCH UNEMPLOYMENT INSURANCE


Improvement of business climate

Drop in business failures

Labor participation rate by age group

Unemployment decrease

Economic outlook in France


Opinion survey index of business leaders

Source: INSEE

IMPROVEMENT OF THE MACROECONOMIC SITUATION IN FRANCE

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

IMPROVEMENT OF THE MACRO-ECONOMIC SITUATION IN FRANCE


Evolution of business failures

Source: Banque De France

IMPROVEMENT OF THE MACRO-ECONOMIC SITUATION IN FRANCE


Labor participation rate by age group

Source : OECD

Better macro-economic situation directly improves the employment situation…

IMPROVEMENT OF THE MACROECONOMIC SITUATION IN FRANCEIMPROVEMENT OF THE EMPLOYMENT SITUATION IN FRANCE

Source: INSEE, last observation 2016


Source : INSEE

Unemployement (ILO)

… leading to a decreasing unemployment rate

8,9%

IMPROVEMENT OF THE EMPLOYMENT SITUATION IN FRANCE


Research methodology and forecasts

Unédic hypotheses, revenue and expenditure

Stable revenue, expenditure negatively correlated to the economic situation

Unédic financial outlook

Unédic debt forecasts

A “leverage effect” upon the balance of the unemployment insurance

Measures recently adopted and in progress

Financial Forecast


UNÉDIC RESEARCH METHODOLOGY AND FORECASTS

Forecast updated three times a year

– Based on macro-economic indicators 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

– Careful monitoring of the working population, wage bill change, unemployment benefits paid, etc.

– Forecasts reviewed by unemployment insurance managers for daily management

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

– Finance Law for 2014-2019 Art. 29 : cf. appendix 1

The 3 year forecast and structural and cyclical balance analysis help the social partners adapt the rules for the Unemployment insurance

– Unédic has to keep a balanced budget over the economic cycle


Unédic financial balance is based on the following macroeconomic indicators

The macroeconomic hypotheses used for Unédic forecasts are based on the Consensus Forecasts :

Unédic careful statistical method and indicators result in revenue and expenditure forecast :

UNÉDIC HYPOTHESES, REVENUE AND EXPENDITURE

Sources: Unédic, INSEE, Consensus Forecasts February 2018, Unédic calculations

Note: Unédic forecasts are based on hypotheses which may differ from the State macro-economic framework

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

GDP growth (in volume) 0,2% 0,6% 1,0% 1,0% 1,1% 1,9% 2,0% 1,8%

Wage bill growth 2,1% 1,2% 1,5% 1,7% 2,4% 3,4% 3,0% 3,2%

Unemployment level 10,1% 10,1% 10,5% 10,2% 10,0% 8,9% 8,8% 8,4%

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

Annual revenues (€M) 32,466 33,274 33,936 34,520 35,146 36,237 37,418 38,485

Annual expenditures (€M) 35,193 37,271 37,746 38,769 39,503 39,874 39,502 39,120


STABLE REVENUE, EXPENDITURE NEGATIVELY CORRELATED TO THE ECONOMIC SITUATION

Contribution and expenditure relative to GDP

Sources: Unédic, INSEE, Consensus Forecasts February 2018, Unédic calculations



UNÉDIC FINANCIAL OUTLOOK

Significant improvement of Unédic financial forecast

Sources: Unédic, European Commission, Consensus Forecasts February 2018, Unédic calculations



MEASURES RECENTLY ADOPTED AND IN PROGRESS

2017 Agreement new set of measures

+930M€

Reform of cross-border workers

between EuropeanStates

+480M€

Stabilisation of Unédic balance in the medium term

Sources : Unédic, June 2017 and February 2018

About €1.5bn

averagestructural deficit since2010

In April 2017, the social partners agreedon new measures to rebalance Unédicstructural deficit estimated at €1,5bn

These new measures have been implemented in November 2017

The recent agreement of February 2018 should have a limited impact on Unédicbalance but requires the State approvaland specific legislative changes

Other measures not directly decided by the social partners could further improveUnédic balance


UNÉDIC DEBT FORECASTS

Significant improvement of Unédic financial forecast

– Debt

Sources: Unédic, Consensus Forecasts February 2018, Unédic calculations



A “LEVERAGE EFFECT” UPON THE BALANCE OF THE 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 acompounded negative effect upon thefinances of unemployment insurance:

- 1 contributor+ 9 contributions consumed

1 jobseeker finding a job has an enhancedpositive effect upon unemploymentinsurance finances:

+ 1 contributor+ 9 contributions available

There usually is a delay of 6 months to a year before this levered effect can be noticed


Unédic funding programmes

Funding Programme for 2017

Longer average maturity funding

EMTN programme investors

NEU MTN programme investors

Unédic Investors website

Financial management


UNÉDIC’S 3 FUNDING PROGRAMMES AT A GLANCE

Funding ProgrammesNEU CP

(ex Billet de trésorerie)NEU MTN(ex BMTN)

EMTN

No explicit guarantee No explicit guarantee Explicit guarantee*Nature of the guarantee


FUNDING PROGRAMME FOR 2017

NEU CP (French commercial paper, ex-Billets de trésorerie)

– Daily issue of commercial paper

– Minimum 3 months WAM

– Between €2bn and €5.4bn outstanding in 2017

NEU MTN – Negotiable Euro MTN (ex-BMTN)

– Fixed rate, in Euros, maturity up to 7 years

– No explicit guarantee

– ECB-eligible (Tier-1)

– 0% risk weight

– €2.70bn issued in 2017

EMTN programme of €5bn for 2017

– Fixed rate, in Euros, maturity up to 15 years

– First demand explicit guarantee from the French State

– ECB-eligible (Tier-1)

– 0% risk weight

– €5bn issued in 2017


LONGER AVERAGE MATURITY FUNDING

Unédic objective is to structure its debt by the economic cycle and extend the average maturity of its outstanding debt

• 3 months average maturity for the outstanding NEU CP

• 3 years 4 months average maturity for the outstanding NEU MTN

• 6 years 2 months average maturity for the outstanding EMTN

• The maximum maturity for new EMTN and NEU MTN issuance is 15 years and 7 years respectively


UNÉDIC EMTN PROGRAMME: INVESTORS BREAKDOWN IN 2016 & 2017

A growing interest among international investorsfor the Unédic’s EMTN programme

– A total of €28,8 bn outstanding , more than 60% of which is held by foreign investors

– Germany and the United Kingdom are the primaryEuropean investors after France

– Investors present over 5 continents and in more than30 countries


UNÉDIC NEU MTN PROGRAMME DISTRIBUTION

Unédic Neu MTN Programme allows for flexible financing

– The NEU MTN is a flexible note format for OTC fixedrate debt issuance

– The maximum outstanding amont of the programme was increased to €8bn in 2017 from €6bn

– The maximum maturity of the programme wasextended to 7 years (previously limited to 6 years)


FOR MORE INFORMATION, VISIT UNÉDIC INVESTORS WEBSITE

https://www.unedic.org/investors


DISCLAIMER

This document is a draft for discussion purposes only, it is highly confidential and proprietary and shouldnot be transmitted to any person other than its original addressee(s) without the prior written consentof Unédic. Prices and margin are meant to be indicative only and are subject to change at any timedepending on market conditions. Unédic cannot be held responsible for any financial loss or otherconsequences of the implementation of the transactions described in this document. The French Autoritédes Marchés Financiers granted its visa under number 17-100 dated 17 March 2017 with respect to abase prospectus (hereinafter referred to as the “Base Prospectus”) which details this operation. TheBase 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 BaseProspectus before taking a decision with respect to the implementation of the transactions described inthis document or in the Base Prospectus. Should you so require, you should contact your financial, legalor tax advisor, or any other specialist, in order to confirm that any decision taken is consistent with yourpersonal financial situation.

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