FRENCH UNEMPLOYMENT INSURANCE INVESTOR PRESENTATION May 2017 1 Investor Presentation - May 2017
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 2 Investor Presentation - May 2017
COMPENSATION BY UNEMPLOYMENT INSURANCE 3 Investor Presentation - May 2017
COMPENSATION BY UNEMPLOYMENT INSURANCE FOR 2015 * at 12/31/2015 4 Investor Presentation - May 2017
MANAGEMENT OF THE INSURANCE ENTRUSTED TO THE SOCIAL PARTNERS 5 Investor Presentation - May 2017
UNÉDIC MANDATES TWO PUBLIC AGENCIES TO CARRY OUT OPERATIONS OF CONTRIBUTION COLLECTION AND BENEFIT PAYMENT 6 Investor Presentation - May 2017
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 – NEW measures: The last collective negotiation of April 2017 witnessed the decision to implement new measures for the Unemployment insurance scheme. The new set of measures are expected to generate savings projected around € 900M by 2022 . The new rules implementation will start in October 2017 after the necessary change in ACOSS and Pole emploi IT systems. 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) 7 Investor Presentation - May 2017
Financial Forecast Unédic Research and financial forecast Contributions steady increase Change in cash position and net indebtedness of Unédic 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 8 8 Investor Presentation - May 2017
UNÉDIC RESEARCH AND FINANCIAL FORECAST Projections updated three times a year – Based on macro-economic fundamentals from the Consensus of Economists: • Forecast in change of GDP rate • CPI – 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” 9 Investor Presentation - May 2017
CONTRIBUTIONS STEADY INCREASE Unemployment insurance contributions are tied to the economic situation, but less so than the expenditures 2011 2012 2013 2014 2015 2016 2017 2018 (est.) (f.) (f.) Annual revenues ( € M) 31 855 32 466 33 274 33 936 34 520 35 146 35 817 36 665 Wage bill growth 3,6% 2,2% 1,2% 1,6% 1,7% 2,4% 2,5% 2,5% GDP growth 2,1% 0,2% 0,6% 0,7% 1,2% 1,1% 1,3% 1,4% Sources: Unédic, INSEE, Consensus Forecasts February 2017, Unédic Calculations Note: Unédic forecasts are based on hypothesis which may differ from the State macro economic framework 10 Investor Presentation - May 2017
UNEDIC FINANCIAL SITUATION FORECAST Change in cash balance of Unedic before 2017 new rules Unedic net indebtedness at year end 2016 amounted to € 30,5bn Sources: Unédic, INSEE, Consensus Forecasts February 2017, Unédic Calculations Note: Unédic forecasts are based on hypothesis which may differ from the State macro economic framework 11 Investor Presentation - May 2017
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 of 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 12 Investor Presentation - May 2017
EXPENDITURES CLOSELY TIED TO THE ECONOMIC SITUATION Contributions and expenditures relative to GDP Sources: Unédic, INSEE, Consensus Forecasts February 2017, Unédic Calculations Note: Unédic forecasts are based on hypothesis which may differ from the State macro economic framework 13 Investor Presentation - May 2017
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 1 jobseeker finding a job has an enhanced compounded negative effect upon the positive effect upon unemployment finances of unemployment insurance: insurance finances: - 1 contributor + 1 contributor + 9 contributions consumed + 9 contributions available There usually is a delay of 6 months to a year before this levered effect can be noticed 14 Investor Presentation - May 2017
BALANCE AND NET INDEBTEDNESS OF UNÉDIC BEFORE 2008 Historical data of Unédic financial situation before the financial crisis Sources: Unédic, INSEE, Consensus Forecasts February 2017, Unédic Calculations Note: Unédic forecasts are based on hypothesis which may differ from the State macro economic framework 15 Investor Presentation - May 2017
POSITION IN THE ECONOMIC CYCLE AND CYCLICAL BALANCE Output gap Since 2009, the cyclical balance of Unédic has been continuously negative due to prolonged negative output gap over the period. Sources : European commission Note: Unédic studies are based on hypothesis which may differ from the State macro economic framework 16 Investor Presentation - May 2017
UNÉDIC STRUCTURAL BALANCE SINCE 1990 Structural balance Between 2010 and 2015, the structural balance of Unédic was negative and represents up to -1,4bn Euros on average each year. Sources: Unédic, INSEE, Consensus Forecasts February 2017, Unédic Calculations Note: Unédic forecasts are based on hypothesis which may differ from the State macro economic framework 17 Investor Presentation - May 2017
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 decrease by € 280-400M each year. • Total gain for Unédic financial situation is projected to be worth € 550M for 2018 and € 600M for 2019. • From 2021, raising to 53 years old the eligibility for receiving longer unemployment benefits will start to produce effects and further decrease Unédic expenditures. Eventually, the measure should achieve full effects by 2022 and represents savings of € 900M. 18 Investor Presentation - May 2017
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