2016-08-25 13:00:39 CEST
2016-08-25 13:00:39 CEST
REGULATED INFORMATION
Työttömyysvakuutusrahasto - Interim report (Q1 and Q3)
Unemployment Insurance Fund (TVR): Interim Report 1 January - 30 June 2016
Unemployment Insurance Fund Interim Report 25 August 2016 at 14:00
1.1. Financial development
TVR's result in January-June was better than anticipated
* Unemployment insurance contributions and other income in total
EUR 2,070 (1,693) million
* Unemployment benefits paid and administrational expenses in total
EUR 2,037 (2,065) million
* Change in net position (half-year) EUR 31 (-374) million
* Net position EUR -655 (-686) million
* Investments and assets in total EUR 1,291 million (31/12/2015: 604)
* Raised debt and other liabilities in total EUR 1,946 million (31/12/2015:
1,290)
* Unemployment rate 9.3% in June 2016 (June 2015: 10.0%)
* Return on investments 0.2% (0.1%)
1.2. Managing Director's review
Increase in unemployment has stopped
Short-term outlook still highly uncertain
Financial development at TVR has been more positive than anticipated during the
first half of 2016. During budget preparations in August 2015, it was estimated
that despite the significant increase in unemployment insurance contributions,
TVR's result for the financial year 2016 would show a deficit of slightly over
EUR 400 million. Based on the interim report, however, this year's result will
be close to zero and it is currently estimated that there will be no need to
take out additional loans.
At this stage, however, the signs of an upswing in Finland's economic growth are
very faint. Developments during the second half of 2016 and in 2017 will involve
great uncertainty as TVR prepares its budget for 2017 and the proposal for next
year's unemployment insurance contributions.
The Competitiveness Pact concluded by the national labour and employer
confederations in June 2016 will also mean changes at TVR. According to the
Competitiveness Pact, the maximum size of the Fund's business cycle buffer will
be temporarily raised from the amount of annual expenses corresponding to an
unemployment rate of 5% to 7%. This means that the maximum size of the buffer in
2017 will be around EUR 2.3 billion. As of the beginning of 2018, the level of
employee's unemployment insurance contributions and employer's average
unemployment insurance contributions will be the same. As a result, the
composition of TVR's governing bodies will change.
TVR has taken part in the preparations of the National Income Register project.
In early 2016, it was decided that TVR would participate in the first phase of
the income register, which will be launched in 2019.
1.3. Operational environment of the Unemployment Insurance Fund
The contraction of the Finnish economy was halted during the first half of 2016
and unemployment stopped increasing. In its stock exchange release of 26 April
2016, the Fund adopted a more positive outlook on how the unemployment rate will
develop in 2016. In the new forecast, the unemployment rate for 2016 was
estimated to be 9.4%, in comparison to the 10.1% stated in the budget approved
on 28 August 2015. Furthermore, TVR estimated that its result for the financial
year would show a deficit of EUR 39 million, as opposed to the EUR 409 million
stated in the budget for 2016.
Unemployment insurance contributions were raised for 2016, which increased the
amount of contributions collected by 22%. Expenditure reduced by one per cent
during the period under review. The result at the end of the review period was
EUR 31 million, which represents an improvement of EUR 405 million from a year
earlier.
1.3.1. Personnel
The average number of personnel at TVR was 104 (97), of which 78 (77) were
permanent employees. At the end of the review period, the number of personnel
was 98 (96).
1.3.2. Risk management
During the period under review, there have been no significant changes in the
risks or uncertainties prevailing since the most recent annual financial
statements. Operational risk management processes have been developed and our
procurement and payment processes have been tweaked.
No changes have been made to the way in which financial risks are managed; the
same principles described in the most recent annual financial statements have
been applied. The key financial risks of the period under review are described
in the following subsections.
1.3.3. Financial risk factors
Market risk
The main market risk factor for the Fund regarding investments and liabilities
is the interest rate risk. The investment portfolio is dominated by interest
bearing investments (money market investments and bonds). The Fund may make
investments directly, or indirectly through investment funds. At the end of the
review period, 3.2% (31/12/2015: 3.2%) of investments were indirect. In addition
to investments, borrowings with variable interest rates expose the Fund to
interest rate risks. At the end of the review period, borrowings with variable
interest rates amounted to EUR 86 million (31/12/2015: MEUR 212).
The market risk on 30 June 2016 and 31 December 2015 was as follows:
+------------+-----------------------------------+
| | 30 June 2016 |
| +------+---------------+------------+
| |Risk %|Capital, in EUR|Risk, in EUR|
+------------+------+---------------+------------+
|Money market| 1.0 | 504,980,974 | 5,049,810 |
+------------+------+---------------+------------+
|Bonds | 4.0 | 457,445,492 | 18,297,820 |
+------------+------+---------------+------------+
|Equities | 25 | 7,970| 1,993 |
+------------+------+---------------+------------+
|Total risk | 2.43 | 962,434,436 | 23,349,622 |
+------------+------+---------------+------------+
+------------+-----------------------------------+
| | 31/12/2015 |
| +------+---------------+------------+
| |Risk %|Capital, in EUR|Risk, in EUR|
+------------+------+---------------+------------+
|Money market| 1.0 | 207,042,334 | 2,070,423 |
+------------+------+---------------+------------+
|Bonds | 4.0 | 242,494,188 | 9,699,768 |
+------------+------+---------------+------------+
|Equities | 25 | 8,473| 2,093 |
+------------+------+---------------+------------+
|Total risk | 2.62 | 449,544,895 | 11,772,284 |
+------------+------+---------------+------------+
The total risk was 2.4% (31/12/2015: 2.6%) of the Fund's assets and 0.6% (2015:
0%) of the Fund's income in 2016. The risk posed by the investment portfolio is
moderate due to its conservative structure and the low risk level of the
securities in the portfolio.
All money market investments carry variable interest (2015: 100%), while 28% of
the bonds were at variable rates (2015: 28%). Variable rate investments expose
the Fund to cash flow interest rate risk, while investments at fixed rates
expose the Fund to fair value interest rate risk.
If on 30 June 2016 the euribor rates and interest rate curve (swap rates) had
been 50 basis points higher with all other variables held constant, the total
changes in net position would have been EUR 2.7 million (31/12/2015: MEUR 1.7)
lower. Respectively, if on 31 December 2015 the euribor rates and interest rate
curve (swap rates) had been 50 basis points lower, the total changes in net
position would have been EUR 2.7 million (31/12/2015: MEUR 1.7) higher.
Credit risk
The credit risk of the investments is managed by issuer credit limits. Limits
for each issuer are determined by taking account of the absolute size, economic
position and future outlook of the issuer. The Fund continuously monitors the
credit standing and future outlook of the issuers, and when changes occur, the
limits are either increased or decreased. The Fund mainly invests in Nordic
banks which have high credit ratings, states with strong credit ratings
(Finland, Germany, Holland and Sweden), domestic companies and municipalities.
Cash and cash equivalents are only held in banks with high credit ratings.
Since the beginning of 2016, a rating requirement came into effect with respect
to the investment portfolio's average rating, which requires the average rating
to be at least A- (S&P). In 2015, there was no requirement in place for the
average rating of the investment portfolio. On 30 June 2016, the estimated level
of the investment portfolio's credit rating was approximately A-.
Liquidity risk
To secure its liquidity, the Fund has investments in liquid money market
instruments with less than a year's maturity at an amount that equals the Fund's
one month's expenses.
When the investment buffer decreases below the above limit, the Fund uses short-
term borrowings to cover the temporary liquidity deficit. For this purpose, the
Fund has a commercial paper program totalling EUR 300 million (2015: MEUR 300)
and a EUR 300 million revolving credit facility (RCF) with six commercial banks.
In addition, the Fund has a EUR 700 million committed credit facility,
guaranteed by the Republic of Finland. The amounts in the table are in EUR
millions.
EUR
Committed credit facilities, not in use 30/06/2016 31/12/2015
------------------------------------------------------------------
Facilities, expiring within a year 700
Facilities, expiring after a year
RCF 300 300
Credit facility (guaranteed
by the Government) 700
------------------------------------------------------------------
Total 1,000 1000
------------------------------------------------------------------
Non-committed credit facilities, not in use 30/06/2016 31/12/2015
------------------------------------------------------------------
Commercial papers 214 88
------------------------------------------------------------------
Total 214 88
------------------------------------------------------------------
The net position of the Fund turned negative during 2015, whereupon the Fund
mainly relied on capital markets and domestic markets for commercial papers in
financing liquidity. At the end of the review period, the Fund had the following
loan facilities and nominal amounts in use. Amounts are in EUR millions.
+-----------------+------------------+----------------+----------+-------------+
|Loan | Nominal value| Interest rate| Due date|Credit rating|
| | 30/06/2016| (%)| | |
+-----------------+------------------+----------------+----------+-------------+
|Bond-issuance 1 | 600| 0.375|23/09/2019| AA+/S&P|
+-----------------+------------------+----------------+----------+-------------+
|Bond-issuance 2 | 300| 0.25|15/10/2018| AA+/S&P|
+-----------------+------------------+----------------+----------+-------------+
|Commercial papers| 86| 0.14| | NR|
+-----------------+------------------+----------------+----------+-------------+
|Total | 986| | | |
+-----------------+------------------+----------------+----------+-------------+
The Fund has the following issuance credit ratings, confirmed by Standard &
Poor's (10/05/2016):
* Long-term credit rating AA+, negative outlook
* Short-term credit rating A-1+, negative outlook
At the end of the review period, the Fund had EUR 86.3 million (31/12/2015:
MEUR 212) of the commercial paper program in use, and short-term bank loans
amounting to EUR 0 million (31/12/2015: MEUR 0).
The fixed interest rate periods for loans in the statement of net position were
as presented in the tables below. Amounts are in EUR millions. Liabilities for
securities under settlement matured within a few days of the end of the period
under review.
+-----------------+-----------------------+----------------------+-------------+
|Loan | Nominal value| Fixed interest rate|Credit rating|
| | 30/06/2016| period in years,| |
| | | 30/06/2016| |
+-----------------+-----------------------+----------------------+-------------+
|TVR bond 2019 | 600| 3.21| AA+/S&P|
+-----------------+-----------------------+----------------------+-------------+
|TVR bond 2018 | 300| 2.28| AA+/S&P|
+-----------------+-----------------------+----------------------+-------------+
|Commercial papers| 86| 0.21| NR|
+-----------------+-----------------------+----------------------+-------------+
|Credit facilities| -| -| -|
+-----------------+-----------------------+----------------------+-------------+
|Total | 986| 2.67| |
+-----------------+-----------------------+----------------------+-------------+
+-----------------+-----------------------+----------------------+-------------+
|Loan | Nominal value| Fixed interest rate|Credit rating|
| | 31/12/2015| period in years,| |
| | | 31/12/2015| |
+-----------------+-----------------------+----------------------+-------------+
|TVR bond 2019 | 600| 3.71| AA+/S&P|
+-----------------+-----------------------+----------------------+-------------+
|TVR bond 2018 | 300| 2.78| AA+/S&P|
+-----------------+-----------------------+----------------------+-------------+
|Commercial papers| 212| 0.26| NR|
+-----------------+-----------------------+----------------------+-------------+
|Credit facilities| -| -| -|
+-----------------+-----------------------+----------------------+-------------+
|Total | 1,112| 2.80| |
+-----------------+-----------------------+----------------------+-------------+
In the following tables, the financial liabilities of TVR are divided into
groups based on remaining contractual maturities.
-------------------------------------------------------------------------------
Maturities
based on Total cash
contracts of Under 6 6-12 4-5 flow based Book value
financial months months 1-3 years years on assets (-) /
liabilities contracts liabilities
(TEUR)
30/06/2016
-------------------------------------------------------------------------------
Accounts 272 0 0 0 272 272
payable
Loans (exl.
finance lease
liabilities) 97,300 2,000 306,000 602,250 1,007,550 897,980
-------------------------------------------------------------------------------
Total 97,572 2,000 306,000 602,250 1,007,822 898,252
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Maturities
based on Total cash Book value
contracts of Under 6 6-12 1-3 4-5 flow based assets
financial months months years years on (-) /
liabilities contracts liabilities
(TEUR)
31/12/2015
-------------------------------------------------------------------------------
Accounts 375 0 0 0 375 375
payable
Loans (exl.
finance lease
liabilities) 182,298 36,300 306,000 602,250 1,126,848 1,113,001
-------------------------------------------------------------------------------
Total 182,673 36,300 306,000 602,250 1,127,223 1,113,377
-------------------------------------------------------------------------------
1.3.4. Business cycle buffer
In accordance with Section 3 of the Act on the Financing of Unemployment
Benefits, the Unemployment Insurance Fund maintains a business cycle buffer
generated from the difference between the Fund's income and expenditure, in
order to safeguard the Fund's solvency and even out changes in unemployment
insurance contribution rates caused by predictable trend cycles in the national
economy. The maximum size of this buffer is the amount of annual expenses
corresponding to an unemployment rate of five per cent. During times of severe
economic downturn, the Fund may maintain a deficit equal to the amount of
expenditure corresponding to this unemployment rate.
According to the investment principles accepted by the Supervisory Board, the
Fund must have investments in liquid money market instruments with less than a
year's maturity at an amount that equals one month's expenses. This amount is
approximately EUR 300 million. In the first half of 2016, debt financing was
used to finance this liquidity buffer.
The maximum size of the buffer is calculated by dividing the annual expenditure
that TVR is liable for, EUR 2,860 million in 2015, by the year's average
unemployment rate (9.4) and multiplying the result by 5. In 2015, the maximum
size of the buffer, provided for in legislation, was EUR 1,521 million. The
maximum size of the business cycle buffer for 2016 will be calculated on the
basis of the confirmed financial statements of 31 December 2016.
The net position of TVR (business cycle buffer) at the end of the reporting
period was EUR 655 million (31/12/2015: MEUR -686) negative. The total amount of
the Fund's long-term and short-term liabilities was EUR 1,946 million
(31/12/2015: MEUR 1,290).
According to the estimate determined by TVR's Board of Directors on 26 April
2016, TVR's net position would be EUR 725 million in the negative on 31 December
2016.
1.3.5. Events after the review period and outlook for the second half of 2016
Based on the information published by Statistics Finland, the unemployment rate
in June 2016 was 9.3%, which is 0.7 percentage points lower than a year earlier.
According to information published by the Ministry of Employment and the
Economy, the number of unemployed persons in June 2016 was slightly lower than a
year earlier. TVR estimates that no significant unemployment-related changes
will occur during the second half of 2016. Furthermore, TVR estimates that the
result for the financial year 2016 will be close to zero and that on 31 December
2016, net poition will amount to a debt of around EUR 650 million.
Helsinki, 25/08/2016
Unemployment Insurance Fund
Board of Directors
Additional information:
Janne Metsämäki, Managing Director. tel. +358 40 522 3614
Tapio Oksanen, Deputy Managing Director, CFO tel. +358 40 539 4651
Helsinki, 25 August 2016
Unemployment Insurance Fund (TVR)
Tapio Oksanen
Deputy Managing Director
Distribution:
NASDAQ OMX Helsinki
Media
www.tvr.fi
Attachment: TVR Interim Report 1.1.-30.6.2016.pdf
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