Unemployment Insurance Fund (TVR)

Non deal related

Investor updateMay 11th, 2016

TVR in brief

2

• The main task of TVR is to finance earnings-related unemployment benefits

• TVR is responsible for the financing of pension accrual during a person’s unemployment or adult education period (Finnish Employees Pension Act)

• In addition, TVR is responsible for e.g. the financing of the earnings-related part of the adult education allowance and the scholarships, and for the state’s pay security expenses

• TVR is responsible for imposing and collecting employers’ and employees’ mandatory unemployment insurance contributions and the liability component of unemployment allowances from employers (if an employer has dismissed or laid off an employee who has subsequently become long-term unemployed)

• The operations of TVR are determined by law. Key legislation governing TVR’s operations:

• Act on Financing of Unemployment Benefits (555/1998)

• Decree on Financing of Unemployment Benefits (1277/2014)

• Decree on Rules of Procedure of the Unemployment Insurance Fund (862/1998)

• In 2014, 320,000 people received earnings-related allowance (approximately 12 % of the Finnish workforce). 86 % of the employed are members of sectoral unemployment funds and thus entitled to earnings-related allowance in case of unemployment

Source: The Federation of Unemployment Funds in Finland, Statistics Finland

11.5.2016

Key highlights in 2015

3

Source: TVR

11.5.2016

• Contributions 3.330 EURm, growth 10 %• Benefit payments - 4.002 EURm, growth 8 %• Unemployment rate 9,4 % (+ 0,7 %)

Unemployment Insurance

• Change in net position – 677 EURm• Net position – 686 EURmFinance

• Credit rating AA+ (negative, S&P)• RCF 1.000 EURm• Bond issues total 900 EURm

Debt Financing

Update: legislation and institutional / organizational changes

● Possible changes in Act on Financing of Unemployment benefits

● Agreement on Competitiveness Pack

● Maximum amount of business cycle buffer bigger for 2017-2019● Possible wider governmental guarantees for TVR’s loans● Equalized unemployment insurance contribution rates for employers and

employees● Expected to be fully in force 2018

● Changes in administration to match social partners shares in contributions● Above mentioned proposals are still depending on future development, no

governmental proposals in progress● More information see slide “Impacts of the Agreement on Competitiveness

Pact”

11.5.20164

Update: legislation and institutional / organizational changes (continued)

● Changes in Unemployment Security Act● Objective 200 million euros (TVR 165m€) annual retrenchment in financing

Unemployment benefits● 165 million euros annual retrenchment expected to be in full force in 2018 ● Governmental proposal drafting in process by MSAH

● Possible changes in Act on Financing of Unemployment benefits● Changes in conditions of liability component of unemployment allowances from

employers● Related to changes in retirement age (Employee Pensions Act) and possible

future changes in Unemployment Security Act● No governmental proposal drafting in progress● Small role in TVR’s finances

11.5.20165

Impacts of the Agreement on Competitiveness Pact

• The social partners in Finland have proposed as part of the Competitiveness Pact changes in the legislation regulating the financing of the unemployment benefits. The key proposals are among other things a time-limited increase in the maximum amount of the business cycle buffer to an amount representing an yearly amount of benefits paid by TVR generated by a seven percent unemployment rate. If accepted, this regulation would be in force for the period of 2017 - 2019. This maximum amount would represent a net asset or debt position carried by TVR worth ca. EUR 2.300 million. The respective amount is currently EUR 1.600 million (five percent).

• Additionally, social partners are proposing that the Government of Finland would grant a governmental guarantee without any counter guarantees or guarantee fees to the loans and borrowings issued by TVR. The proposal made by the social partners does not take a stand about which loans issued by TVR would be guaranteed.

• The progression of the above mentioned proposals is first and foremost dependent on the approval of all the relevant social partners organisations. After that is the final passage of the Competitiveness Pact dependent on the decisions of the Government of Finland and the required coverage and approval within the sectoral collective bargaining. The central organisations of the social partners will inform the Government of Finland about this outcome after they have made an evaluation about the coverage of the process on 1 June 2016.

6 11.5.2016

Impacts of the Agreement on Competitiveness Pact (continued)

• The social partners in Finland have agreed that the unemployment insurance contribution rates shall be equalized within two calendar years 2017 – 2018. Currently Employers contribution rate on average is 2,86 % and Employees contribution rate is 1,15 %, and it is agreed that the Employee contribution will be increased by 0,45 %-points in 2017 and by 0,40 %-points in 2018. The Employers contribution will be decreased by the corresponding amounts.

• The above mentioned change in the funding structure of TVR operations will also put forward a change in the administration of TVR regarding the relative representations of the social partners in the Supervisory Board and the Board of Directors of TVR. Currently Employer organisations havetwo thirds of the seats in both bodies, but is is agreed that the number of seats will be equalized in the future.

7 11.5.2016

Finnish economy and employment

Historical unemployment vs. GDP growth

9

Source: Eurostat

• Historically, the labour market in Finland has been at equilibrium with real GDP growth of 2 %

• In recent years, Finland has been lagging behind its trading partners in growth

0

2

4

6

8

10

12

2000 2003 2006 2009 2012 2015

% Unemployment rate 2000 – 2015 monthly

EU Germany Finland Sweden

80

90

100

110

120

130

140

2000 2003 2006 2009 2012

GDP cumulative 2000 - 2014

EU Germany Finland Sweden

11.5.2016

High tech exports evaporating

10

Source: World Bank

0%

5%

10%

15%

20%

25%

30%

35%

40%

1996 1998 2000 2002 2004 2006 2008 2010 2012

High tech exports % of manufactured exports

FIN SWE NOR USA

JPN DEU ITA

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2001 2003 2005 2007 2009 2011 2013 2015 2017

GDP growth nominal

FIN SWE NOR USA

JPN DEU ITA

11.5.2016

• High tech exports has traditionally been one of the cornerstones of Finnish exports

• The major change in the size of export oriented high tech cluster has taken place during 2007 - 2009

OECD unemployment statistics

11

Source: OECD

0%

2%

4%

6%

8%

10%

12%

14%

2000 2002 2004 2006 2008 2010 2012 2014

OECD harmonized unemployment

FIN SWE NOR USA

JPN DEU ITA

11.5.2016

Unemployed jobseekers noticeable improvement recently ?

11.5.201612

Source: Ministry of Employment and the Economy

Unemployed (Statistics Finland)

11.5.201613

Source: Statistics Finland

Industries’ confidence indicators

11.5.201614

Source: Confederation of Finnish Industries

Benefit payments to persons unemployed

15 11.5.2016

Source: TVR

• Total amount of benefits paid to persons unemployed is stabilazing -> possible change in trend ?

Financial strategy and risk management

TVR cash flow mechanism• Transparency and short term predictability accentuated

• TVR submits yearly budget and proposal of UICs to the Ministry of Social Affairs and Health (MSAH)

by the end of August -> contribution rates can be adjusted on yearly basis

• MSAH verifies the items of outflows to beneficiaries for the next calendar year by October

• MSAH draws the Government proposal about UIC rates for the Parliament in October

• TVR’s inflows and outflows are predictable on a short-term basis. Forecasts updated internally on

monthly basis. TVR submits forecasts to MSAH on regular basis

• The buffer fund of TVR

• TVR maintains a buffer fund to secure liquidity and to even out the level of unemployment insurance

contributions over business cycles

• The buffer fund is composed of the accumulated surplus or deficit from TVR’s operations

• The maximum surplus/deficit level of the buffer fund is the annual benefits paid by TVR at an

unemployment rate of 5 %, and is EUR 1,521 million in 2015

• The benefits financed by TVR have been growing rapidly after the Financial crisis as the recession

has been longer than expected. The buffer fund has therefore turned negative, and TVR needs to

increase UICs and to use debt financing to cover the higher cost base

11.5.20161717

Description of TVR financial position and forecasting toolsPast experience of deviations between forecast and actual P/L, EURm

18 11.5.2016

Income 2011 2012 2013 2014 2015 average average

EURm deviation %

Employer contribution -9 -10 -13 -36 3 -13 -1 %Employee contribution -7 7 -3 -5 -6 -3 -1 %Liability component 7 13 14 3 9 9 12 %Investment income 1 3 -9 0 -6 -2 -37 %

Inflow total -8 13 -11 -38 0 -9 0 %

Expenses 2011 2012 2013 2014 2015 average averageEURm deviation %

Centre for pensions 37 -44 21 133 138 57 6 %

Social Insurance Institute 1 1 5 2 -1 2 1 %

Education fund 7 -9 4 9 -8 1 1 %

Ministry of empl. & economy 2 4 3 -3 14 4 14 %

Unemployment funds -165 -5 66 228 1 25 1 %

Outflow total -118 -53 99 371 144 89 3 %

P/L for period -126 -40 88 333 144 80 3 %

• In 2015, the accuracy in forecasting income flows was good • In the benefits paid, deviation in the pension payments was registered

Source: TVR

The temporary nature of TVR’s liquidity gaps• Higher UICs and improving economy to close the gap

• UICs were raised for 2016 by 0.50 %- points from 2015. Employee’s UIC is now 1.15 %, and employer’s average contribution percentage is expected to be 2.84 %

• The amount of benefits financed still growing in 2016, but the rate of growth is coming down

• The debt position expected to be at its highest in 2016 - 2017, after which cash flow is expected to turn positive. It will take several years before the net position is back to positive territory

Source: TVR

11.5.2016

0,00

1,00

2,00

3,00

4,00

5,00

2005 2007 2009 2011 2013 2015

% Unemployment insurance contributions

Employee contribution Employer contribution

19

-2000

-1500

-1000

-500

0

500

1000

1500

2000

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

e

Business cycle buffer and debt level, EURm

Buffer Fund

Gross debtposition

Statutoryminimum

Statutorymaximum

19

Liquidity management

• Investment portfolio consisting of highly liquid instruments

• The size of investment portfolio varies substantially during the calendar year

• TVR invests primarily in money market instruments and bonds

• TVR’s Supervisory Board has decided that TVR has to maintain a minimum liquidity buffer equal to one month’s expenses (EUR 300 million) invested in highly liquid interest-bearing instruments

Source: TVR

0

200

400

600

800

1 000

1 200

1 400

2010 2011 2012 2013 2014 2015

Liquid assets quarterly, EURm

11.5.20162020

Investment plan and debt servicing planchanges for 2016

• Investment plan for 2016

• Counterparty limits based mainly on the rating of the issuer

• Investment portfolio average rating better than A-

• Strong emphasis on the liquidity of the portfolio• Clear trade-off between risk and

return• It is recognized, that investment

return might turn to negative territory

Source: TVR

11.5.2016

• Debt servicing plan for 2016

• New funding target based on the 2016 budget• Slight increase in the size of funding• No change in the instrument level• Bond issues are still the main source

for funding (if needed)• Max. maturity of bonds issued increased

to seven years (five)• Usage of the extension option in RCF

facility A

2121

Investments; allocation and risks

Surce: TVR

Investments by rating

AAA

AA

A

BBB

Other

Investments by type

Money market

SSA

Banks

Other

Corporate

11.5.2016

• TVR Investment risks

• Markey risk (stress test method)

• Counterparty risk; strong partners

• Liquidity risk; large part of investments held in

gov.bonds, bank certificates etc. to manage the risk

• Credit risk; in limited scale

• No currency risk taken

• New risk; negative yields

2222

Funding structure by investor type

• Main investor groups are institutional

• CP investors mainly domestic

• Bond investors both domestic and Europe

based

• Some interest from Asia and Africa

Source: TVR

Financials13 %

Pension & Insurance

18 %

Asset managers

19 %

Supranationals

31 %

Corporates4 %

Governments agencies & Central

banks15 %

TVR 2018 bond

Financials16 %

Pension & Insurance

18 %

Asset managers

21 %

Supranationals

21 %

Corporates8 %

Government agencies &

Central banks16 %

TVR 2019 Bond

CP Program

GovernmentrelatedFinancial

Pension funds

Corporates

InstitutionalinvestorsAsset managers

11.5.20162323

Financial situation

Financial performance Full year 2015

Source: TVR

11.5.2016

KEY FIGURES Year 2015 Year 2014 Change Change Year 2013 Change

EURm 2015 / 2014 2015 / 2014 2015 / 2013% %

Unemployment insurance contributions

2 188 1 977 211 11 % 2 222 -2 %

Other income * 1 142 1 054 88 8 % 1 039 10 %

Benefits paid incl. admin. expenses

-4 002 -3 706 -296 8 % -3 186 26 %

Investment and Financing income, net

-5 3 -8 2

Profit/loss -677 -672 -5 77 0 %

Investments and assets 604 498 106 21 % 869

Debt and liabilities -1 290 -507 -783 154 % -207

Buffer Fund -686 -9 -677 663

Statutory limit for Buffer 1 521 1 524 1 309

Unemployment rate % 9,4 8,7 0,7 8,2 1,2

Change in wage sum % (est.) 0,8 0,6 0 0,8

Investment return % 0,2 0,6 0,2

Contribution %, employers 2,34 2,19 0,15 2,36

Contribution %, employees 0,65 0,5 0,15 0,60

* contributions from MSAH

** includes net investment income, funding costs and other financing income and costs

2525

FY 2016 P/L revision 26.4.2016

Source: TVR

11.5.201626

Budget 2016 25.8.2015

Estimate26.4.2016

2015

Unemployment rate % 2016

10,1 % 9,4 % 9,4 % Rising trend stabilazing

Wage sum growth%

0,7 % 1,0 % 0,7 %

Unemploymentcontributions EURm

4 166 4 091 3 330Government contributions lower than forecasted

Benefit payments EURm - 4 577 - 4 125 - 4 002

Benefit growth 3 % vs. 10 % budgeted

Change in net position EURm

- 419 - 39 - 677 Approaching break even

Net position EURm

-1 104 - 725 - 686

26

Benefit payments increase of 118% from 2008

Source: TVR

11.5.201627

TVR income and benefit payments 2015

Source: TVR

50%

15%

35%

Income by source (2015)

Employer'scontribution

Employee'scontribution

Contributions fromMSAH

42%

28%

23%

1%

3%0,3 %

Payments by receiver (2015)

Unemployment funds

Unemployment funds(MSAH)

Finnish Centre forPensions

Pay security (MEE)

Education Fund

Administration costs

11.5.20162828

11.5.201629

Debt portfolio management Actions taken during 2015

Short term funding

• CP program EUR 300m• Frequent issues 1-12 m

• RCF EUR 300m (2015)

• Six major Nordic banks participated

• Facility unutilized

Long term bank financing

• RCF EUR700m

• Six major Nordic banks participated

• Irrevocable Government guarantee

• Facility unutilized

Capital market transactions

• Credit rating AA+ (S&P)

• Bond issues

• EUR 600m (4Y) 23.9.2019

• EUR 300m (3Y) 15.10.2018

� Debt financing total EUR 1 109m 31.12.2015

� TVR has good access to loan and capital market funding

� ECB accepted TVR as an issuer to PSPP

Surce: TVR

Debt financing

• Maturity distribution and current usage of the debt outstanding (December 31th, 2015)

* A 1-year extension option in 2016. Source: TVR

0

200

400

600

800

1000

1200

2016 2017 2018 2019

Eur

mill

ion

CP program (utilized)

Bonds outstanding

RCF (stateguarantee,unutilized)

RCF* (unutilized)

* one year ext. option in 2016

11.5.20163030

Appendix

0

500 000

1 000 000

1 500 000

2 000 000

2 500 000

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Mem

ber

s in

sec

tora

l un

emp

loym

ent

fun

ds

History of TVR

• Central Fund founded in 1960 – TVR established in 1998

1960: The Central Fund of Unemployment funds founded, 200,000 members

1960: The Central Fund of Unemployment funds founded, 200,000 members

Source: The Federation of Unemployment Funds in Finland , TVR

1970s: CF started tofinance severancepay, pay securityand pensionaccrued whenunemployed

1970s: CF started tofinance severancepay, pay securityand pensionaccrued whenunemployed

Early 1990s: Hugerise in unemploymentand employercontributions, CFhad to take loans

Early 1990s: Hugerise in unemploymentand employercontributions, CFhad to take loans

1993: Alsoemployees startedto pay contribution

1993: Alsoemployees startedto pay contribution

1998: TVR was founded,employees alsorepresented ingoverning bodies

1998: TVR was founded,employees alsorepresented ingoverning bodies

2010: The maximumsize of the businesscycle buffer wasincreased

2010: The maximumsize of the businesscycle buffer wasincreased

2013: TVR startedto collectunemploymentinsurancecontributions itselfdirectly

2013: TVR startedto collectunemploymentinsurancecontributions itselfdirectly

2015: TVR assigned AA+credit rating by S&P.Enters the bond marketfor the first time. TVRaccepted for ECB’s PSPP

2015: TVR assigned AA+credit rating by S&P.Enters the bond marketfor the first time. TVRaccepted for ECB’s PSPP

11.5.20163232

FINNISH CENTRE FORPENSIONS, STATE

PENSION FUND

FINNISH CENTRE FORPENSIONS, STATE

PENSION FUND

Stakeholders and flow of funds

33

EMPLOYEREMPLOYER

MINISTRY OF SOCIALAFFAIRS AND HEALTHMINISTRY OF SOCIALAFFAIRS AND HEALTH

Employees’ unemployment insurance contribution

Employers’ unemployment insurance contribution

SOCIAL INSURANCE INSTITUTION, EDUCATION

FUND, MINISTRYOF EMPLOYMENT AND

THE ECONOMY

SOCIAL INSURANCE INSTITUTION, EDUCATION

FUND, MINISTRYOF EMPLOYMENT AND

THE ECONOMY

SECTORALUNEMPLOYMENT

FUNDS

SECTORALUNEMPLOYMENT

FUNDS

GOVERNANCE:SOCIAL PARTNERSGOVERNANCE:

SOCIAL PARTNERSSUPERVISION:

FIN-FSASUPERVISION:

FIN-FSA

The employer deducts the employees’ unemployment insurance contribution in connection with each payment of wages

The employer forwards the employees’ and employers’ contributions to TVR

The unemployment insurance contributions are used for the financing of earnings-related unemployment benefits

11.5.2016

TVR historical financial performance

Key figures

34 11.5.2016

EURm 2015 change % 2014 2013 2012 2011

Unemployment insurance contributions 3 330 10 % 3 031 2 221 2 157 1 985

Other income (MSAH)* 1 039 891 740

Contribution rates

employee contribution % 0,65 0,50 0,60 0,60 0,60

employer, base % 0,80 0,75 0,80 0,80 0,80

employer, large firms 3,15 2,95 3,20 3,20 3,20

Total benefits paid 4 002 8 % 3 706 3 186 2 764 2 714

Unemployment funds (UIF) 1 703 3 % 1 651 1 326 1 140 1 210

Unemployment funds (MSAH)* 1 142 8 % 1 054 1 039 891 740

Centre for pensions 900 10 % 821 640 556 597

Education fund 98 17 % 84 72 61 52

Social Insurance Institution of Finland (Kela) 121 133 % 52 62 57 64

Ministry of Employment and the Economy 21 -22 % 27 33 29 27 State Pension Fund Administrative expenses 10 4 % 9 7 6 4

Change in net position -677 1 % -672 78 294 41

Investment return % 0,2 0,6 0,2 0,9 1,4

Net position -686 -9 662 585 293

Money market investments 207 -2 % 212 458 408 210

Fixed income investments 242 17 % 206 332 308 150 Borrowings, debt outstanding -1 109 -256 0 0 0

* contribution from the MSAH included year 2014 owards

Source: TVR

Organization

11.5.2016

Supervisory BoardChairman George Berner

Supervisory BoardChairman George Berner

Financial SupervisionFSA

Financial SupervisionFSA

Insurance DepartmentDirector

Juho Oksanen

Insurance DepartmentDirector

Juho Oksanen

Finance DepartmentDeputy Managing Director

Tapio Oksanen

Finance DepartmentDeputy Managing Director

Tapio Oksanen

Legal AffairsDirector

Jorma Skippari

Legal AffairsDirector

Jorma Skippari

External AuditorsPwC

External AuditorsPwC Board of Directors

Chairman Sture FjäderBoard of Directors

Chairman Sture Fjäder

Managing DirectorJanne Metsämäki

Managing DirectorJanne Metsämäki

Internal AuditorsBDO

Internal AuditorsBDO

35

29%

20%

36%

13%1%

Funding by source (2013)

State

Municipalities

Employers

The insured

Net capital income

24%

11%

37%

10%

7%10%

Expenditure by target (2013)

Sickness and health

Disability

Old age (including e.g.pensions)

Family and children

Unemployment

Other

The social security system in Finland

36

Source: National Institute for Health and Welfare, MSAH

• One of the most comprehensive systems in the world, financed partly by the public sector and partly by

insurance contributions made by employers and employees

• A decentralized system in which the Ministry of Social Affairs and Health (MSAH) is responsible for

developing the legislation on social welfare and health and overseeing, maintaining and asserting the

standards within the social security system

• Other significant parties include e.g.:

• The Social Insurance Institution (Kela), which is responsible for the administration of the overall benefits system

• TVR, which is responsible for the earnings-related part of the unemployment insurance system

• Social expenditure totaled EUR 63.2bn (31.3% of GDP) in 2013, and is estimated to be EUR 66.1bn in

2014 (32,4% of GDP); EU average = 29.5% (2012)

11.5.2016

The Finnish unemployment benefit system (1/2)• Basic allowance and earnings-related allowance

37

• In the Finnish unemployment benefit system, the basic unemployment benefits are financed by the Finnish State, while the earnings-related unemployment benefits are financed by employers and employees

• Earnings-related allowance comprises the basic component, which equals the basic unemployment allowance, and the earnings related component, which is 45% of the difference between the wage and the basic component (20% for income exceeding EUR 3,116)

• TVR is responsible for imposing and collecting the unemployment insurance contributions for the earnings-related allowance

• For the average wage of EUR 3,300 / month in Finland, the total unemployment allowance is 55 % of the wage for members of sectoral unemployment funds

Basic allowance Earnings-related allowance

EligibilityMin. 6-month employment during 28 months before unemployment

Min. 6-month employment during 28 months before unemployment; equally long membership of the unemployment fund

Funding Finnish StateFinnish State (basic component) and employers &employees (earnings-related component)

Benefit distributor The Social Insurance Institution Sectoral unemployment funds

Amount EUR 705 / monthTypically EUR 1,250-2,000 / month (incl. the basic- and the earnings-related component)

Benefit duration Max. 500 days Max. 300-500 days

11.5.2016

The Finnish unemployment benefit system (2/2)• Tripartite negotiations

38

MINISTRY OF SOCIALAFFAIRS AND HEALTHMINISTRY OF SOCIALAFFAIRS AND HEALTH

AgreementAgreementEMPLOYERASSOCIATIONS

EMPLOYERASSOCIATIONS

EMPLOYEEUNIONS

EMPLOYEEUNIONS

SELF EMPLOYEDFederation of Finnish Enterprises

SELF EMPLOYEDFederation of Finnish Enterprises

Billpreparationin MSAH

Billpreparationin MSAH

Parliamen-tary debateParliamen-tary debate

LawRatification

by thepresident

LawRatification

by thepresident

• TVR makes a proposal for the level of unemployment insurance contributions (UICs) to the Ministry of Social Affairs and Health each year

• This proposal is not binding for either the ministry or parliament, but in most cases parliament approves the contribution levels TVR has proposed

• The percentages of UICs for next calendar year are set annually by the Finnish Parliament by amending the Finnish Act on Financing of Unemployment Benefits

• When drafting modifications to TVR’s functions or funding, the Ministry of Social Affairs and Health also hears the social partners’ views

11.5.2016

Comparison with selected European countries

• Differences in government role

39

• The Finnish system represents a combination of the so-called Ghent system, in which the unemployment benefits are controlled and administered by the trade and labour unions, and the traditional system, in which the system is controlled by the government

• A further feature of the Finnish system is sectoralunemployment funds, which pay the earnings-related allowance financed by TVR to their members during periods of unemployment

Finland Sweden Norway Denmark Germany UK FranceAdministration type Gov't +

employer /employee

organisations

Employer /employee

organisations

Gov't agency Gov't +employee

organisations

Gov't agency Gov't agency Gov't +employer /employee

organisations

Benefit distributorTVR viasectoral

unemploym-ent funds

Unionunemploym-

ent funds

Labor and Welfare

Administration

Unemploym-ent funds

Bundes-agentur für

Arbeit

JSA UNEDIC

Tax-financed X X X XEmployer-financed X X X XEmployee-financed X X X X X

Ghent system Traditional system

Norway

Germany

UK

Finland

FranceSweden

Denmark

11.5.2016

TVR legal framework (1/2)

• TVR as a public institution

• Established by law, operations and functions determined by law• Unemployment insurance contributions (UICs) are mandatory to employers and employees• Has the legal capacity and right to enter into contracts and to fulfill its obligations by incurring

debt

• Enforcement and insolvency

• The level of unemployment insurance contributions must be set so that TVR is able to fulfill its obligations (Act on Financing of the Unemployment Benefits)

• TVR is part of the indirect public administration, and cannot be declared bankrupt (Finnish Bankruptcy Act)

• Governmental guarantee

• Finnish government may provide guarantees for TVR’s debt• TVR’s EUR 700 million bank loan facility guaranteed by the government• Bonds issued by TVR are not guaranteed by the government

11.5.201640

TVR legal framework (2/2)

• Unemployment benefits fully statutory

• Both basic allowance and earnings-related allowance are legislative benefits (Act on Financing of Unemployment Benefits)

• The system is covered by legislation from insurance contribution collection tobenefit payments

• Contributions collected cannot be used for any other purpose than statutory payments• Sectoral unemployment funds cannot pay any other than statutory benefits• When legislative conditions are met, the unemployed person is entitled to basic and/or

earnings-related allowance

• TVR is also a part of the Finnish pension insurance system

• TVR is responsible for the financing of pension accrual during a person’sunemployment or adult education period (Finnish Employees Pension Act)

41 11.5.2016

TVR as a part of Finnish pension insurance system

● Payments relating to pensions:

● TVR’s payments to the Finnish Centre for Pensions consist of the pensions of the unemployed or persons on job alternation leave or receiving adult education allowance: such payments are used for the financing of expenses arising from the consideration of unemployment and education periods (Employees Pensions Act 395/2006, as amended).

● The Ministry of Social Affairs and Health confirms the amounts based on the proposal of the Finnish Centre for Pensions, which should correspond to an amount that would be received as an average pension insurance contribution. In addition, similar payments are made to the State Pension Fund (State Pension Act 1295/2006, as amended).

● Centre For Pensions distributes this financing to individual pension institutions based on their share of liabilities in the pension system

● TVR and FCP act closely together to monitor and steer the correct payment level during each calendar year

11.5.201642

TVR has an integral link to the government

• Comprehensive legal framework

• Supervision by the Finnish Financial Supervisory Authority

• Operations tightly monitored by the government (MSAH)• The members of the Supervisory Board are appointed by the Finnish Government

• The strength of the link was tested in 2009 when the Finnish GDP suddenly dropped by 8%• Cost of unemployment benefit system rose sharply; TVR proposed a substantial

increase of UICs for both employers and employees

• The Government of Finland took an active role:

• Set up of a tripartite committee

• Committed to guarantee all the loans needed for financing TVR’s operations if net indebtedness emerged

• Committed to provide direct financing, should TVR’s net debt rise above the statutory limit

• Participated in the financing of temporary layoff benefits normally fully funded by TVR, totaling EUR 337 million in 2010-2013

43 11.5.2016

TVR governance, supervision and reporting

The role of MSAH

• to maintain and develop legal framework for TVR activities

• to verify on a yearly basis the approval for unemployment insurance contribution (UIC) rates submitted by TVR

• to draw the Government proposal for the Parliamentconcerning UIC rates

• to monitor a fair view of UICs and business cycle buffer assets based on the proposal submitted by TVR

The role of social partners

• to propose candidates to be appointed to Supervisory Board by the Government

• to propose candidates for the Board of Directors to beappointed by the Supervisory Board

• in tripartite negotiations, take into account the role, duties, function and financing of TVR

44 11.5.2016

Reporting obligation to MSAH, FSA and MoF

• to maintain and develop legal framework for TVR activities (MSAH)

• to monitor a fair view of unemplyment insurance contribution rates (UIC) and buffer fund submitted by TVR (MSAH)

• to monitor together with TVR the usage of State financing of Unemployment insurance benefits (MSAH)

• approve the indebtness of TVR in securing liquidity (FSA)

• FSA has given ok to the following Funding plan in written

• TVR reports to Ministry of Finance concerning the usage of state guarantee and operational cash flows

Compliance and Auditing

• TVR develops Internal control and has set up Compliance officer position

• TVR is audited by PwC external auditors• The internal auditing of TVR is executed by BDO• To facilitate the issuance of bonds to be listed in

Nasdaq Helsinki, TVR prepares its accounting and Financial statements by IFRS standards

Contact Information

Managing DirectorJanne Metsämäkitel: 050 522 3614

Deputy Managing Director, CFOTapio Oksanentel: 040 539 4651

Finance Manager Legal CounselRisto Saarni Virpi Halmetel: 040 7791 677 tel: 041 533 1376

Office addresses Kansakoulukuja 1, 00100 Helsinki, Finland

E-mail forename.surnameATtvr.fi

Internet www.tvr.fi