2017 ……………… ANNUAL REPORT 1 0. Social and Management Bodies 2 Social and Management Bodies Governing Board Chairman José Antonio Alustiza Usandizaga Deputy Chairman Miguel Mª Tolosa Albistur Secretary Luis Garitano Sánchez Ordinary members Javier Gorroñogoitia Iturbe Mikel Ugarte Murua Iñigo Eizaguirre Illarramendi Javier Rivera Orbañanos José Antonio Martínez Angulo Mª Cruz Guridi Gurrutxaga Roberto Iñíguez de Onsoño Lafuente Juan Urrutia Txopitea Virginia Nila Toña Zugazaga Supervisory Board Belén Cortabarría Acha José Félix Álvarez Suárez José Antonio Unanue Etxeberria Management Managing Director Luis Mª Ugarte Azpiri Investments Manager Javier Urtasun Zabalo Provisions Manager Koldo Ugaldea Loizate General Secretariat Manager Carlos Maza Guzmán Affiliations, Contributions and Pensions Manager Alicia Bollar Mendizabal IT Manager Lucio Gallastegui Ceciaga Personnel and General Services Manager Maider Biteri Ugarriza 3 1. Introduction 4 Introduction The history of LagunAro, EPSV de Empleo (hereinafter, LagunAro, EPSV or LagunAro) goes back many years. In fact, in 2017 we celebrated 50 years since LagunAro was established with the current model, in 1967. In any case, the idea, or the embryo, of LagunAro was created in 1959 when, thanks to the vision of Mr José María Arizmendiarrieta. What at first appeared to be a social drama, after dismissal of the cooperative members from Social Security at the time, became an opportunity to found an Entity based on the values and principles of the cooperative model. Since its inception, LagunAro has always two aspects, which can not be separated at any time. On the one hand, it plays a key role as the backbone and protector of the social security needs of the members of the cooperatives (illness, unemployment, retirement, etc.). On the other hand, the effective, responsible and professional economic-financial management of the resources available is necessary at all times, in order to ensure the offering, in appropriate conditions, of the social coverage to the group. This economic-financial aspect is of particular importance in terms of the coverage of long-term pensions, financed through the capitalisation system, insofar as the correct management of resources is crucial for obtaining the necessary financial-actuarial balance. To this day, LagunAro, EPSV is a very important agent in our environment due to the volume of people that are under the Entity’s social coverage and the Equity Fund maintained for the coverage of pensions (€6,477 million), so that the level of demand in its management is very high. This Annual Report aims to capture the management and developed recorded by LagunAro, EPSV during the year 2017 and explain it to all the agents with whom this Social Security Entity interacts (Cooperatives, mutualists, pensioners, institutions, society in general, etc.). The information presented, despite the special attention to the events that took place in 2017, is part of a broader time horizon that also allows us to obtain a multi-year vision, which is so important for a Social Security Entity as LagunAro, EPSV. In general, the management carried out at LagunAro, EPSV during the year 2017 can be considered as positive. Regarding the Entity’s pension system, it should be emphasised, first, that the financial returns obtained from the management of the investments, including the changes in the value of the assets that we hold in our portfolio, have been higher than those necessary, with the subsequent strengthening of the equity affected by the coverage of our pensions. In turn, moderate inflationary pressures have enabled lower actuarial needs (for a hypothesis used in 2017 of the CPI at 1.4%, the actual figure has ended at 1.1%). In this context of higher-than-expected return generation and lower actuarial needs, the Security or Solvency Margin has been strengthened, standing at 15.2% (14.3% as of late 2016). In the field of distribution or short-term benefits, in 2017, the behaviour of the three main benefits was uneven. While the benefits of Health and Employment Assistance have evolved better than foreseen in the Management Plan, the Temporary Disability benefit has not reached the absenteeism target established (in fact, instead of being reduced compared to the absenteeism reported in 2016, it has increased). In the specific case of the Health Assistance benefit, the assessment to be made regarding its evolution is very positive, as the level of expenditure has been below the forecasts and the figures reported in 2016, as well as the progress being achieved in the processes of improving the efficiency and management of this benefit. 5 Regarding the Employment Assistance benefit, the evolution maintained in 2017 can also be described as positive. Although the volume of expenditure remains high, with reductions being reported year after year, while the Fund that maintains this benefit is increasing, which should provide us with better conditions to face the coming years, in which it is estimated that the level of expenditure should remain high. In fact, as of late 2017, the aggregate Fund was already higher than the kept by this benefit at the beginning of the economic crisis in 2008. This good performance is due, among other things, to the large number of temporary relocations that have been maintained, which have allowed us to keep reducing the incidence of effective unemployment, while continuing to manage definitive solutions. Both factors have contributed to mitigating the social impact of the complex personal situation in which the members of the Cooperatives affected by unemployment and liquidation are experiencing and expenses have been lower than those of the previous year. In turn, in the case of Temporary Disability, the absenteeism rate as of 2017 was slightly above that of 2016, so it has not been possible to break the upward trend undertaken in 2014. In any case, this increase has been lower than that registered in the public system. Finally, we should not forget that, in 2017, after eight consecutive years of gradual reduction of the group of active mutualist entities, this decreasing trend has been broken and there has been an increase in it, supported by the incorporation of staff in certain significant cooperatives, which is an indicator that the situation of the cooperatives is improving year after year. 6 2. Protected group 7 Protected group Policyholders At year-end, the group of active contributors of LagunAro, EPSV amounted to 28,534 policyholders. Of this group, the bulk (27,986 contributors) are the active policyholders of the 127 cooperatives affiliated with LagunAro, EPSV. Simultaneously, a group of 548 people are not currently active in their cooperatives and maintain, at their expense, contributions at LagunAro (contribution surpluses, capitalisation contributions, etc.). As an innovation, it should be noted that after eight consecutive years of gradual reduction of the collective, 2017 has witnessed an increase in it, supported by the incorporation of staff in certain significant cooperatives. These policyholders are distributed into four contribution types: Interim Mixed Model (Rate 2): only applies to policyholders born before 31.12.1950 and 31.12.1960 respectively. Contributions to the Public System, the Special System for Self-Employed Workers (RETA), are made at the minimum rate. This is a closed group that will gradually be reduced each year. Standard Mixed Model (Rate 3): applicable to indefinite policyholders born after 1.1.1961 and any born before this date who decided to opt for this contribution method. The pension contribution rate is distributed proportionally between the Public System (60%) and LagunAro (40%). Special Model (Rate 4): special method, applicable in very specific cases, in which no contributions are made to the LagunAro pension system, and contributions are made exclusively for this type of services to the Public System at real base rates. In any case, this group does contribute for the LagunAro distribution allowances. Specific Duration Policyholder (MDD): the contribution and distribution between LagunAro and the RETA is equal to that of the Standard Mixed Model, although the services to which policyholders are entitled are adapted at LagunAro to the specific duration of the relationship with the company. Distribution of active policyholders by contribution method 2017 evolution Models 31.12.2016 Registra- Cancellati 31.12.2017 Difference Transfers tions ons Interim Mixed (Rate 2) 2,339 13 -499 0 1,853 -486 Standard Mixed (Rate 3) 22,817 1,199 -1,146 140 23,010 193 Special (Rate 4) 2,133 326 -121 12 2,350 217 Specific Duration 535 485 -95 -152 773 238 Active policyholders in coop. 27,824 2,023 -1,861 0 27,986 162 Capitalisation Contributions 390 71 -102 359 -31 Family Care Leave 153 440 -451 142 -11 Other leave 46 34 -33 47 1 TOTAL 28,413 2,568 -2,447 0 28,534 121 8 In turn, a total of 3,767 policyholders are under suspension. 31.12.2016 Registrations Cancellations 31.12.2017 Difference Under Suspension 3,492 868 -593 3,767 275 Active policyholder evolution 2007 – 2017 32.000 31.393 30.757 31.000 30.476 29.973 30.000 29.540 29.531 29.186 29.000 28.402 27.986 27.970 27.824 28.000 27.000 26.000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Distribution of active members at 31.12.2016 by sex and age range. 293 > 60 539 1.243 55 - 59 1.842 1.821 50 - 54 2.298 2.853 45 - 49 3.162 2.978 40 - 44 3.678 1.761 35 - 39 2.672 775 30 - 34 1.210 250 WOMEN 25 - 29 530 MEN 27 < 25 54 0 500 1.000 1.500 2.000 2.500 3.000 3.500 4.000 Sex Number % Average age Men 15985 57.1 45.2 Women 12,001 42.9 45.5 TOTAL 27,986 45.3 9 Distribution of cooperatives and their policyholders by community at 31.12.2017 Community 1 Community 3 ABANTAIL 18 EROSKI 8,152 ALECOP 32 Number of policyholders 8,152 ARIZMENDI 170 ATEGI 11 Community 4 AUZO-LAGUN 208 AGRUPACION DE FUNDICION Y UTIL 10 BEHI-ALDE 16 AURRENAK S.