Pension fund MMC UK has entered into a £2bn longevity and reinsurance swap deal with Munich Re, its first swap to include active members, through a Guernsey captive insurance cell.
Mercer, part of Marsh McLennan and advisor to the MMC UK Pension Fund Trustee Limited, has announced the completion of the longevity swap, which covers approximately £2 billion of liabilities for approximately 14,500 pensioners, active and deferred defined benefit members of the pension fund.
The longevity risk was insured by a Guernsey captive insurance cell and simultaneously reinsured with German company Munich Re.
The Mercer Marsh Captive Longevity Solution uses Guernsey-based Mercer ICC Limited, an incorporated cell company managed by March Captive Solutions Guernsey. For this longevity swap transaction, a newly formed cell, Fission Gamma IC Limited, was used to transfer the risk to Munich Re.
The £2bn transaction comes after the fund’s £3.4bn longevity swaps previously negotiated in 2017 with two other reinsurers relating to the longevity risk of the DB sections. Mercer says this latest agreement represents another significant step in de-risking, with almost all of the longevity risk of the DB sections of the MMC UK Pension Fund now assured.
The longevity and reinsurance swap agreement includes active members and, according to Mercer, is the second largest pension fund swap in the UK, covering more non-retired members than retirees.
“We see this additional longevity coverage as a natural next step as we seek to reduce risk within the fund. The Trustee and Marsh McLennan have commissioned a comprehensive study of the reinsurance market as a whole and have also chosen the captive longevity solution ‘Mercer Marsh’ as the route to implementing this longevity cover,” said the Trustee’s Chairman. , Bruce Rigby.
Suthan Rajagopalan, Principal Transaction Advisor to the Trustee and Head of Longevity Reinsurance at Mercer, commented: “What stands out about this transaction is that the longevity risk of active members is covered as well as over 75 percent of this longevity exchange being composed of assets not linked to longevity. -retirees, managing the fund’s long-term exposure to improving longevity.
“Longevity risk is a key risk for defined benefit schemes and the longevity reinsurance market is more developed than ever in the historically difficult and fraught sector of pension risk transfer, and can now deal with “active” members. “. As part of this transaction, we advised and managed an extensive and highly competitive process to eliminate this long-term risk,” added Rajagopalan.