Mercer, a subsidiary of Marsh McLennan and an advisor to the MMC UK Pension Fund Trustee Limited, has announced the completion of a longevity hedge covering approximately £2 billion of liabilities, backed by German reinsurer Munich Re.
This is the first longevity swap to include active members, and covers the liabilities of around 14,500 pensioner, deferred and active defined benefit (DB) members of the MMC UK Pension Fund.
The transaction aims to protect against the financial implications of increasing life expectancy, and is the second largest UK pension fund swap covering more non-pensioner members than pensioners.
The longevity risk was insured via a captive Guernsey insurance cell and simultaneously reinsured with Munich Re.
It follows the fund’s £3.4 billion pensioner longevity swaps previously transacted in 2017 with two other global reinsurers in respect of DB sections’ longevity risk.
Bruce Rigby, Trustee Chairman, commented, “We see this additional longevity hedge as a natural next step as we look to reduce risk within the fund. The trustee and Marsh McLennan commissioned a full market review of the whole reinsurance market and also selected the ‘Mercer Marsh’ longevity captive solution as the route to implement this longevity hedge.”
Suthan Rajagopalan, the lead transaction adviser for the trustee and Head of Longevity Reinsurance at Mercer, added, “What is distinctive about this transaction is that longevity risk of active members is covered as well as over 75 per cent of this longevity swap being comprised of non-pensioners, managing the long-term exposure of the fund to improvements in longevity.”
This transaction is a significant de-risking step with nearly all of the MMC UK Pension Fund’s DB sections’ longevity risk now insured.
