Reinsurance News

PIC converts longevity swap into £1.6bn buy-in for MNOPF

10th February 2020 - Author: Luke Gallin

Pension Insurance Corporation plc (PIC) has completed the conversion of a longevity swap transaction into a £1.6 billion buy-in with the Merchant Navy Officers Pension Fund (MNOPF).

Pension Insurance Corporation logoThe buy-in secures the pension of approximately 14,000 members and coverts a longevity hedge written in 2014 between MNOPF and Pacific Life Re.

The 2014 longevity arrangement was structured as an insurance agreement between the Trustee and MNOPF IC Limited, a special purpose Guernsey cell company, and a reinsurance arrangement between MNOPF IC Ltd and Pacific Life Re.

As part of the buy-in transaction with PIC, the longevity reinsurance is being novated to PIC.

The MNOPF was an early and significant adopter of de-risking transactions, having completed its first bulk annuity deal in 2009, and has completed a further five deals since then.

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The latest, £1.6 billion deal is the third such transaction involving the conversion of a longevity swap to buy-in undertaken by PIC, which underlines the growing appetite in the pension risk transfer sector for these types of transactions.

Under the new buy-in transaction, the Trustee was advised by insurance and reinsurance broker Willis Towers Watson, and legal advice was provided by Baker McKenzie. PIC was advised by CMS.

Chair of MNOPF, Rory Murphy, commented: “This buy-in enables us to more effectively manage the risks faced by the Fund as a whole, providing greater certainty to members that their benefits will continue to be paid in full from the Fund. It is also good news for employers in the maritime and shipping industry, who have already saved many millions in deficit contributions over recent years as a result of our improved funding position.

“There is also a positive message here for the wider pensions community. A well-run fund, with strong governance and expert advisers, can deliver valued and sustainable benefits to its members while successfully managing the risks and costs faced by its employers.”

Head of Origination Structuring at PIC, Uzma Nazir, added: “We are delighted that the MNOPF Trustee chose to work with PIC and ultimately secure this tranche of their members’ benefits with us. It takes expertise to complete a conversion of a longevity swap to a buy-in and all parties worked well together to get the Trustee’s desired goal. A great outcome for all.”

Andy Waring, Chief Executive Officer (CEO) of MNOPF, said: “Securing the benefits of our members has always been a significant part of the MNOPF Journey Plan. The buy-in with PIC is a great step forward to achieving this outcome. The Trustee pioneered the use of a ‘ready-made’ Guernsey captive cell for the purposes of longevity hedging back in 2014 – one of the reasons for this was our view that it would make a future novation to buy-in easier and more efficient, which has proved to be the case.”

Senior Director at Willis Towers Watson, Shelly Beard, commented: “Novations of longevity swaps are becoming increasingly commonplace, and this one proved to be particularly quick and efficient because the 2014 longevity swap was structured through a Guernsey-based captive. It was great to partner with PIC, Pacific Life Re and the Trustee to implement another ground-breaking transaction at attractive pricing.”

While Hannah Stott, Longevity Director at Pacific Life Re, added: “We’ve been working with MNOPF Trustee since the longevity hedge was written in 2014. We’re pleased to have helped them on the next step of their de-risking journey by converting this longevity swap to a buy-in with PIC. Conversions of longevity swaps can be complex and the framework that we originally put in place has made this more efficient and shows that longevity swaps can be an effective first stage in de-risking.”

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