Mercer, a subsidiary of Marsh McLennan, has declared the successful finalisation of a significant longevity hedge.
This hedge, amounting to approximately £2bn, encompasses over 14,500 pensioner, deferred, and active defined benefit (DB) members within the MMC UK Pension Fund.
This groundbreaking longevity swap stands out for its innovative inclusion of active members, representing a substantial extension in longevity risk transfer, amounting to around £2bn.
The arrangement secures against the financial implications of increasing life expectancy, marking a milestone as the second-largest UK pension fund swap to cover more non-pensioner members than pensioners. The longevity risk coverage was facilitated through a ‘captive’ Guernsey insurance cell and concurrently reinsured with Munich Re.
This significant transaction follows the fund’s earlier £3.4bn pensioner longevity swaps in 2017, covering DB sections’ longevity risk with two other global reinsurers. This recent hedge marks a crucial risk mitigation step, effectively insuring almost all of the MMC UK Pension Fund’s DB sections’ longevity risk.
The ‘Mercer Marsh’ longevity captive solution employed Guernsey-based incorporated cell company Mercer ICC Limited, managed by Marsh Captive Solutions Guernsey. Several advisors, including Mercer, Linklaters, Appleby, Herbert Smith Freehills, Carey Olsen, Fieldfisher, and Ogier, played pivotal roles in advising the entities involved in this groundbreaking transaction.
Trustee Chairman, Bruce Rigby, said, “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, lead transaction adviser for the trustee and Head of Longevity Reinsurance at Mercer, commented, “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.”
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