The UK’s Merchant Navy Officers Pension Fund (MNOPF) has sealed the first de-risking arrangement of 2015, insuring £1.5 billion of pensioner liabilities against longevity risk.
The £2.4 billion MNOPF established its own wholly-owned insurance company in Guernsey, MNOPF IC Ltd, to take on the longevity risk. Pacific Life Re then reinsured the liabilities against the risk of the 16,000 pensioners covered by the deal living longer than expected.
“This transaction is an important development for MNOPF and for the longevity hedging market in general.”—Shelly Beard, Towers WatsonThe longevity swap arrangement echoes that of the BT Pension Scheme, which last year also set up its own insurance subsidiary to aid a £16 billion de-risking deal—the UK’s biggest ever de-risking move.
MNOPF Chairman Rory Murphy described the longevity swap as “a positive step on our journey to achieve full funding”. It follows a full buyout of MNOPF’s “Old Section” in the summer of 2014, with Legal & General and Rothesay Life sharing a £1.3 billion bulk annuity arrangement.
Longevity was a “significant, concentrated risk” for MNOPF, Chief Executive Andrew Waring said. He added that attractive pricing helped the hedge to be put in place “without any material impact on our broader journey plan”.
Shelly Beard, senior consultant at Towers Watson, which helped structure the deal, said establishing an insurance subsidiary can make hedging more affordable for pension funds.
“It also reduces the complexity that is often associated with longevity hedging—the contractual negotiations on this transaction took less than two months,” she added.
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