MMC UK Pension Fund completes first longevity swap to include actives

17 November 2023

Mercer, a business of Marsh McLennan (NYSE: MMC) and advisor to the MMC UK Pension Fund Trustee Limited, announced today the completion of a longevity hedge covering approximately £2bn of liabilities for around 14,500 pensioner, deferred and active defined benefit (DB) members of the MMC UK Pension Fund.

This longevity swap to protect against the financial implications of increasing life expectancy, innovatively includes active members 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.

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.”

This transaction follows the fund’s £3.4bn pensioner longevity swaps previously transacted in 2017 with two other global reinsurers in respect of DB sections’ longevity risk. This transaction is a further significant de-risking step with nearly all of the MMC UK Pension Fund’s DB sections’ longevity risk now insured.

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.”

The ‘Mercer Marsh’ longevity captive solution uses Guernsey-based incorporated cell company Mercer ICC Limited, managed by Marsh Captive Solutions Guernsey. This transaction used a new incorporated cell, Fission Gamma IC Limited, to transfer risk to Munich Re. MMC Pension Fund Trustee Limited was advised by Mercer, Linklaters and Appleby. Marsh McLennan was advised by Mercer and Herbert Smith Freehills. Fission Gamma IC Limited was advised by Carey Olsen. Munich Re was advised by Fieldfisher and Ogier.

Source: Mercer