Mercer secures £2 Billion longevity hedge for MMC UK pension fund

Mercer, a Marsh McLennan firm and advisor to the MMC UK Pension Fund Trustee, has announced the completion of a longevity hedge covering approximately £2 billion 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.

“We see this additional longevity hedge as a natural next step as we look to reduce risk within the fund,” said Trustee Chairman Bruce Rigby. “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 £3.4 billion pensioner longevity swaps previously transacted in 2017 with two other global reinsurers in respect of DB sections’ longevity risk.

According to the fund the 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, said: “What is distinctive about this transaction is that longevity risk of active members is covered as well as over 75% 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, managed by Marsh Captive Solutions Guernsey. This transaction used a new incorporated cell, Fission Gamma IC, to transfer risk to Munich Re.