- Mercer leads advice on largest UK pension fund longevity risk transfer since 2014
- First longevity risk transfer to be transacted through ’Mercer Marsh’ longevity captive solution, with no upfront premium
- Transaction covers around £3.4bn of liabilities for around 7,500 pensioner members with significant reduction in longevity risk
- Structured as insurance contract with Guernsey based captive insurer cells managed by Marsh Captive Solutions Guernsey
- Competitive reinsurance pricing and efficient structuring has led to a cost-effective transfer of longevity risk to Canada Life Reinsurance and The Prudential Insurance Company of America (PICA).
Mercer, a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC) and advisor to the MMC UK Pension Fund Trustee Limited (the “Trustee”), announces today that a longevity hedge has been completed covering around £3.4bn of liabilities for around 7,500 pensioner members of the MMC UK Pension Fund (the “Fund”). The longevity risk was transferred efficiently, using a ‘captive’ approach, to the reinsurance market through Guernsey incorporated cells, with Canada Life Reinsurance and PICA ultimately reinsuring an equal share of the risk.
Suthan Rajagopalan, lead transaction adviser for the Trustee and Head of Longevity Reinsurance at Mercer, commented, “Mercer is delighted to have helped the Fund manage its longevity risk in this way. We worked closely with the Trustee to achieve a successful outcome for all parties and further help the Fund to continue its de-risking journey.”
Mr Rajagopalan continued, “Longevity risk is a key risk for defined benefit schemes and is more significant than ever in the historically low-yield environment. As part of this transaction, we have advised on and managed a broad and highly competitive process to remove this long-term risk and have been able to facilitate the transfer of risk to the reinsurance market cost-effectively through the ‘Mercer Marsh’ longevity captive solution.”
Trustee Chairman, Bruce Rigby, said: “Rising life expectancy has led to significant increases in UK pension scheme liabilities over the past couple of decades. The Trustee commissioned a full market review of all longevity risk transfer structuring approaches and corresponding providers. Based on a combination of factors such as cost, efficiency, future flexibility and security the Trustee selected the ‘Mercer Marsh’ longevity captive solution. By implementing this longevity hedge in partnership with MMC and its advisers, the Fund has taken a major step in removing this risk.”
Stephen Hawkes, Head of Office at Marsh Captive Solutions in Guernsey, added “Marsh was pleased to help establish an efficient mechanism to transfer longevity risks to the reinsurance market, working together with Mercer on this transaction to achieve a positive de-risking outcome for the Fund.”
Notes to Editors
The ‘Mercer Marsh’ longevity captive solution uses Guernsey based incorporated cell company Mercer ICC Limited, managed by Marsh Captive Solutions Guernsey, to offer incorporated cell structures to pension funds looking to transfer longevity risk efficiently to the reinsurance market. This transaction utilised two incorporated cells, Fission Alpha IC Limited and Fission Beta IC Limited, to transfer risk to Canada Life Re and PICA. MMC Pension Fund Trustee Limited was advised by Mercer, Linklaters and Appleby. Marsh & McLennan Companies were advised by Mercer, Freshfields Bruckhaus Deringer and Carey Olsen. Canada Life Re was advised by Herbert Smith Freehills and Mourant Ozannes, and PICA was advised by Willkie Farr & Gallagher.
Mercer delivers advice and technology-driven solutions that help organizations meet the health, wealth and career needs of a changing workforce. Mercer’s more than 22,000 employees are based in 43 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), the leading global professional services firm in the areas of risk, strategy and people. With more than 60,000 colleagues and annual revenue over $13 billion, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. Marsh & McLennan Companies is also the parent company of Marsh,which advises individual and commercial clients of all sizes on insurance broking and innovative risk management solutions; Guy Carpenter, which develops advanced risk, reinsurance and capital strategies that help clients grow profitably and pursue emerging opportunities; and Oliver Wyman, which serves as a critical strategic, economic and brand advisor to private sector and governmental clients. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.
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