UK – The £3.5bn (€4.2bn) Merchant Navy Officers Pension Fund (MNOPF) has completed a £680m buy-in with Rothesay Life, transferring all of the closed Old Section's liabilities to insurance providers.
Despite continuing to hold both the Rothesay bulk annuity policy and two policies written by Lucida since 2009 – worth a combined £600m – internally, MNOPF chairman Peter McEwan said the fund would "inevitably" look towards completing a full buyout for the historic section of the fund.
Andrew Waring, the fund's chief executive, said the MNOPF had been "actively pursuing the goal of improving the security of members' benefits" with the deal, the largest bulk annuity so far this year.
"Improving the funding position from a little over 80% in 2009 to full funding today and completing this transaction have been a tremendous achievement in these very difficult markets," he said.
Speaking with IPE, McEwan added that the buy-in was only the first stage of the undertaking.
"[In] stage two, as we've said before, we will inevitably look to move to a buyout," he said. "We've assumed an up to two year timeframe for the buyout."
McEwan said the fund first needed to be "absolutely certain" of the quality of its member data before completely transferring responsibility for future payments to Rothesay and Lucida.
Waring previously described a mooted complete buyout and resulting wind-up of the fund's £1.3bn Old Section as a "gut-wrenching" decision.
IPE reported in September that a buy-in could be in place by autumn and that the MNOPF hoped to wind up the Old Section "in due course".
Senior consultant Ben Stone of Towers Watson, the fund's delegated CIO, said it advised the MNOPF to ask for quotes from a panel of insurers earlier this year.
"We looked at the quotes and said 'This is a way you could almost accelerate the glide path you are on – we think there is a deal that could be done'," Stone said.
The deal saw the consultancy work with Rothesay to guarantee that the MNOPF was invested in the optimum assets - reducing the Old Section's equity and property holdings in the months prior.
He added: "We worked with Rothesay to de-risk the assets in discussion with them, whilst we went through the process of actually finalising the contract. We had quite open discussions sharing our asset portfolio with them."
With respect to Lucida – which in 2009 and 2010 had completed two separate transactions worth £500m and £100m, respectively – McEwan said that while the insurer was invited to tender for the contract, it was "not ever, really, in the frame".
The insurer announced in mid-November that it would cease writing new business and that its chief executive, Jonathan Bloomer, had resigned to be replaced by then CFO Hitesh Patel.
"We were aware there were likely to be issues in that regard," McEwan said, but he stressed that the £600m in policies already written with Lucida were "perfectly safe".
Asked whether the fund was considering a buy-in for the remaining £2.2bn held in the New Section, which remains open to accrual, McEwan seemed to view it as an unlikely path, noting the actuarial deficit.
"There is no question at all, unless the tooth fairy suddenly appears with a blank cheque," he said.
Administration for the bulk annuity provided by Rothesay Life will continue to be offered by MNOPF subsidiary MNPA.
In addition to Towers Watson, Baker & McKenzie advised the trustee on legal matters.