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​MNOPF launches captive insurer to cover £1.5bn in longevity risk

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The Merchant Navy Officers Pension Fund (MNOPF) has passed £1.5bn (€1.9bn) worth of longevity risk to a re-insurer, a transaction agreed following the launch of its own insurance company.

The industry-wide fund, which last year completed the buyout of its £1.3bn Old Section, worked with consultancy Towers Watson to establish a Guernsey-based company to insure the longevity risk of 16,000 pensioner members.

Following the agreement between the fund and MNOPF IC Limited, a deal was then brokered for the risk to be re-insured by Pacific Life Re.

MNOPF chairman Rory Murphy said the announcement was good news for its beneficiaries and the multi-employer fund’s sponsors. 

“This innovative transaction significantly reduces the overall risk in the fund and is a positive step on our journey to achieve full funding,” he said.

Andrew Waring, the fund’s chief executive, said the trustee had decided to work with Towers Watson, which also acts as delegated CIO, using its recently launched Longevity Direct structure.

“This, combined with attractive reinsurer pricing, allowed us to hedge longevity risk without any material impact on our broader journey plan,” he said.

The consultancy’s Longevity Direct model grants pension funds the opportunity to set up individual insurance ‘cells’ within its Guernsey-based insurance company, a method it argued would reduce the cost of longevity transactions by cutting the fees paid to intermediary insurers before accessing the re-insurance market.

Shelly Beard, senior consultant at Towers Watson, said the company had been working with the MNOPF over the course of 2014 to arrange the deal.

“With BT, Aviva and now the MNOPF deal, it just shows there are easier ways to access the longevity re-insurance market,” she told IPE.

Beard added that the transaction was a fairly straightforward one, with the terms of the contract only taking a few months to negotiate.

“It’s a lot simpler than other longevity swaps we’ve seen to date,” she said. 

Norton Rose Fulbright advised the MNOPF trustee during its contract negotiation.

It is not the first time a UK pension fund has launched a standalone, captive insurance company to handle its longevity risk.

The BT Pension Scheme insured £16bn – roughly one-quarter of its longevity risk – with a wholly owned insurer, which passed the risk on to the Prudential Insurance Company of America.

UK-based insurer Aviva transferred around £5bn of longevity risk to three re-insurers earlier in 2014, at the time the single largest transaction.

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