Marsh McLennan (MMC) UK Pension Fund, the parent company of investment consulting company Mercer, has completed a longevity hedge covering approximately £2bn of liabilities for around 14,500 pensioners.

The transaction included deferred and active defined benefit (DB) members of the fund and according to Mercer, which advised MMC, this is the first longevity swap to include active members and is the second largest UK pension fund swap to cover more non-pensioner members than pensioners.

The longevity risk was insured via a ‘captive’ Guernsey insurance cell and simultaneously reinsured with Munich Re through ‘Mercer Marsh’ longevity captive solution.

The 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.

Following this recent transaction, nearly all of the MMC UK Pension Fund’s DB sections’ longevity risk is now insured.

Trustee chair Bruce Rigby said the additional longevity hedge is a “natural next step” as the fund looks to reduce risks.

Suthan Rajagopalan

Suthan Rajagopalan at Mercer

He said: “The trustee and MMC 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.”

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.”

Rajagopalan said that longevity risk is a key risk for defined benefit schemes and the longevity reinsurance market is more developed than ever in the historically-challenging, non-pensioner heavy sector of pension risk transfer and can now deal with ‘active’ members.

Rajagopalan said that as part of this transaction, Mercer advised on and managed a broad and highly competitive process to remove this long-term risk.

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