The Merchant Navy Officers Pension Fund (MNOPF) has insured £1.6bn (€1.88bn) of members’ benefits after converting a pensioner longevity swap into a buy-in with Pension Insurance Corporation (PIC).

The £1.6bn buy-in secures the pensions of around 14,000 members in the industry-wide pension scheme. The longevity swap was held between MNOPF and Pacific Life Re and dates back to 2014.

Rory Murphy, chair of MNOPF, said the buy-in was positive for members and employers in the maritime and shipping industry but also contained “a positive message here for the wider pensions community”.

“A well-run fund, with strong governance and expert advisers, can deliver valued and sustainable benefits to its members while successfully managing the risks and costs faced by its employers,” he said.

To carry out the longevity swap in 2014 MNOPF set up an insurance “cell” company using a model offered by Willis Towers Watson, and those involved in the new de-risking transaction said it had benefitted from this structure.

Andy Waring, CEO of MNOPF, said: “The trustee pioneered the use of a ‘ready-made’ Guernsey captive cell for the purposes of longevity hedging back in 2014 – one of the reasons for this was our view that it would make a future novation to buy-in easier and more efficient, which has proved to be the case.

“Securing the benefits of our members has always been a significant part of the MNOPF journey plan. The buy-in with PIC is a great step forward to achieving this outcome.”

Two month novation process

According to Shelly Beard, senior director and deal lead at Willis Towers Watson, which advised MNOPF, the process to novate the longevity swap to an annuity was straightforward, taking less than two months.

The buy-in is the third involving a conversion of a longevity swap that PIC has completed, which the specialist defined benefit insurer said signified growing appetite in the market for these types of deals.

In November the Scottish Hydro-Electric Pension Scheme completed such a transaction, insuring £750m worth of liabilities with PIC. The other of the three deals has not been publicised.

MNOPF was an early and significant adopter of innovative de-risking transactions, completing its first bulk annuity transaction back in 2009 and doing five further deals since then.

CMS provided legal advice to PIC in respect of this transaction, and Pacific Life Re was advised by Hogan Lovells. Baker McKenzie provided legal advice to the trustee.

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