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The Merchant Navy Officers Pension Fund (MNOPF) is the latest scheme to utilise a Guernsey captive to hedge £1.5bn of its longevity risk, reports Captive Review.
The MNOPF has worked with Towers Watson to complete the transaction which used MNOPF IC Limited - a cell within Towers Watson ICC - to reinsure the risk with Pacific Life Re.
"Longevity was a significant, concentrated risk for the fund and, having considered the different options available, the trustee board decided that Towers Watson's Longevity Direct structure was the most cost effective and efficient structure," said Rory Murphy, MNOPF Chairman.
"This, combined with attractive reinsurer pricing, allowed us to hedge longevity risk without any material impact on our broader journey plan."
Appleby's Guernsey office was responsible for providing legal advice on the scheme, while Willis in Guernsey is the insurance manager.
Captive Review reported in December that Towers Watson had established its incorporated cell company and was expected to begin adding clients to individual cells. The pension longevity risk boom in Guernsey was sparked by the BT Pension Scheme £16 billion transfer using BTPS ICC, managed by Artex, to American insurer Prudential.
Shelly Beard, Senior Consultant at Towers Watson, said accessing the reinsurance market through cell structures was making the hedging of pension risk more affordable for the schemes.
"It also reduces the complexity that is often associated with longevity hedging - the contractual negotiations on this transaction took less than two months," she said.