The trustees of the £1bn Merchant Navy Ratings Pension Fund have agreed a £450m longevity swap for pensioner and dependant liabilities.

The arrangement with Metropolitan Life Insurance Company was signed to provide long-term protection to MNRPF against higher costs from people living longer than expected. The insurance will be part of MNRPF’s investment portfolio.

The transaction is structured as an insurance contract with a captive insurer – an insurance company owned by MNRPF’s trustee – in Guernsey and onwards reinsurance to MetLife.

“I am delighted that the trustee has taken an important step to ensure that our members’ benefits are strongly secured against increases in life expectancy.  This is a continuation of our derisking journey, and we are pleased to have completed the deal with attractive economics. This is a positive step in providing both additional security for members’ pensions and certainty for employers,” said scheme trustee Melanie Cusack from trustee firm Zedra Governance.

WTW was the lead adviser to the trustee. Linklaters gave legal advice, and offshore law firm Carey Olsen provided additional advice to the trustee, while Eversheds Sutherland advised MetLife.

Shelly Beard, managing director at WTW and lead adviser to the trustee, said the deal shows that longevity swaps are an option for smaller tranches of liabilities.

“We worked with the trustee to achieve a competitive reinsurer selection process and attractive economics relative to the fund’s reserves,” she added.

Jay Wang, who heads up risk solutions at MetLife, said: “This transaction demonstrates MetLife’s commitment to supporting solutions which help pension schemes and insurers manage longevity risk.”

In May, the scheme revealed it had appointed Schroders as its fiduciary manager, replacing WTW, but keeping the latter for actuarial and advice services.

As an unsegregated multi-employer scheme, MNRPF was affected by the fallout from P&O Ferries, the Dubai-owned company that summarily sacked its UK workforce to replace it with low-wage international agency workers. In June, the scheme said it had obtained an improved commitment from P&O Ferries in the form of unspecified security and changed contributions, leading to a smaller net deficit in the 2023 valuation.
   

   

The scheme also dealt with historic issues around ill-health early retirement benefits. In 2022, the High Court approved a settlement in a case brought by the trustees. The fund has so far paid lump-sum arrears of £29m and is due to pay £700,000 a year in increases to future pension payments. 
  

Are longevity swaps currently considered an attractive solution?