The MMC UK Pension Fund has completed the largest UK longevity hedge since 2014.

The longevity hedge covered £3.4bn of liabilities for around 7,500 pensioner members of the pension fund.

The transfer used a ‘captive’ approach to the reinsurance market through Guernsey incorporated cells, with Canada Life Reinsurance and the Prudential Insurance Company of America reinsuring an equal share of the risk.

Mercer lead advice on the transfer and was the first risk transfer to be transacted through Mercer Marsh longevity captive solution with no upfront premium.

Mercer lead transaction adviser for the trustee and head of longevity reinsurance Suthan Rajagopalan commented “Mercer is delighted to have helped the fund manage its longevity risk in this way. We worked closely with the trustee to achieve a successful outcome for all parties and further help the fund to continue its de-risking journey.

“Longevity risk is a key risk for defined benefit schemes and is more significant than ever in the historically low-yield environment. As part of this transaction, we have advised on and managed a broad and highly competitive process to remove this long-term risk and have been able to facilitate the transfer of risk to the reinsurance market cost-effectively through the ‘Mercer Marsh’ longevity captive solution.”

Trustee chairman Bruce Rigby, added: “Rising life expectancy has led to significant increases in UK pension scheme liabilities over the past couple of decades. The Trustee commissioned a full market review of all longevity risk transfer structuring approaches and corresponding providers. Based on a combination of factors such as cost, efficiency, future flexibility and security the Trustee selected the ‘Mercer Marsh’ longevity captive solution. By implementing this longevity hedge in partnership with MMC and its advisers, the Fund has taken a major step in removing this risk.”

Marsh Captive Solutions in Guernsey head of office added Stephen Hawkes: “Marsh was pleased to help establish an efficient mechanism to transfer longevity risks to the reinsurance market, working together with Mercer on this transaction to achieve a positive de-risking outcome for the Fund.”

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