Rothesay completes £680 million bulk annuity policy with Merchant Navy Officers Pension Fund

13th December 2012

The Trustee of the Merchant Navy Officers Pension Fund (MNOPF) has secured around £680 million of members’ pension benefits in the MNOPF’s Old Section by purchasing a bulk annuity insurance policy with leading insurance provider, Rothesay Life.

The insurance policy covers benefits due to around 40,000 members of the Fund’s Old Section, and means that all pension entitlements from this section of the Fund, which closed in 1978, are now fully insured. Around half of the Old Section’s liabilities were secured through policies with Lucida plc in 2009 and 2010.

This is the largest bulk annuity transaction to have been completed during 2012.

MNOPF Chairman, Peter McEwen, said: “Today’s announcement is good news for our members. It means that certainty and security over pension benefits have now been extended in full to all benefits of the Old Section through insurance policies. Our top priority in negotiating this arrangement has been to secure the benefits of all our members. This move not only achieves that goal, it also enables us successfully to manage the risks faced by the Fund as a whole, which is good news for employers too.”

MNOPF Chief Executive, Andrew Waring, added: “Recent years have been an extremely challenging period for pension funds, during which the MNOPF has been very actively pursuing the goal of improving the security of members’ benefits.
Improving the funding position from a little over 80% in 2009 to full funding today, and completing this transaction, have been a tremendous achievement in these very difficult markets. Our actuarial, investment and settlement advisers, Towers Watson, and our legal advisers Baker & McKenzie have been outstanding in helping the Trustee reach this position. This latest transaction with Rothesay Life is a very significant moment for the Fund and its members. We have been looking after Merchant Navy Officers and their families for 75 years and securing our members’ benefits for the future has been our ultimate goal. Pensions will continue to be paid by MNPA Ltd.”

Addy Loudiadis, CEO of Rothesay Life, said: “We are delighted that the Trustee of the MNOPF has chosen to insure the remaining part of the pension fund with Rothesay Life and look forward to working closely with them. We are in dialogue with an increasing number of pension schemes seeking to execute bulk annuities when market conditions are right. We do this by agreeing a target premium level that the trustees are seeking to pay – sometimes linked to the value of the assets they own – and monitor both assets and our price over time. We have to do all the work upfront so that we are ready to execute quickly. All pension schemes should consider adopting this approach, particularly in volatile markets, as a well-timed transaction can deliver real value."

The Trustee was advised by Towers Watson, who have advised the Fund for over 20 years and who act as its delegated Chief Investment Officer.

Ben Stone, Senior Consultant at Towers Watson, said: “This transaction is the culmination of a de-risking journey. Reaching this point ahead of schedule involved capturing gains as they arose, being alert to pricing opportunities in the annuity market and then moving swiftly to lock in the terms of the transaction with Rothesay Life by selling equities. None of this would have been possible without teamwork between the Trustee, its advisers and administrators, and latterly Rothesay Life.”

Robert West of Baker & McKenzie LLP, who provided legal advice to the Trustee on its contract with Rothesay Life said: “This transaction shows how de-risking can be achieved - even in this challenging economic market - by adopting clear strategies and nimble decision-making structures. Concluding this transaction required careful planning, followed by detailed implementation over a very short timescale.”

Ends

For further information, please contact:
MNOPF: Nick Denton or Andy Fleming, MHP Communications - Tel: 0203 128 8754/8523, email:
mnopf@mhpc.com
Rothesay Life: Alex Child-Villers or Alina Ulkina, Temple Bar Advisory Limited - Tel: 020 7002 1080 / 07795425580
Towers Watson: Paul Deane-Williams - 07734 342 139 / Elske van Soest - 07808 176 551 / Ben Stone – 07960436 455 / Mark Duke – 020 7227 2432
Baker & McKenzie: Robert West - Tel: 020 7919 1251

Notes to the Editors

About the Merchant Navy Officers Pension Fund (“MNOPF”)

The MNOPF is an industry-wide pension scheme established in 1937 to allow shipping companies to provide retirement and death benefits for their officers. The buy-in with Rothesay Life involves the Old Section of the fund which was closed in 1978. The Old Section has around 40,000 members.

The Trustee of the MNOPF executed two buy-in transactions with Lucida plc in 2009 and 2010, covering £600m of Old Section liabilities. The buy-in with Rothesay Life covers the remaining liabilities not insured with Lucida.

The Fund was principally advised by Towers Watson in its roles as transaction specialist, delegated chief investment officer and actuary, and Baker & McKenzie LLP, who are the Fund’s lawyers.

About Rothesay Life

Now with over £10 billion of liabilities, Rothesay Life has grown since its establishment in 2007 as a leading provider of regulated insurance solutions in the market for pensions de-risking in the UK. Successful growth has come through the steady accumulation of pension scheme clients and the acquisition of competitor company, Paternoster in 2011.

The Trustee of the MNOPF joins existing Rothesay Life clients including the pension schemes and their members associated with such names as RSA, British Airways, P&O, Rank and Uniq.

Rothesay Life has been established to be a secure provider of pensions into the long term through its focus on :

a flexible and committed approach to execution;
ongoing risk management to maintain balance sheet strength; and
robust operational processes.

Rothesay Life has completed a number of projects of this nature over the past 5 years including:

In 2008 Rothesay Life took on responsibility for the £700m Rank Pension Plan
Following the challenging financial markets of 2009, Rothesay Life secured £1.9bn of benefits for the two UK pension schemes of Royal SunAlliance
In July 2010 Rothesay Life insured £1.3bn of BA’s Airways Pension Scheme, adding a further £1.3bn at the end of 2011
In January 2011 Rothesay Life purchased Paternoster UK Limited, assuming responsibility for a further £3bn of pension benefits from 42 pension schemes including P&O, Texaco, EMAP and Chrysalis.

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Rothesay completes £680 million bulk annuity policy with Merchant Navy Officers Pension Fund