The insurance-linked securities (ILS) fund allocation of the Florida State Board of Administration experienced a negative first-quarter of performance due to the wildfire losses at the start of this year. But, the impact seemingly turned out to be less than feared and now staff of the SBA appear to be considering a new ILS fund allocation.
These allocations are made on behalf of the Florida Retirement System Pension Plan (FRS) portfolio, which the State Board administers.
With some $201.7 billion in assets as of the end of 2024, the Florida Retirement System Pension Plan is one of the largest institutional investors that allocates to the ILS sector.
As of December 31st 2024, the ILS investments made by the Florida State Board for the state pension plan were valued at approximately $1.791 billion and were around 0.85% of total fund assets at the time (the target allocation size remains 1%, so there is room to grow).
The majority of the ILS allocations made on behalf of the giant Florida state pension plan are to natural catastrophe risks at this time, via leading ILS managers Aeolus Capital Management, Nephila Capital, Pillar Capital Management and RenaissanceRe Capital Partners, with a smaller amount invested in life settlements with Miravast.
Given the majority of the ILS allocation is to catastrophe risk exposed reinsurance funds from the ILS sector, it is no surprise the Florida State Board anticipated the California wildfires from January 2025 would have an impact on returns.
At a meeting of the Florida State Board of Administration’s Investment Advisory Council back at the start of March, the negative impact of the California wildfires on the reinsurance market was highlighted.
The meeting discussed that the wildfires were set to have a meaningful effect on the reinsurance market, with reinsurance funds expected to face significant hit in some cases.
However, the meeting participants also said that reinsurance pricing had been softening and that despite the wildfires that would likely continue.
Discussing the Florida State Board’s own ILS fund allocations, Trent Webster, Senior Investment Officer – Strategic Investments, explained that the insurance investments had, in the most recent calendar year, performed well on an absolute basis, but underperformed their benchmark.
Webster then also said at the meeting that there was an expectation that the wildfires could “cost our book somewhere between 5 and 8 to 9 percent, depending on how this all shakes out.”
Recall though, that this was at a meeting at the beginning of March.
At a meeting this week of the Investment Advisory Council a presentation seen by Artemis shows that the Florida State Board’s ILS allocation was only down close to 2% for the first-quarter of 2025. So, seemingly the wildfires proved less impactful than perhaps originally anticipated, while the ILS fund investments had also continued to deliver positive returns outside of that catastrophe event in the period.
The meeting this week also heard that catastrophe bonds had, as a component of the ILS asset class, outperformed.
While, in terms of pricing and returns, the reinsurance market is still seen as hard, but with slight declines in rate.
As we’d reported before, the Florida State Board of Administration Investment Advisory Council has been considering further diversifying its allocations to ILS beyond natural catastrophe risks.
Specialty exposures were one area of focus, including potentially through the Lloyd’s market, as well as casualty, cyber and other types of insurance risk.
This weeks meeting suggests the focus is on specialty lines investment opportunities and quota shares, for the Florida State Board at this time, as it continues to explore what’s possible in ILS outside of nat cat.
Interestingly, the presentation from this weeks Investment Advisory Council meeting also mentions one fund being “in the pipeline”.
Which suggests that the Florida State Board is considering adding another ILS fund, either from an existing or entirely new ILS manager, to add to its current ILS allocation portfolio.
Which drives home the fact this large institutional investor continues to find the diversifying and relatively uncorrelated properties of insurance and reinsurance investments attractive, as well of course as the returns that can be generated from the ILS asset class.
View details of major pension fund and sovereign wealth investors in ILS and reinsurance in our directory.
