Florida Retirement System 1% ILS asset allocation approved by trustees

At a meeting this week of the trustees of the Florida State Board of Administration, the planned asset allocation target changes for the near $190 billion Florida Retirement System pension fund were approved, with insurance-linked securities (ILS) set at 1%.

As we reported back in June, the Florida Retirement System Pension Plan could increase the size of its allocation to insurance-linked securities (ILS) as a result of the planned changes to asset allocation targets for alternatives at the fund.

The ILS allocation made up roughly 0.57% of total assets at the time the changes to allocation limits were being proposed, with close to $1 billion allocated across catastrophe reinsurance investments, a run-off vehicle and life settlement funds.

ILS was part of the 12% strategic investment allocation, sitting alongside hedge funds in the liquid alternatives bucket of that strategy.

Now, the Florida State Board of Administration (SBA) has heeded the advice of adviser Aon Hewitt to restructure that strategic alternatives allocation.

The reason for the restructure is to provide a more deliberate and focused strategy, focusing on the delivery of attractive and uncorrelated risk-adjusted returns to the pension fund.

Within the strategic alternatives segment, insurance-linked securities (ILS) had never reached their potential allocation as they always competed with more asset classes within that bucket, with 6% allocated to diversifying that included ILS.

Now, the alternatives grouping has been downsized, with strategic alternatives just having a target of a 4% allocation, across hedge funds at 2%, infrastructure at 1% and ILS at 1%.

It’s seen as a better way to separate out the asset classes for benchmarking and performance reporting purposes, while also enabling the alternatives to have their own specific focus.

Which means the chances of the Florida Retirement System Pension Plan now taking up more of the 1% ILS allocation seem greater.

Which, if it chooses to do so, could see the ILS mandate growing to around $1.9 billion in size.

The SBA has always had the ability to allocate more to ILS if it wanted to but, after this re-organisation is completed, the 1% target allocation for ILS looks increasingly like a diversifier the pension would benefit from taking up more meaningfully, not least given the returns currently available.

It’s worth remembering that the Florida Retirement System uses the Swiss Re catastrophe bond index as a benchmark for its ILS portfolio, but does not have a dedicated cat bond allocation, so that could be an interesting opportunity for the fund, although it may want to find a strategy that is less weighted towards exposure in its home state, we’d imagine.

The FRS pensions ILS investing began in 2017 with allocations to Nephila Capital’s vehicle Rubik Holdings, as well as a RenaissanceRe managed structure named Tintoretto Partners, L.P., a Delaware located reinsurance investment fund vehicle.

The Florida Retirement System Pension Plan then added allocations to the Aeolus Capital Management run Property Catastrophe Keystone PF Fund, the Pillar Capital Management run Juniperus Insurance Opportunity Fund and the casualty run-off focused ILS Property & Casualty Fund II, which was linked to Credit Suisse and sub-advisor ILS Investment Management (ILSIM).

More recently, the pension added life settlements fund for the first time, with manager Miravast, as the pension looked to diversify within insurance and reinsurance.

At the mid-point of 2023, the Florida state pension fund had roughly $257 million allocated to RenRe’s Tintoretto vehicle, $238.5 million to Pillar’s Juniperus ILS fund, nearly $149 million to Nephila’s Rubik strategy, almost $147 million to Aeolus’ Keystone fund, almost $155 million in the Miravast life settlement investment funds, and $2.7 million in the ILS P&C run-off strategy.

With the planned changes to the asset allocation split approved by the trustees this week, it will be interesting to see if the Florida state pension looks to expand its ILS investments, to take up more of the 1% of assets target and if so how and with which managers.

View details of major pension fund and sovereign wealth investors in ILS and reinsurance in our directory.