Florida State Board set to increase ILS allocations at January renewals for FRS pension

Having previously indicated that it was cautious on reinsurance market conditions and undecided as to whether to add to its insurance-linked securities (ILS) investments for the January 2025 renewals, the Florida State Board of Administration now appears set to move forwards and increase its allocation to the sector.

As we reported back in October, the Florida Retirement System Pension Plan (FRS), which is administered by the Florida State Board of Administration, had increased its allocations to natural catastrophe insurance-linked securities (ILS) in advance of the mid-year 2024 reinsurance renewals.

But the Florida State Board team that administers the investments for the FRS pension plan had adopted a more cautious stance for the 1/1 renewals, as they looked to assess whether the hard market was declining.

With reinsurance market dynamics changing mainly due to a weight of capital from retained earnings in the sector, the Investment Advisory Council of the Florida State Board wanted to analyse the sector and establish whether further allocations should be made at this time.

Remember, with some $198 billion in assets as of mid-year 2024, the Florida Retirement System Pension Plan is a particularly large institutional investor with holdings in the ILS market.

The pensions target for the ILS allocation is 1% of assets and it remains under-allocated, with still somewhere around a 0.8% of assets allocation having been made.

The last data we saw, from June 30th 2024, indicated that around $1.6 billion was allocated to ILS investments for the Florida state pension, across both property catastrophe reinsurance and life insurance related risks, at that time.

Some $398 million was allocated to reinsurance and retrocession opportunities for the Florida Retirement System pension across three ILS managers in time for the January 2024 renewals.

Then we learned that Nephila Capital won a mandate from the Florida State Board of Administration during the first-quarter of this year, involving the deployment of up to $300 million into reinsurance through a Bermuda based ILS structure named Arachne.

All of which helped the nat cat ILS portion of the FRS pension’s ILS investments rise from around $792 million at mid-year 2023, to almost $1.43 billion by June 30th 2024, as referenced in our October article.

Now, the latest Florida State Board Investment Advisory Council meeting last week has heard that the target to increase the ILS allocation to 1% of the pensions assets remains in place.

They see the reinsurance market as still hard, but with rates stabilising, which has led them to decide to increase their allocation to the January 1 2025 renewal season.

As a result, some or all of the ILS managers that the Florida State Board invests with, for the FRS pension plan, could stand to receive increased allocations for 2025. Some of those mandates have room to grow, but we may not find out where exactly the money flows to until the New Year.

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