Florida State Board could near double $1bn pension ILS allocation

The Florida State Board of Administration, which manages the huge and roughly $180 billion Florida Retirement System Pension Plan, looks set to increase the size of its allocation to insurance-linked securities (ILS).

The move comes as laws have been changed in Florida to allow the state retirement system, which is one of the largest pension fund managers in the world, to allocate more of its assets to alternatives.

Being one of the largest institutional investors in the world, it’s no surprise that the Florida State Board of Administration is already allocated to insurance-linked securities (ILS), for the Florida Retirement System Pension Plan.

At the end of 2022, the Florida Retirement System Pension Plan had over $912 million of insurance-linked securities (ILS) and related assets under management.

These investments were split across some of the most well-known property catastrophe reinsurance focused ILS fund managers, as well as to life and longevity related investment funds.

More detail on these ILS allocations, as of the end of 2022, in our article from May.

But alternative investments are now more in focus, since the state of Florida enacted a law to allow the State Board to allocate up to 30% of its assets to alternatives (an increase from the previous 20%).

So, it’s unsurprising, at this time of elevated reinsurance market returns, to learn that ILS is one of those considered most in focus for an increase.

Right now, the ILS allocation is pegged at roughly 0.57% of total assets.

With the Florida Retirement System Pension just over $180 billion in size, in assets terms, that would equate to just slightly over $1 billion deployed as of this month across ILS and reinsurance related investments.

A proposal the SBA has been presented with this week and seen by Artemis, implies that the ILS allocation should be up to 1% in size, so that gives the investor room to near double its allocations to the sector.

Based on the current amount of pension assets managed, which is the only part of the SBA portfolios to be allocated to alternative asset classes, it suggests that should the investor decide to maximise its opportunity in insurance-linked securities, the overall allocation would be allowed to grow to as much as $1.8 billion.

To be clear, the SBA has always been able to allocate more to ILS if it wanted, but in re-organising the range of strategic investment alternatives in the portfolio, the 1% target allocation for ILS looks increasingly like a diversifier the pension would benefit from taking up more meaningfully.

The SBA is also adjusting its overall strategic investments and alternatives allocations, upping some asset classes and downsizing in others, while the ILS target remains underutilised, providing an opportune avenue for growth into relatively uncorrelated assets.

Especially considering the elevated returns available in ILS and other reinsurance related assets, including catastrophe bonds.

For the ILS allocation, the SBA has been advised this week to use the Swiss Re cat bond index as a benchmark, perhaps making a catastrophe bond allocation an even more likely future area of growth for the Florida State Board and Retirement Systems ILS portfolio.

The giant retirement system of Florida has a significant opportunity to expand its ILS allocation in the current attractive market environment and as it has now adjusted its alternatives allocation targets, it seems likely ILS will come into greater focus going forwards.

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