Florida state pension increased ILS allocations at mid-year, but more cautious on 1/1

The Florida Retirement System Pension Plan, which is administered by the Florida State Board of Administration, increased its allocations to natural catastrophe insurance-linked securities (ILS) in advance of the mid-year 2024 reinsurance renewals, but has adopted a more cautious stance for 1/1 as it assesses whether the hard market is declining.

With some $198 billion in assets as of June 30th 2024, the Florida Retirement System Pension Plan is a particularly large institutional investor with holdings in the ILS market.

However, the pensions target for the ILS allocation is 1% of assets and it remains under-allocated as of the latest data seen by Artemis.

We reported back in October 2023 that the target was set to increase the allocation to around the 1% of assets level, which implied a relatively significant scaling-up of the Florida state pensions ILS and reinsurance investments.

The ILS allocation has since been increased, with $398 million allocated to reinsurance and retrocession opportunities across three ILS managers in time for the January 2024 renewals.

After which, Artemis also 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.

Now, data seen from the pensions recent board meetings shows that as of June 30th 2023 the natural catastrophe focused ILS investment allocation of the Florida Retirement System Pension Plan stood at approximately $792 million.

By June 30th of 2024 the size of the nat cat ILS allocation had grown significantly, to almost $1.43 billion.

So, clearly the increased allocation target set in the second-half of 2023 has taken effect and the Florida state pension took advantage of the new allocations and new Arachne structure to further built-out its holdings in the ILS market.

The pension had been told in advance of the January 2024 renewals that the reinsurance market was deemed hard and that it might be an opportune time to expand on its investments in ILS, which are largely reinsurance and retrocession focused

On the nat cat ILS side, at the mid-point of 2023, the Florida state pension fund had roughly $257 million allocated to RenaissanceRe’s Tintoretto vehicle, $238.5 million to Pillar Capital Management’s Juniperus ILS fund, nearly $149 million invested in Nephila Capital’s Rubik strategy, almost $147 million to Aeolus Capital Management’s Property Catastrophe Keystone fund

At June 30th 2024, the ILS investments made by the Florida Retirement System stood as follows, with almost $544.8 million invested in the Pillar Juniperus ILS fund, $363 million to Aeolus’ Keystone fund, $333.4 million to RenRe’s Tintoretto vehicle, $103.5 million to Nephila’s Rubik vehicle, and now $81 million to the Nephila managed Arachne.

So there have been increases across the board to the ILS managers the FRS has chosen to partner with.

The allocation to Pillar has increased most significantly, while as of June 30th the Arachne allocation with Nephila was only partially used, having been approved for up to $300 million.

It’s worth also noting that the Florida Retirement System pension also has life settlement investments with manager Miravast, that totalled almost $155 million at June 30th 2023 and had grown to $176.6 million as of June 30th 2024.

A legacy position investing in the ILS P&C strategy remains in run-off and is now just $2.3 million as it continues to wind down.

So total nat cat ILS investments reached $1.43 billion at June 30th, while including the life settlements took the FRS’ total insurance and reinsurance linked allocation to roughly $1.6 billion.

That remains just 0.81% of assets, suggesting there is still room to grow further, should the Florida pension elect to.

Only one ILS allocation in Q2 was disclosed, an additional $50 million investment made into the Pillar Capital Management operated Juniperus Insurance Opportunity Fund.

It was disclosed at an earlier board meeting that $127 million was allocated to two opportunities for the June 1 renewal this year. We can’t be certain, but that might account for the Pillar increase and also some or all of the Arachne investment that has been made so far.

The rest of the increase seems to have come through the January renewal allocation to managers, while the Arachne structure remains under-allocated to as of June 30th, again showing room to grow opportunistically as market conditions are conducive for the pension.

The nat cat ILS allocation of the FRS was just over 0.7% of the pensions total assets as of June 30th 2024 and the State Board of Administration heard again that this is under the allocation target at this time, in a recent Investment Advisory Council meeting.

Before the mid-year renewals, the Investment Advisory Council heard that reinsurance market conditions were just about as hard as they had ever been.

But fast-forward to September and the meeting heard that while it is still a hard market rates were beginning to decline somewhat.

Which led to a statement that the Council will assess the state of the market before deciding on any additional allocations for the January 1 2025 reinsurance renewals.

With hurricane Milton now in the rear-view and having occurred after this meeting was held, it’s possible the FRS staff may be less cautious and looking more favourably at further ILS allocations for 2025.

Finally, it was again reiterated at the meeting that the Florida Retirement System Pension Plan continues to research the Lloyd’s market, as a potential avenue for deploying additional assets into insurance and reinsurance. Which makes perfect sense as the investor looks to diversify its allocations to the sector.

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