Florida fund commits additional $400mn to ILS strategies

The State Board of Administration for Florida committed $400mn in new mandates during the second quarter to four ILS managers – RenaissanceRe, Nephila, Pillar Capital and Aeolus Capital.

This followed up on a $550mn initial commitment to ILS strategies made by the organisation, as it moved to capitalise on a hardening market.

The board’s senior investment officer of strategic investments, Trent Webster, told an investment advisory council that he would like to see insurance mandates rise to 5 to 10 percent of the strategic investment portfolio he oversees, which was worth $13.4bn at 31 March.

The insurance allocation was shown as 2 percent of the strategic investment portfolio in June meeting documents. At its maximum level of $950mn, the allocation would now have surpassed 7 percent of the $13.4bn portfolio, or 0.6 percent of the total Florida pension plan assets, but the board did not specify how much had been deployed. 

The pension plan had held back from insurance in the past as it believed the market was overvalued, Webster explained, according to council meeting minutes released in June.

“But we think the valuation is coming in to us,” he said.

The Florida pension’s ILS allocations were dependent on market conditions and achieving the rate increases that were anticipated, Webster added.

“If it's not [hardening], we won't do anything more. If it is, then we'll put more money there.”

He said the fundamental diversification of ILS was appealing to the fund.

“The earth's crust does not care what the Fed is going to do. The wind is going to blow no matter what the stock market does.”

The strategic investment portfolio Webster oversees makes up just over 8 percent of the $159.9bn Florida Retirement System pension plan.

The joint-largest allocation among the $400mn new commitments in Q2 was a $125mn mandate to Nephila-managed Rubik Holdings, after the State Board put an initial $50mn to work when it first invested with the Bermudian firm in Q1 2018.

RenaissanceRe also received a follow-up investment of $125mn, after the State Board had allocated $250mn to the reinsurer for the first time in late 2017.

Pillar Capital’s Juniperus Insurance Opportunity Fund was given $100mn in the latest round of new investments and $50mn was pledged to Aeolus for its Keystone fund.

The State Board first invested with both Pillar and Aeolus in Q4 2018, when each took investments of $50mn from the Florida institution.

Credit Suisse Asset Management, which was also a new manager chosen in 2018, took $150mn that year for its legacy joint venture ILS Property & Casualty.

In the March meeting, the pension plan did not discuss whether any of the new Q2 2019 mandates were effectively replenishing some level of trapped capital from its late 2017/early 2018 investments with Nephila and RenaissanceRe.

However, in a September 2018 meeting, Webster advised the investment council that, at that time, its insurance portfolio was showing a gain on its initial investment.

Moreover, at that time, the fund was getting the structures in place to invest but not committing large sums to deploy, he explained.

“[We’re] getting fairly large approval commitments but not actually putting a lot of money out, simply because we generally think the market is soft,” he added.

“We actually have a few things… in our queue which are insurance. But most of that is just to get the structures set up and making small allocations so that when the market hardens, we will have the structures in place where we can fund it fairly efficiently.”