The Florida State Board of Administration has reiterated its view that, with property catastrophe reinsurance rates softening fast catastrophe exposed insurance-linked securities (ILS) could become less attractive and the investor is even envisioning a potential “significant reduction” if the direction of travel persists.
While the Floridian pension fund investor had made clear that diversification within the ILS and reinsurance sector was still a priority, it was the first major institutional investor to state that recent rate and price softening was making some catastrophe exposed ILS less attractive.
It’s important to note that reducing exposure to nat cat risks in the ILS portfolio could be achieved by increasing diversification away from cat, to other lines such as specialty risk and this remains a priority for the investor. So it doesn’t necessarily mean downsizing the overall allocation to the ILS market significantly.
Now, at the Florida State Board’s most recent investment advisory council meeting at the start of June, the subject was raised again by Trent Webster, Trent Webster, Senior Investment Officer.
Webster explained that performance of the ILS investments made for the Florida Retirement System pension plan have been attractive.
“Insurance has been very, very strong. Our three-year return has been 18%. Last year was a phenomenal year, up about 22%,” he commented.
Continuing to explain, “The index, here it’s the Swiss Re Cat Bond Index, and that had, at least until recently, been quite a hard index to beat, because there was a lot of crowding going on in the insurance market.
“So a lot of people were moving up the risk tower in the cat bonds, and I actually think cat bonds really aren’t that attractive right now.”
Webster further stated at the June meeting, “Our average mean-loss return is still double-digits, and it’s still above the long-term returns from insurance-linked securities, but that has been going down. And if we have a pretty quiet year for hurricanes, which, as residents of Florida we all hope we do, we would expect to see very strong returns again, and us starting to pull back from that market.”
Then he highlighted that there remains another new ILS or reinsurance fund that the pension investor is assessing an allocation to, with a specific goal to add more diversity to the ILS portfolio.
Webster said, “We do have another fund that we’ve added to our pipeline that invests in Lloyd’s syndicates, so we’re hoping to get that closed.”
Adding, “What we’re trying to do is get more diversified in our perils. But it could be that we have a pretty significant reduction if it’s a quiet year, or reduction of exposure if we have a quiet year.”
Webster’s comments reflect an awareness that if 2026 is another benign year for major catastrophe events that impact the global reinsurance market, further softening of rates would be likely.
While a benign year will drive another attractive annual return, there have been comments made among reinsurers and analysts that technical rate adequacy could be stretched very thin on certain property catastrophe perils in 2027.
All of which means this is a time for discipline and managing allocations, while it also brings up the prospects of greater emphasis on diversifying within the ILS and reinsurance asset class, something this investor is actively exploring.
Recall that, the Florida Retirement System Pension Plan saw its allocation to insurance-linked securities funds and reinsurance strategies rising to make up 1% of total pension fund assets by the end of 2025, which equated to around $2.23 billion invested.
The ILS portfolio stood at around 0.9% of the total pension fund as of March 31st, which remains around the $2 billion mark, we understand.
View details of major pension fund and sovereign wealth investors in ILS and reinsurance in our directory.
