Florida Catastrophe Fund Rejects Alternatives, Keeps Investments On Yield Leash

The commission responsible for overseeing Florida’s catastrophe pool has rejected a proposal to push the yield envelope on its $17 billion in assets at a Monday meeting.

“There is a clear and present danger to paying a significant amount of claims in a relative short period of time,” said Ash Williams, executive director and chief investment officer for  Florida’s State Board of Administration (SBA). “Those yields may be low, but they are function of the safe and liquid investment plan that is needed.”

The SBA, which has oversight over the Florida Hurricane Catastrophe Fund (FHCF), was asked by investment advisory vice chairman Charles Cobb to review the asset allocation during December’s review after a report cited its most recent 10 year return of 1.78%.

The FHCF acts as a reinsurance provider of last resort to several carriers in the state.

“I’m not sure it’s in the state’s best interest to have a 10 year record of 1.78 percent. And I understand liquidity and I understand all the other things you just said,” Cobb said during the meeting, adding that the staff should explore “any recommendations” to increase returns.

The findings of the staff were presented at today’s meeting, including a report from AON Hewitt that said the FHCH investment policy constrains the funds to short-term and high quality bonds “to minimize both interest rate and credit risk” and that the returns have been “strong over short and long-term time periods.”

“This is a very conservative mix that is tied to tied directly to ensuring both liquidity and access to capital,” Williams said during the presentation. He added that in response to the return concerns, rather than invest in alternative vehicles the fund has extended the duration of its existing investments to increase yield.

Williams added that the conservative investment plan was also key to the state’s post-event funding ability since the FHCF “could be on the hook to pay all of its assets in one year” following a major event.

“That’s exactly what we have communicated to bond investors,” Williams added.


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