At a time in which Mother Nature is spawning powerful tornadoes that are decimating communities on a regular basis, it's not reassuring that the school employees' pension fund is betting against catastrophes.
The Public School Employees' Retirement System has invested $250 million in bonds that serve to backstop insurance companies in the case of a major disaster.
It's a risky move, as evidenced by the 8 to 10 percent annual return on investment - if the insurer doesn't have catastrophic losses. As anyone who is investing in certificates of deposits or bonds knows, safe investments aren't paying 8 to 10 percent.
If there are disasters covered by the insurers, PSERS - and taxpayers - could suffer a significant loss, which will make the coming pension crisis more costly to taxpayers.
PSERS has an acknowledged unfunded liability of about $27 billion, although some estimates say the system might be $100 billion in the hole. We don't want to see that go any deeper.
"Over the past few years, PSERS has focused on reducing the overall risk profile of the portfolio by looking for uncorrelated return streams," Evelyn Tatkovski, spokeswoman for PSERS told PA Independent. "The reinsurance market is one new area where we have found the risk [and] return profile to be attractive."
The $250 million in catastrophe bonds is only a little more than one-half of 1 percent of PSERS' total investment portfolio of more than $50 billion. But because ultimately taxpayers are on the hook for PSERS' commitments, the pension fund's decision to invest in catastrophe bonds should be a public concern.
PSERS staff told PA Independent that the risk is minimized because the bonds would not kick in until insurance companies lose more than $1 billion.
But that figure could be surpassed with a major hurricane or two in the South or a serious earthquake in a highly developed area.
And since it's been awhile since the United States has suffered through a severe hurricane season or sustained a major earthquake, it almost feels like we're due.
No one can accurately predict what the weather patterns will bring in the coming months or when an earthquake will strike.
But Pennsylvanians better be hoping for sunny days in hopes PSERS doesn't get swamped by a loss.
