2018 now second worst performing year for ILS funds: ILS Advisers

Only seven of the 33 tracked ILS funds representing the Eurekahedge ILS Advisers Index reported a positive return in December, and the average fund was down by 0.97 percent that month.

This is according to ILS Advisers' January newsletter, written by Stefan Kräuchi and David Yao.

ILS Advisers’ Eurekahedge index tracks the performance of the participating insurance-linked investment funds, and includes funds that allocate at least 70 percent of their assets to non-life risk. It serves as a benchmark to allow a comparison between different insurance-linked investment funds in the insurance-linked securities, reinsurance and catastrophe bond investment space.

For the full year, the index posted a negative return of -3.92, making 2018 the second worst performing year for ILS funds (with 2017 the worst).

The report noted that two consecutive catastrophic years have significantly impacted the ILS and have left historical losses to ILS funds

Kräuchi and Yao suggested that certain funds have been setting up side pockets to allow trapped collateral to develop with impacting new investors.

They cited JLT Re's Reinsurance Market Prospective, which suggested much as $20 billion of alternative capital - or 20 percent of ILS assets - is said to have been trapped and not deployable at the January 1, 2019 renewal.

Kräuchi and Yao expect 10-25 percent rate increase for loss affected and retrocession contracts, as they suggested some discipline is seeming to return to the market.

In terms of new issuance, around $300m spread across a number of small sized bonds entered the market.

Kräuchi and Yao suggested 2018 has been the most productive year in terms of risk transferring with total new issuance $13.85 billion, along with the outstanding volume of cat bonds reaching a record high $37.83 billion.