November worst performing month for ILS funds in 2018: ILS Advisers


Against a backdrop of Californian wildfires and other 2018 catastrophe losses, along with trapped capital from 2017 events has contributed to November being the worst performing month for ILS funds, according to the December ILS market report by ILS Advisers based on the Eurekahedge ILS Advisers Index by Stefan Kräuchi and David Yao.

Only one of 33 tracked ILS funds represented in the Eurekahedge ILS Advisers Index reported a positive return in November.

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.

The difference between the best and the worst performing funds was 43.23 percentage points, which was higher than previous month’s figure.

As a group, pure cat bond funds were also down by 1.21 percent while the subgroup of funds whose strategies include private ISL decreased by 5.51 percent.

Private ILS funds had performed lower than pure cat bond funds by 8.2 percentage points on an annualised basis, the report noted.

By comparison, the worst performing month in 2017 was September, with a -9.61 percent return.

In terms of new issuances, one of biggest deals came from Radian Guaranty, which issued $434 million of notes to cover mortgage insurance risks. Second was a $210 million transaction for workers compensation claims resulting from California earthquakes. The expected loss was 0.14 percent while the coupon was set at the top end of price guidance at 2.2 percent, showing signs of hardening.

ILS Advisers noted that secondary market trading became active as market participants were selling bonds to raise cash for the renewals. This has resulted in cat bond prices softening, resulting in a negative price return of 1.54 percent while total return was -1.03 percent, according to the Swiss Re Cat Bond Indices.

Private ILS also contended with significant losses, particularly from aggregate contracts where limits have been eroded due to previous nat cat events from 2018.

Furthermore, those losses combined with capital trapped from 2017 and the lack of new capacity have delayed renewals - which ILS Advisers Yao and Kräuchi believes will lead to higher prices in the retro market in 2019


Eurekahedge, ILS Advisers, ILS, North America

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