Insurance-linked securities funds see best April since 2007

by Artemis on May 31, 2013

Positive returns continued for managers of and investors in insurance-linked securities (ILS) and reinsurance-linked investment funds in April. The average return of ILS funds in April reached 0.83% as measured by the Eurekahedge ILS Advisers Index. This is the best April performance recorded by the Index since 2007 and the best performing month so far this year.

The attractive returns continued as the ILS fund market moved into the second-quarter of 2013. Assisted by spread tightening across the majority of outstanding secondary market catastrophe bond deals, as well as no major or impactful catastrophe events, investors have experienced very attractive returns so far this year. The average return of insurance-linked securities (ILS) funds across the first four months of the year hit 2.92%, according to the ILS Advisers Index.

While the average ILS fund, according to the ILS Advisers Index, was up by 0.83% for April 2013, the catastrophe bond market as a whole again showed the strength of secondary pricing with a total return of 1.01% according to the Swiss Re cat bond index. The Swiss Re price return index was also positive for the month, managing 0.46% for the month of April. The 1.01% total return of the secondary catastrophe bond market again suggests that ILS funds with large allocations to cat bonds will have performed particularly well in April again.

Stefan Kräuchi, founder of ILS Advisers, commented on the strong performance seen in April; “April 2013 was the best April performance for the Eurekahedge ILS Advisers Index since 2007. The extraordinary performance was mainly driven by strong price moves in the secondary cat bond market as a result of newly issued cat bonds with significantly lower coupons.”

Primary issuance in April demonstrated investors desire for diversifying cat bond opportunities, with the Turkish earthquake cat bond Bosphorus 1 Re Ltd. upsizing significantly from $100m to $400m despite a low coupon of just 2.5%, according to ILS Advisers latest update.

All 29 ILS funds represented in the ILS Advisers Index reported positive performance for April. Whether that positive performance will continue in May is yet to be seen. Secondary cat bond prices have begun to look more seasonal, and as we wrote here recently the Swiss Re price return index has seen some small declines so far in May.

ILS Advisers update comments on the recent Oklahoma tornadoes. It notes that there are no tornado specific cat bonds currently outstanding in the market and that for any multi-peril bonds to face principal losses the industry loss would need to be in the several tens of USD billions. Stefan Kräuchi told us; “Based on first damage assessments from some of the ILS funds, the tornadoes south of Oklahoma should have no impact on May numbers.”

It will be interesting to see how ILS funds perform for the month of May, as there is evidence of some price declines in the secondary cat bond market as seasonality kicks in and the U.S. hurricane season begins, and there is a chance of some mark-to-market price changes due to the Oklahoma tornadoes. We would imagine that the figure for May will be positive, but likely a little lower than in recent months.

We will update you next month on ILS funds performance in May.

You can track the Eurekahedge ILS Advisers Index on Artemis here. It comprises an equally weighted index of 29 constituent ILS funds which tracks their performance and is the first benchmark that allows a comparison between different insurance-linked securities fund managers in the ILS, reinsurance-linked and catastrophe bond investment space.

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