Average ILS fund returns actually above average in October

The average return of the ILS fund market, as measured by the Eurekahedge ILS Advisers Index, was actually above average for the month of October, after one fund revised its numbers on an improved outlook regarding potential losses from European windstorm Christian.

Last Friday, November 29th, we wrote that the October return for the ILS Advisers Index had been 0.53%, below the historical average for October of 0.58%. At the time we noted this was a little surprising given the lack of losses in October but it turns out that the figure of 0.53% included a large provision for a possible loss from European windstorm Christian. That provision has now been revised.

The adjustment made by this one ILS fund, which is a normal process for fund managers whereby as the details of a potential loss become clearer any reserve or provision can be updated in subsequent reporting. The amendment for the performance of this one ILS fund takes October performance for the ILS Advisers Index up to 0.62%, so October’s performance was actually above the average for the month.

Before this update there was a gap of 4.52% between the best and worst performing ILS fund featured in the Index in October. That gap will now have narrowed considerably as we suspect that the improvement experienced by this one fund would have been greater than 3%, which will have pleased its investors.

The methodology for the calculation of the Eurekahedge ILS Advisers Index is such that the numbers are only final after a three-month delay, allowing for corrections such as this, meaning that this update falls well within that time-scale.

This is another demonstration of an ILS fund manager being prudent, letting its investors know that a reasonably sizeable loss was possible, but then updating its numbers as soon as the picture is clearer. Investors appreciate this prudent approach, as it is always better to have returns boosted because an event is not as severe as once thought, rather than have returns slashed when a loss suddenly increases.

You can track the Eurekahedge ILS Advisers Index on Artemis here. It comprises an equally weighted index of 33 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. It provides a broad measure of the performance of underlying hedge fund managers who exclusively allocate to insurance linked investments.