Insurance-linked security (ILS) funds have best November since 2007

by Artemis on January 9, 2014

Insurance-linked securities (ILS) funds enjoyed their highest November returns since 2007, according to the Eurekahedge ILS Advisers Index. Early estimates put full year 2013 performance of the ILS fund index at 7.52%.

The average insurance-linked security fund saw a return of 0.47% for the month of November, according to ILS Advisers. This is the highest seen in November since 2007, further reflecting the benign Atlantic hurricane season which saw no threats to any outstanding U.S. wind catastrophe bonds or reinsurance programs.

November’s ILS fund performance lifted the ILS Advisers Index to a return of 7.17% for the first eleven months of 2013. The first full-year 2013 estimate is now available, including first reports collated for December returns, which puts the average ILS fund return for the twelve months of 2013 at 7.52%.

Stefan Kräuchi, founder of ILS Advisers, told Artemis; “In terms of funds performance, November was an average month with +0.47% for the Eurekahedge ILS Advisers Index. Looking at November performances from past years however, this was the best November performance for the index since 2007.”

Fluctuating prices due to seasonality and demand continued to be a factor and yields drove returns in November. Kräuchi explained; “Results were driven again by current yield, while price development in the secondary market was negative, reflected by performance of the Swiss RE Cat Bond Price Index of Minus 0.12% for November and the positive performance for the Swiss Total Return Index.”

The outstanding catastrophe bond market was down by 0.12% in November for the Swiss Re Cat Bond Price Index and up by 0.52% for the Total Return Index. Despite the positive total return from cat bonds in November, ILS funds investing in private collateralized contracts again led the way.

Kräuchi commented; “Funds that invest in private ILS did again better reflecting the higher yields on the private layers. We expect this trend to continue.”

Pure cat bond funds as a group were up by 0.34% in November, reported Kräuchi, while the funds whose strategies include investing in private ILS or collateralized reinsurance saw average November returns of 0.55%, reflecting the higher yields available on private ILS transactions.

All 33 constituent funds in the Eurekahedge ILS Advisers Index reported positive returns for the month of November, with the gap between best and worst performing fund sitting at 1.39%, lower than in the previous month.

Eurekahedge ILS Advisers Index - Tracking the average performance of 30 ILS funds

Eurekahedge ILS Advisers Index - Tracking the average performance of 30 ILS funds (click the image for more details)

The Eurekahedge ILS Advisers Index continues to provide a good proxy for the performance of the ILS fund market. The early estimate of 7.52% return from ILS funds in 2013 demonstrates the attractive and diversifying investment returns that are possible from catastrophe risk and reinsurance as an asset class.

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.

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