Some ILS funds suffer NAV impact from Australian storms

by Artemis on May 22, 2015

A number of ILS or reinsurance linked investment funds have seen small impacts to their net asset value (NAV) in April, due to the severe east-coast low pressure system and hailstorm that impacted the New South Wales and Sydney area in April.

Artemis wrote at the time that these events, while not resulting in particularly large insurance industry losses, can threaten some insurance-linked securities (ILS) funds and managers that participate in collateralized reinsurance layers for Australian primary insurers with losses.

The industry loss estimates suggested that any exposed per-occurrence reinsurance structures would be safe, as the level of losses (around $1.55 billion for the east coast low-pressure storm, the Sydney hail storm and a Brisbane storm). However Australian insurance companies regularly have aggregate, or sideways, reinsurance structures in place to provide frequency protection.

Artemis understands that it is these frequency layers that have been triggered for some insurers reinsurance programmes and we’ve been told that this will likely result in some small claims being passed onto ILS fund managers and as a result some reserving has taken place.

This has led to a small net asset value (NAV) impact in April for some of the ILS funds that have reserved for losses from these events.

It’s not clear how many ILS funds and managers may have been hit, but as we wrote recently Suncorp is just one of the major insurers in Australia that will call on reinsurers, with IAG being another.

ILS managers may be participating on both of those reinsurance programmes on a collateralized basis and therefore there is a chance of small losses leaking into the ILS market. There may also be some small impact to reinsurance sidecars or other vehicles that participate in reinsurance programmes at levels similar to ILS funds.

It’s suspected that when the figures come out for the performance of the Eurekahedge ILS Advisers Index for April we will see the impact of some of these catastrophe events.

Currently the ILS Advisers Index is showing an April return of just 0.06% based on figures reported by 85% of the constituent ILS funds. That is certainly low enough to suggest that these events have had a relatively broad impact to ILS funds dealing in collateralized reinsurance.

Also read:

Suncorp: AUD$1.55Bn industry loss from recent severe weather.

Suncorp losses to add to reinsurance hit from New South Wales storms.

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