Pioneer ILS Interval Fund hits $161.7m, returns 11.23% despite 2016 cats

by Artemis on December 30, 2016

The Pioneer ILS Interval Fund, U.S. mutual fund manager Pioneer Investments insurance-linked securities and reinsurance linked investment fund, continued to grow in the last quarter reaching $161.7 million in size, while returning an impressive 11.23% in its last reported year despite catastrophe event impacts.

Pioneer Investments, a manager with around $245 billion of assets under management globally and which was recently acquired by investment giant Amundi, launched the Interval ILS mutual fund in late 2014, as its first dedicated ILS and reinsurance linked investment fund.

Since launch the ILS Interval fund has steadily seen its assets under management increase, reaching $142 million as of the 31st July 2016.

By the end of the next quarter, at 31st October 2016, that figure had grown further to $161.7 million, which means the ILS fund has more than doubled in a year, from the $75.4 million of ILS assets under management as of 31st October 2015.

More impressively than the growth perhaps, the Pioneer ILS Interval Fund has achieved an impressive 11.23% return on net asset value in the year to 31st October, despite citing a number of large catastrophe events that affected the reinsurance industry during the year, some of which impacted positions in the fund.

Portfolio managers of the ILS Interval Fund Charles Melchreit and Chin Liu explained in their annual report that despite a number of headline-making catastrophe and disaster events during the year to 31st October 2016, the reinsurance industry coped with the claims toll and the impact to the fund was not severe.

Events such as the Fort McMurray wildfire in Alberta, Canada, tornado events in Texas in April, hurricane Matthew, the earthquake in Japan in April, flooding in Germany, Belgium and France and pacific typhoons are all cited. The portfolio managers cite the December 2015 floods in the UK and the Italian earthquake in Italy as two other events that negatively affected the fund’s performance during the period.

But despite what might seem a year of relatively major catastrophes the returns achieved by the fund demonstrate the ability of ILS fund managers to protect their fund’s returns through diversification by peril and geography.

The Italian earthquake is a particularly interesting example, as insurance industry losses have been estimated so low and many reports suggested that primary insurers would largely retain them, but Pioneer’s ILS portfolio managers said that the Interval ILS Fund had exposure through collateralised reinsurance and quota share transactions.

It’s testament to the vital role that ILS capital plays in disaster risk transfer that ILS vehicles are exposed to this type of event which causes massive destruction but the insurance industry toll is low. It shows that ILS capacity is playing at all levels in the reinsurance tower today.

It’s also safe to assume that most other ILS funds investing in collateralised reinsurance and quota share vehicles will find some exposure to these events throughout the last year, but also the return achieved by Pioneer despite the catastrophe events shows that most funds will be reporting positive years during that period.

Pioneer’s ILS portfolio managers note that returns in ILS and reinsurance have declined, but the 11.23% return achieved for the year demonstrates that in the current investment climate ILS can be an extremely attractive alternative.

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