Stone Ridge ILS & reinsurance assets surpass $5 billion

by Artemis on January 3, 2017

Beta and alternative risk focused mutual fund manager, Stone Ridge Asset Management, increased its insurance-linked securities (ILS) and reinsurance linked assets under management by just over 2% by October 31st 2016, to $5.054 billion.

Stone Ridge recently reported its annual results, revealing continued growth in its assets during 2016, a time when opportunities to deploy capital in the reinsurance and ILS market have been considered reduced when compared with previous years.

The firm underlined the evolving risk landscape, and feels that a shift in how risk is held is well underway in the industry, expecting risks to be held directly by individuals, a trend that should benefit all.

For Stone Ridge its strategy of offering ILS and reinsurance linked investment opportunities in 40’s Act compliant mutual funds to investors through a network of registered investment advisors (RIA’s), is clearly still working, but the softening reinsurance landscape continues to take a toll on returns for all in the re/insurance and ILS space.

After launching in 2012 with raised assets of roughly $350 million, in two funds, the Stone Ridge Reinsurance Risk Premium Fund and Stone Ridge High Yield Reinsurance Risk Premium Fund, Stone Ridge grew its ILS and reinsurance linked assets under management to $766 million by July 2013.

Then, following the launch of a third fund, the Stone Ridge Reinsurance Risk Premium Interval Fund, its ILS and reinsurance linked assets grew to $1.4 billion by January 2014. From here the growth continued, hitting $1.8 billion by the end of April 2014, then $2.03 billion by July 31st, before reaching $2.124 billion at the end of October.

By the end of January 2015 Stone Ridge’s ILS and reinsurance linked assets grew by an impressive 42% to $3.006 billion, before reaching $3.288 billion as at 30th April 2015. As at 31st July 2015 assets across the three funds totalled $3.713 billion, before reaching $3.86 billion by the end of October 2015.

In 2016 Stone Ridge continued to see growth in its ILS and reinsurance linked assets across the three funds, hitting $4.45 billion as at January 31st 2016, then $4.76 billion by the end of April 2016, and $4.95 billion as at July 31st 2016.

Now, in the annual report, which covers the year to 31st October 2016, Stone Ridge reports growth of more than 2%, or approximately $109 million, across its three mutual ILS funds, taking the total reinsurance assets managed to $5.054 billion, the first time it’s surpassed the $5 billion mark.

While all three funds recorded annual growth as at October 31st 2016, only the Stone Ridge Reinsurance Risk Premium Interval Fund recorded growth from the end of July 2016, with the other two funds actually witnessing a slight decline in assets managed during this period.

The Interval Fund grew by roughly 5.4% from the end of July to the end of October 2016, to $3.496 billion, while the Stone Ridge Reinsurance Risk Premium Fund and the Stone Ridge High Yield Reinsurance Risk Premium Fund declined by 6% and 0.2%, respectively.

Despite the decline in assets managed for these two funds, on an annual basis both funds recorded growth, albeit slight. The Stone Ridge Reinsurance Risk Premium Fund grew by 3.5% to $1.06 billion on an annual basis, while the Stone Ridge High Yield Reinsurance Risk Premium Fund increased by 0.6%, to $498 million.

So, overall assets under management across the three funds continues to increase at a steady pace, but it’s also important to look at the returns achieved in the year to October 31st 2016.

The Stone Ridge Reinsurance Risk Premium Fund saw a return of 6.46% in the period, compared with 4.22% reported a year earlier. The Stone Ridge High Yield Reinsurance Risk Premium Fund returned 6.82%, up from the 5.06% reported a year earlier.

However, the company’s newest fund, being the Stone Ridge Reinsurance Risk Premium Interval Fund reported that its returns declined in the period, from 8.33% to 7.83% as at October 31st, 2016.

So returns for two of the funds are up while the other suffered a dip when compared with the previous year, something that is likely, in part, a result of the softening reinsurance landscape. At the same time the funds were hit by losses during the fourth-quarter, something that is extremely likely to happen given the size and reach of the Stone Ridge portfolios.

“2016 was far from a smooth ride and, given the diversity of our risk exposures, no year ever will be. Our reinsurance portfolios took many hits in 2016, including the Fort McMurray wildfires, Hurricane Matthew, and a magnitude 7.8 earthquake in New Zealand,” explained Ross Stevens, Founder and Chief Executive Officer (CEO) of Stone Ridge, in the firm’s annual report.

Despite returns declining for one fund and the softening reinsurance landscape coupled with a number of losses in 2016, Stone ridge continues to grow its ILS and reinsurance linked assets managed across all of its funds.

Times are challenging for reinsurers and have been for some ILS players as well, and the softening landscape is expected to persist into 2017, so it will be interesting to see how the Stone Ridge ILS funds perform over the coming months.

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