Stone Ridge secures $2bn of commitments for Post-Event ILS fund

by Artemis on January 5, 2017

Stone Ridge Asset Management, the beta and alternative risk premia focused mutual fund manager with a range of insurance-linked securities (ILS) funds, has secured commitments of $2 billion from existing investors for its Post-Event ILS fund.

Stone Ridge launched the Stone Ridge Post-Event Reinsurance Fund towards the end of 2015., with a strategy to provide its investors with a way to capitalise on opportunities in the insurance and reinsurance linked securities (ILS) space after large or catastrophic events cause market dislocation.

The Stone Ridge Post-Event Reinsurance Fund is only available to existing investors in Stone Ridge funds, offering a way for the manager to ensure that its existing providers of third-party capital are the first to benefit from any increase in reinsurance yields after catastrophes occur.

Stone Ridge also sees the Post-Event fund as an important way to offer consistency to its clients as well, with a pool of capacity committed but only available to invest after the industry wide draw-down event has occurred.

Stone Ridge founder Ross Stevens terms the kind of events that could activate the Post-Event fund “CNN events”, due to the amount of television coverage such large disasters would garner. These events would cause the Stone Ridge ILS and reinsurance funds “material drawdowns” Stevens writes in the latest Stone Ridge annual report.

Once triggered the Post-Event fund is set to be the only way to access the Stone Ridge reinsurance funds, meaning that existing investors who do want to be able to capitalise on any market dislocation or increase in yields need to commit to it.

It’s only available to existing investors at the time of activation, although could take new inflows immediately afterwards, so the investors who have backed the $5 billion of ILS capital that the Stone Ridge reinsurance funds already command need to ensure they are among the first in the queue to ensure they benefit.

It turns out that existing investors are clearly keen to be part of the initial activation of the Stone Ridge Post-Event Reinsurance Fund, with Ross Stevens revealing that $2 billion is already committed to the fund.

The Post-Event fund “currently has $2 billion of investor capital lined up, waiting for the opportunity” Stevens wrote in the annual report.

Stone Ridge sees the Post-Event Reinsurance Fund as a way to ensure that its assets under management go up, rather than down, after a major drawdown catastrophe event. In the current market environment and with the ongoing trend towards increasing amounts of third-party capital entering the reinsurance market, this strategy is absolutely key.

If, as expected, any post-event increase in reinsurance pricing and ultimately the yields that ILS and reinsurance funds can earn is short-lived now, due to the amount of capital sitting on the sidelines ready to participate at that time, the Stone Ridge Post-Event fund should be in a position to deploy capacity rapidly to capitalise on any rise in rates at all.

So even if the post-event reinsurance rate rise is muted and short-lived, Stone Ridge and its third-party investors will have the best chance to benefit from this, by having this $2 billion of capital committed and ready to call on.

Of course Stone Ridge isn’t the only ILS fund manager with commitments from investors that it can call on after a major industry loss event, others too have funds, structures and arrangements in place for just that opportunity.

With all this post-event capacity building up and ready to flow into reinsurance markets after the next major event or set of events, it makes the chances of the reinsurance pricing cycle becoming increasingly flat even more likely.

But, whether flat or just muted it is still important to have capital available to put to work when the big events occur and Stone Ridge has lined up an impressive pool of post-event ILS capital in the $2 billion committed to its Post-Event fund.

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