City National Rochdale ILS fund drops 22% on hurricanes

by Artemis on January 10, 2018

The City National Rochdale Select Strategies Fund (CNRLX), an industry loss warranty (ILW) focused mutual insurance-linked securities (ILS) fund run by Royal Bank of Canada subsidiary City National Rochdale, LLC, saw the value of its investments decline 22% due to the major hurricanes that hit the United States.

The asset manager grew the total capital deployed through its City National Rochdale Select Strategies Fund to almost $23.2 million, during the quarter ending October 31st 2017, a slight increase from the $15.43 million of capital deployed three months earlier.

In the first quarterly filing of its portfolio holdings for this ILW focused mutual fund strategy it is clear that the majority of the hit has come from investments in U.S. wind exposed ILW’s, with the value of its specific wind ILW bucket had declined by more than 31% at the time of reporting.

Other ILW positions in the portfolio from outside the U.S. wind bucket have also lost value, possibly due to either an aggregation of catastrophe loss events including the hurricanes, exposure to the California wildfires, or perhaps Caribbean specific exposure to the hurricanes.

It’s likely that the hurricanes are the main driver of loss though, given the use of ILW’s for retrocessional reinsurance protection against U.S. hurricane losses is the most widespread use case.

Following the losses, the value of the portfolio investments have declined by 22% to a valuation of $18.1 million as of the end of October.

City National Rochdale has an arrangement with specialist ILS and ILS investment manager Cartesian Iris, with the Select Strategies Fund allocating its capital to invest in the segregated cells of the ILS managers Iris Reinsurance Ltd. vehicle.

The majority of the investments are slated to be made in ILW’s, an area that Cartesian Iris specialises, which are derivative-like structures that provide reinsurance or retrocessional coverage to a protection buyer, with payouts based on reported levels of industry loss from qualifying catastrophe events.

The City National Rochdale Select Strategies Fund is a U.S. 1940’s Act mutual insurance and reinsurance linked securities fund, organised as an interval fund and is the first ILS strategy from the asset manager.

The fund only began operations as of July 27th, so was a little unlucky to find itself faced with three major hurricanes in quick succession, storms that have caused the largest losses that the industry-loss warrant (ILW) market has ever seen.

As such, it’s no surprise to see the decline in value of the portfolio as of the end of October.

Some of the loss has been recovered, as we understand that there are ILW positions in the market, yet to be settled, that have bounced back or no longer face impacts, due to industry loss estimates declining for hurricane Irma.

In fact the fund has bounced back significantly, with its price reported on Bloomberg having recovered to now sit only 5% below its pre-hurricane highs.

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