Stone Ridge ILS assets return to growth, rising 10% to $6.72bn

by Artemis on April 3, 2018

Insurance-linked security (ILS) and reinsurance linked asset growth returned at investment manager Stone Ridge Asset Management’s mutual ILS funds in the last reported quarter, as its strategies put major losses from hurricanes and other catastrophes behind them and grew 10%, taking the firms ILS assets under management to $6.72 billion.

Stone Ridge Asset Management had been experiencing impressive growth since launching its ILS and reinsurance linked mutual fund investment strategies back in early 2013, resulting in the firms assets passing $6 billion for the first time, reaching $6.14 billion at July 31st 2017.

But then came the major hurricanes and other catastrophe losses of 2017, which resulted in the investment manager experiencing a decline of roughly $1 billion due to confirmed catastrophe losses and mark-downs on exposed ILS and collateralized reinsurance positions.

But despite these impacts Stone Ridge’s total ILS and reinsurance linked assets under management only fell very slightly to $6.12 billion, as of October 31st 2017, even after paying out roughly $1 billion of losses to counterparties.

With the key reinsurance renewals at January 1st 2018 seeing many new opportunities coming to market it looks as if Stone Ridge Asset Management has taken advantage of the availability of new opportunities to deploy capacity and has raised fresh capital from investors to meet the demand it saw in the market.

This has led to the return to growth, with the ILS and reinsurance linked assets under management in Stone Ridge’s mutual funds increasing by 10% to hit a new high of $6.72 billion, as of January 31st 2018.

Of course this is just the assets held in Stone Ridge’s dedicated ILS fund strategies. The manager also has some ILS assets in other multi-strategy funds, although this is a much smaller amount.

As of January 31st 2018, the investment and mutual fund manager’s interval fund structure, the Stone Ridge Reinsurance Risk Premium Interval Fund, had grown to a new end-of-quarter high, as the manager added 15% to reach $5.79 billion of ILS and reinsurance assets, up from $5.02 billion at the end of October 2017.

Meanwhile, the manager’s other dedicated ILS fund strategy, the Stone Ridge High Yield Reinsurance Risk Premium Fund, shrank again in the last quarter, falling to $931.6 million of ILS assets under management, down from $1.1 billion at October 31st.

We believe Stone Ridge is slowly shifting some investors from the High Yield Reinsurance fund into the Interval fund, as that strategy has now become such a core focus for the investment manager.

The investment manager did not activate its post-event ILS fund strategy following the losses of 2017, managing the exposures and bringing fresh capital into its main ILS fund strategies instead.

That strategy is always ready to be activated after a major draw-down from losses affects the managers Interval fund, but even the major catastrophe losses of 2017 was seemingly not sufficient to put that strategy into play and the losses did not hurt Stone Ridge’s ability to continue growing its ILS asset base.

Stone Ridge made some big investments around the January renewals, allocating $78.75 million to Munich Re’s Eden Re II sidecar, $20 million to a slice of Swiss Re’s Sector sidecar, $34.5 million to Brit’s Versutus sidecar, $50 million to Argo’s Harambee Re sidecar, over $89 million to a Horseshoe managed segregated account named Mapleton, $25 million to another Horseshoe Re segregated account Pelham, $50 million to a private ILS deal named Sussex (maybe Sussex Capital?), and $37.5 million to the Thopas Re sidecar from Chaucer.

Also of note, Stone Ridge invested another $100 million slice into the Aeolus Capital Management managed Keystone ILS fund during the last weeks of 2017, as it demonstrated its appetite for allocating to manager run strategies as well as directly into catastrophe bonds and private collateralized reinsurance instruments.

Stone Ridge Asset Management continues to expand its ILS strategies and the role it plays at renewals is clearly becoming increasingly important to counterparties, as evidenced by the steady growth of allocations to private ILS deals and quota shares, as well as the way the manager has bounced back from losses with even more capacity available to meet its counterparts risk transfer needs.

With now $6.72 billion of ILS and reinsurance linked assets under management, Stone Ridge remains firmly in the top-ten ILS fund managers, according to Artemis’ data.

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