Mutual & listed ILS funds decline further on wildfire threat

by Artemis on November 19, 2018

The main mutual insurance-linked securities (ILS) and listed reinsurance linked investment fund strategies fell again on Friday as the threat of losses from ongoing California wildfires resulted in a decline in their share prices, while a stock-exchange listed strategy also declined through last week.

Since November 9th when the current California wildfire outbreak exploded into activity these mutual and listed ILS funds have now declined steadily over the past week.

The Stone Ridge Reinsurance Risk Premium Interval Fund fell by almost 2% be the end of Friday’s trade, adding to the over 1% it had already declined because of the threat of losses to its just over $6 billion portfolio as a result of the wildfire outbreak.

The same investment managers other ILS fund strategy, the Stone Ridge High Yield Reinsurance Risk Premium Fund which had around $918 million of ILS assets under management at July 31st, is now down almost 1.4% in total since this wildfire outbreak began in California and it declined over 0.6% on Friday.

Stone Ridge’s ILS Interval Fund will be the more exposed, as it invests across the ILS and reinsurance spectrum and will have exposure through collateralized reinsurance and private ILS quota shares, as well as perhaps though catastrophe bonds as well.

The High Yield Reinsurance Risk Premium Fund will be less broadly exposed, given it is largely a catastrophe bond strategy. But it does hold a $4.75 million holding of the PG&E sponsored Cal Phoenix Re catastrophe bond, which will need to be marked down and cause at least a mark-to-market loss for the moment, perhaps facing a full loss once liability is assigned for the Camp wildfire outbreak and if that falls to utility PG&E.

The other major ILS interval fund strategy which is run by asset manager Amundi Pioneer, the Pioneer ILS Interval Fund, also fell on Friday.

The Pioneer ILS Interval Fund declined by 1.3% on Friday and as we explained earlier the manager of this fund has warned investors that it faces a “modest” impact from the California wildfires.

As we also explained in that article, the Pioneer ILS Interval Fund also has an allocation to the at-risk Cal Phoenix Re cat bond (which was written down on Friday by the market), holding $2 million of the bonds notes.

Of the other ILS fund strategies that provide more visibility, the Markel CATCo London listed retrocessional reinsurance fund did not decline again on Friday. However it still remains as much as almost 9% down for the Ordinary shares of the fund and 11.5% down for the C Share class since the wildfires began, reflecting considerable uncertainty over just how big an impact the retro linked investment fund strategy could face.

Meanwhile, insurance and reinsurance shares have fared similarly, with the Dow Jones U.S. Reinsurance Index down over 2% since November 9th, the Stoxx European Reinsurance Index has fallen 3% since the fires began, the S&P Insurance Select Industry Index has fallen more than 3%, the KBW Insurance Index was also down more than 3%, and the Dow Jones U.S. Insurance Index had fallen almost 4% but has since recovered a little.

Also read:

Modest wildfire impact possible for Pioneer ILS Interval Fund.

Cat bond funds take NAV hit on wildfire cat bond write-down.

RMS puts Camp & Woolsey wildfire losses at up to $13 billion.

California wildfire losses rising, destruction nears 15,500 structures.

PG&E’s wildfire cat bond marked down for loss, traded at distressed price.

USAA cat bond & private ILS also at risk of wildfire losses: Twelve Capital.

PG&E sued over Camp wildfire, putting Cal Phoenix Re cat bond in the frame.

Wildfires could cost insurers $5bn to $10bn: Credit Suisse analysts.

Wildfires to drive up to $6bn industry insured loss – Moody’s.

Wildfire losses to hit record in 2018, pricing needs to change: A.M. Best.

Stone Ridge & CATCo fund prices dented by California wildfire threat.

Cat bond price volatility & discounts expected from wildfires: Plenum.

California wildfire most destructive ever, multi-billion losses expected.

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