Blue Capital listed fund suffers -26% September performance

The impact of recent catastrophe events, including the major hurricanes Irma and Maria, is gradually becoming clearer as ILS funds report their September returns. The latest to report is Blue Capital Management’s listed fund vehicle, which has suffered a -26% return for the month.

While many ILS funds saw negative returns in August due to Harvey, it is September’s returns where the scale of the impacts of recent events are being largely felt, given ILS fund’s exposure profile.

The stock exchange listed Blue Capital Alternative Income Fund (formerly known as the Blue Capital Global Reinsurance Fund) reported its net asset value for September 2017 today, revealing a -26% hit for the month, resulting in a year-to-date performance of -23.69%.

Given the ILS fund’s exposure is predominantly to property catastrophe risks, in either reinsurance or retrocession form and with U.S. states making up a large amount of its portfolio the fund was always going to suffer a major hit from recent events.

The size of the negative return suggests that Blue Capital Management is being prudent and reserving for a maximum exposure to its portfolio, which could mean the actual impact turns out to be lower some months down the line, as the final bill for the reinsurance industry is tallied.

September’s performance includes the impacts of hurricanes Irma in the U.S. and Florida, as well as hurricane Maria in Puerto Rico, and the two Mexico earthquakes.

The fund’s loss is after reinsurance and reinstatement premiums. Blue Capital purchases protection for the fund’s peak exposures, we understand.

The valuation process for ILS funds is incredibly difficult at this time, with many different strategies emerging and different sizes of loss estimate announcements.

While this from Blue Capital is the largest hit to September performance we’ve seen so far, it certainly won’t be the last at this level of negative return given the aggregation of major losses that the industry has experienced this year.

The true and full impact of recent events is going to take some time to understand and ILS funds will in most cases conservatively reserve and estimate, perhaps leaving room for some future releases of capital as the magnitude of losses becomes clear in the months to come.