Blue Capital listed ILS fund in 3.6% return year-to-date

Demonstrating the recovery that is underway in insurance-linked securities (ILS) market returns, as the loss creep from prior year events begins to tail off, the listed Blue Capital Alternative Income Fund has delivered a 3.6% year-to-date return, 2.9% just in Q2.

The listed insurance-linked securities (ILS) investment fund strategy, managed by ILS and collateralized reinsurance specialist fund manager Blue Capital Management, a subsidiary of Sompo International Holdings Ltd., had been as impacted as anyone by the major catastrophe losses of 2017 and 2018.

The fund, of course, is set for liquidation, as similar to other stock exchange listed strategies it had struggled to achieve the size required, while trading at a discount to net asset value, leading the manager to put the fund into run-off, a process that is ongoing and expected to complete in 2021.

But still the investments in the portfolio are accumulating premiums and as a result the fund continues to report its net asset value (NAV) on a regular basis, providing an approximation for how other ILS and reinsurance linked strategies might be performing right now.

The fund has delivered 2.9% return for the second-quarter of 2019, taking its first-half return to 3.6%.

Blue Capital has clearly benefited from a slow-down in loss creep over the second-quarter, suggesting that the ILS investment manager had set sufficient reserves to account for the ongoing creep from typhoon Jebi and other events earlier in the year.

That’s enabled holders of the funds shares to profit in the quarter from an improvement in NAV, something that should continue as long as the market remains free from major catastrophe loss activity.

This likely also reads across into Blue Capital Management’s other reinsurance linked investment strategies, as the manager has a range of larger funds and mandates it also operates.

It’s another sign that the ILS market is coming out of the loss creep woods and can see some clearer air on the other side, enabling returns to recover and investors to earn some profits, which after the experience of 2017 and 2018 is very important.

However, the fund still faces its issues as it manages collateral available and after assessing the collateral movements and cash position in the fund the manager said that no distributions will be made to investors for the quarter.