The London-listed Blue Capital Alternative Income Fund, the stock exchange listed insurance and reinsurance linked investment strategy run by Blue Capital Management, a division of global re/insurer Sompo International, delivered an impressive 0.61% return in April 2018, a clear demonstration of post-event ILS return potential.
Compared to a year earlier when the same fund delivered just a 0.15% return for April, the 0.61% performance reported this year is a significant uplift, even though the month was relatively loss free, demonstrating that higher rates secured at the January reinsurance renewals could deliver much improved returns for some.
Of course the fund has hit difficulties lately, as its Board suggested a winding up and running off of the exchange-listed strategy, largely due to its size and lack of trading liquidity in the strategy, rather than the impact of the 2017 losses.
But the return in April is a clear demonstration that improved returns are possible and the Blue Capital Management portfolio has delivered in the last month.
The manager had previously reported that it has constructed a portfolio that can deliver a higher return for 2018, if losses remain within expectation.
Another factor that perhaps helped to lift April a little could also be a changed portfolio mix at Blue Capital, with more focus on quota shares meaning that premiums may be earned a little more evenly across months that were previously out of season.
But seasonality will of course remain a driver of higher performance in some months, although not usually April which tends to be a lower return month for the ILS sector, suggesting that loss free summer months could see very good returns for strategies that managed to pick up better rates from the recent renewal seasons.
Other ILS funds are still reporting worsening of loss estimates for April, resulting in another negative month for a few ILS fund strategies.
But the Blue Capital fund clearly shows that it has been possible to deliver a higher than expected return for the month, thanks to the better return potential of its portfolio, which bodes well for the Blue Capital strategy and other funds through the rest of this year, if major catastrophes stay away.
The April return is a great example of what is possible for ILS strategies that had the necessary access to business to benefit from price improvements after the losses of 2017, which Blue Capital evidently did.
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