Swiss Re Insurance-Linked Fund Management

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Cat bond funds trail as ILS fund Index falls to third-lowest H1 return


Once again, the catastrophe bond fund market saw its returns affected by continued spread widening during the month of June 2022, but insurance-linked securities (ILS) funds focused on private ILS and collateralised reinsurance investments did not fare much better.

ILS fund and cat bond fund performance returns IndexThe average return of insurance-linked securities (ILS) funds fell to a negative -0.09% return for June 2022, according to the Eurekahedge ILS Advisers Index.

It was another poor month for the Index, as depressed catastrophe bond pricing drags on ILS fund returns in general.

This has led to an expectation that, at some stage, cat bond pricing will recover and that value be delivered back to cat bond investments, but the question is when exactly that will occur.

As we previously reported, the spread widening of cat bonds did slow down around the second-half of June, but then some selling pressure kicked in.

Selling pressure, alongside the spread widening price pressure, have driven the declines in pricing and we understand this has continued into July, with seasonal premium accumulation seeming to be coming later this year.

Cat bond funds and investors will be hoping for strong months of performance through the peak wind-season, to recover some of the price related declines and benefit from the expected seasonal premiums.

Thanks to these effects, as well as some relatively muted private ILS fund performance through the first-half of the year, the Eurekahedge ILS Advisers Index only returned 0.34% for the first six months of this year.

It is the third-lowest half-year performance for this ILS fund Index since its inception.

Interestingly, the ILS Advisers ILS fund Index has performed better than the major cat bond index the market tracks, thanks to the contribution from private ILS funds.

In June, cat bond prices lost -1.37% in June, driving a -0.78% total return for the Swiss Re Global Cat Bond Index.

But for the first 6-months of 2022, cat bond prices were down 3.57%, resulting in a -0.35% total return for the cat bond index, ILS Advisers explained.

In June 2022, the group of ILS funds tracked by ILS Advisers Index that solely invest in catastrophe bonds delivered a negative -0.24% performance.

But the subgroup of ILS funds that also invest in private ILS and collateralised reinsurance were up 0.01% for the month of June.

Overall, 10 of the ILS funds tracked for this Index were positive for June 2022, but 14 fell to negative returns for the month, ILS Advisers said.

Across the group of all the ILS funds constituent to this Index, performance for June 2022 ranged from -1.1% to +0.7%.

The cat bond price effects are clearly denting returns for both pure cat bond funds and many of the private ILS funds that also allocate to cat bond assets.

Also affecting private ILS funds in the first-half has been an aggregation of catastrophe and severe weather losses.

While no single loss event so far this year has caused major ILS fund impacts, the total over the first-half has been eroding some aggregate deductibles, we understand.

Now, into the second-half of the year, all eyes in ILS funds turn to the Atlantic wind season, which while quiet so far shows signs of coming back to life later this month.

ILS fund and cat bond fund performance returns Index

You can track the Eurekahedge ILS Advisers Index here on Artemis, including the USD hedged version of the index. It comprises an equally weighted index of 28 constituent insurance-linked investment funds which tracks their performance and is the first benchmark that allows a comparison between different insurance-linked securities fund managers in the ILS, reinsurance-linked and catastrophe bond investment space.

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