Cat bonds outperform private ILS, as ILS funds return 0.61% in January

A range of minor catastrophe losses that occurred  did not significantly impact the reinsurance and insurance-linked securities (ILS) fund market in January 2020, resulting in an average ILS fund return of 0.61% for the month and a strong start to the year.

In fact, this January has seen ILS funds deliver the strongest January performance since 2013, an impressive feat when there have been numerous smaller catastrophe and severe weather events, while many ILS funds remain impacted by trapped collateral positions.

Overall, the ILS fund and cat bond fund sector, as tracked by the Eurekahedge ILS Advisers Index, recorded an average return of 0.61% in January 2020.

Pure catastrophe bond funds outperformed as a group, with cat bond funds returning an average of 0.68% for the month.

Private ILS funds, that invest across the spectrum of ILS assets including collateralised reinsurance deals, delivered slightly lower performance, with an average fund return of 0.54%.

“There were quite a few natcat events in January globally, but nothing too costly to have an impact on the ILS industry. The best fund in the index was up 1.59%, and there was only one fund negative (-0.45%),” ILS Advisers Founder Stefan Kräuchi  explained to us.

Despite bushfires and severe convective weather impacts in Australia, as well as earthquakes in Puerto Rico (M6.4), the Caribbean (M7.7) and Turkey (M6.7), the impacts to the reinsurance and ILS industry are not expected to be significant, ILS Advisers explained.

Helping to drive the stronger catastrophe bond fund performance was a reversal of some prior mark to market losses related to Typhoon Hagibis, as well as strong running yield.

The range between the best and the worst performing ILS fund was lower than usual at just 2.04% in January, while 31 of the Index constituent ILS funds were positive.

A strong start to the year, but as yet no clear evidence of higher returns due to increased cat bond coupons and higher reinsurance rates.

However, as we move forwards those factors may help to make any loss free months in 2020 deliver a much better return than was seen in recent years.

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 33 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.