City National Rochdale mutual ILW fund delivers 15.6% return

The City National Rochdale Select Strategies Fund, a US mutual insurance-linked securities (ILS) fund focused on investments into industry-loss warranties (ILW’s) and industry-index trigger catastrophe bonds, delivered its strongest annual performance in the last year, with an almost 15.6% return to its investors.

With a now six year track record for this fund, Kurt Hawkesworth, President and Chief Executive Officer of the City National Rochdale Select Strategies Fund, commented, “The Fund’s 2023 portfolio performed well, with a net return of +15.58% for the year ended January 31, 2024.

“The Fund’s 2023 calendar year net return was the highest since the Fund’s inception and 2023 is the sixth consecutive year that the Fund generated positive, fundamentally non-correlated returns.”

Recall that, investment adviser City National Rochdale (CNR) offers this industry-loss warranty (ILW) and industry-index trigger focused mutual insurance-linked securities (ILS) fund strategy in the United States.

The capital from the City National Rochdale Select Strategies Fund is allocated to opportunities that are portfolio managed by the ILS investment team at Neuberger Berman and housed in its segregated account vehicle.

As Artemis’ index of ILW pricing shows, the industry-loss warranty (ILW) opportunity remains attractive, despite some notable softening of index-linked ILS products, such as ILW’s and catastrophe bonds.

That has helped the CNR ILW fund to a record return, over the last year to January 31st 2024.

Hawkesworth continued to explain, “The Fund’s 2023 return reflects the higher premiums realized following the occurrence of Hurricane Ian and increasing cash yields. In the catastrophe bond (“Cat Bond”) space, positive momentum for the Fund’s performance was assisted by a record total issuance in the primary market, and a secondary market that created tactical trading opportunities as sellers gradually sold off bonds maturing at the end of the year at a discount to raise cash for new issuances.”

Hawkesworth also noted that the CNR ILW fund portfolio was constructed to be more defensive, with higher attachment points, wider exclusions of non-peak secondary perils, and increased regional diversification through county- and state-weighted positions.

He noted that, weighted ILW protection continues “to become a larger share of the portfolio as demand from insurers and reinsurers for these products has steadily increased.”

He also commented that, “We believe that the incorporation of real-time environmental and financial risk considerations can have a meaningful positive influence on longer-term results and that our active management was an important driver of performance in 2023.”

Looking ahead, Hawkesworth explained that, “Currently, pricing in both the industry loss warranty (“ILW”) and Cat Bond segments continue to be attractive, albeit down slightly from the historic highs seen in Q4 2022. We remain confident that this environment will continue to present a compelling investment opportunity given the demand we are seeing as well as the structural and pricing improvements achieved post-Hurricane Ian.

“The Fund’s portfolio construction process for 2024 is now well underway, and we are focused on diversification and capital-efficient opportunities in the ILW and Cat Bond markets, where we believe risk-adjusted returns are most attractive.”

At January 31st, the total net assets of the City National Rochdale Select Strategies Fund had risen to almost $223.9 million, up from $218 million as of October 31st 2023.

Investments into ILW’s and industry-loss trigger cat bonds totalled $211.9 million of that, slightly down from the $213 million at October 31st last year.

The 15.6% return is healthy and outpaces many pure catastrophe bonds for that period, as ILW’s can often have higher return potential.

View our chart of industry-loss warranty (ILW) price trends here.