H2 returns drive private ILS funds above cat bond funds for 2023: ILS Advisers

Having already set a new full-year record return by the end of November, the results of the final month of 2023 have lifted the average return of private ILS funds further above catastrophe bond funds, according to the Eurekahedge ILS Advisers Index.

As we reported a month ago, the Eurekahedge ILS Advisers Index had already set a new record high annual return for 2023, as the average return of the insurance-linked securities (ILS) funds tracked rose to 13.33% after November.

Now, with the final month’s data now in, the Index return for full-year 2023 has risen to 14.11%, setting a new all-time record for the Index and beating the previous high of 13.22% set way back in 2007.

2023 began with the pure catastrophe bond funds in the Index setting the pace and by the middle of the year, the pure cat bond funds had delivered an average cumulative return of 7.16%, while the private ILS funds that also invest in collateralised reinsurance and retrocession had delivered 6.45%.

But, when seasonality returned in the second-half of the year, as the hurricane season premiums began to flow to the collateralized reinsurance contracts, the private ILS funds overtook and outpaced cat bond funds through to the end of the year.

In H2, the pure cat bond funds averaged a cumulative return of 5.44%, while the private ILS funds averaged 7.01%.

As a result, the full-year Index return of 14.11%, breaks down into a pure cat bond fund average return of 13.15% and a private ILS fund average return of 14.69%.

You can see the month by month performance comparison below:

Pure catastrophe bond funds as a group ended 2023 with a 0.51% return in December 2023, while the private ILS funds returned 0.76% on average, for an average Index return of 0.69% for the month.

The majority of funds tracked by ILS Advisers were positive for the month, but they did note some impacts from mortality cat bond price declines, something we covered in a recent article here.

Three ILS fund managers lost money in December, which was largely down to the mortality cat bond price moves, ILS Advisers explained.

As a result, performance of the ILS funds tracked ranged from -0.6% to +1.3% in the month.

January looks set to start 2024 strongly for this Index, with catastrophe bonds having a strong month and private ILS funds largely loss free it currently seems, which should begin the new year positively for ILS fund managers.

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 27 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.