Swiss Re Insurance-Linked Fund Management

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ILS Capital Management says market delivering higher returns in 2020


Demonstrating the robust returns possible in the insurance-linked securities (ILS) market currently, through allocations to diversified reinsurance portfolios, Bermuda headquartered ILS fund and investment manager ILS Capital Management said its investors stand to earn higher returns this year.

ils-capital-management-logoWith reinsurance and retrocession rates firming rapidly through 2020, beginning at the key start of the year 1/1 renewals, investors in ILS funds are in some cases set for much better returns than the prior year.

Of course, that’s as long as ILS funds and strategies have managed to avoid specific impact due to the Covid-19 pandemic, too much impact from prior year loss events and the resulting trapped collateral, and too many fresh losses from the catastrophe activity and severe weather seen around the globe to-date.

ILS Capital Management has a more diversified approach than some managers in the sector, underwriting risks across specialty lines as well as property and catastrophe exposures.

The manager had also taken steps to reduce its exposure to some areas of the market including to Florida property catastrophe  reinsurance last year, preferring to seek out returns from a broader participation in other areas and also the Lloyd’s market.

Around a year ago we reported that ILS Capital Management’s flagship fund experienced healthy trends up to the end of July 2019.

An investor that allocated to ILS Capital Management as of January 1st last year could have enjoyed a return through July, net of all fees and expenses, of 10.5%.

This year the potential was even higher and in a recent communication to investors, Tom Libassi, Co-founder, ILS Capital Management, explained, “It will come as little surprise that we believe the re/insurance industry, and our Fund in particular, is uniquely positioned to weather this ongoing crisis and succeed in the months and years ahead.

“The Fund has generated positive returns each month of the market’s 2020 dislocation, and shown zero correlation with the S&P 500 and Barclays High Yield Index since inception.

“Through June, investors that committed in January 2020 have earned a positive net return of +4.6%, in line with our underlying 2020 positions. Looking into July, 2020 investors are estimated to earn 14.4% in the month alone.”

That’s a healthy seasonal bump to returns it seems and could put investors on track to even higher returns than the prior year.

Libassi explained how the market is moving at this time and what that means for ILS Capital’s investors, calling the “opportunity set” exciting.

“Coming on the heels of two consecutive years of high industry losses (2017 and 2018), Covid-19 hit the market at a time of rate hardening (i.e. rate increases) in non-life market segments. Taken together, capacity constraints and uncertainty from the pandemic have accelerated and escalated existing rate increases across the board – a trend not seen in the 20 years since 9/11.”

Looking forward ILS Capital hopes to take advantage of market conditions to enhance returns for investors further.

Libassi said, “We are excited about the opportunities we are seeing in the insurance and reinsurance marketplace in the remainder of 2020 and into 2021. We believe we have the resources, expertise and drive to capitalize on current market dynamics and add alpha for our investors.”

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