The insurance-linked investment fund universe got off to a slow start in 2015, with the average return of insurance-linked securities (ILS), reinsurance linked investment and pure catastrophe bond funds recorded as a below average 0.4% in January.
The first full monthly data for 2015 from the Eurekahedge ILS Advisers Index, which tracks ILS and cat bond fund performance across 34 constituent funds, shows that the lower reinsurance and catastrophe bond rate environment continues to depress returns, compared to previous years.
January 2015 saw the third lowest average return of the ILS fund market since data from the Eurekahedge ILS Advisers Index began tracking the market. The 0.4% monthly return is also below the long-term average, of 0.69% from the last ten years.
The catastrophe bond market, as measured by the Swiss Re indices, actually saw a better performance on a total-return basis than the ILS fund universe as tracked by ILS Advisers. The Swiss Re cat bond total return index saw a 0.48% return in January, while the price return index was down by 0.02%.
No catastrophe events impacted the ILS market in January. Winter storms Elon and Felix were the major events in peak peril zones that could have threatened the ILS market but estimates of insured losses are currently below the levels required to threaten ILS fund managers.
During the month of January the best performing ILS fund was a private ILS fund which saw a 1.31% return for the month.
Stefan Kräuchi, founder of ILS Advisers commented; “Private ILS funds outperformed pure cat bond funds by 0.26 percentage point monthly and 3.15 percentage points on an annualized basis. The outperformance persisted for the past 10 months.”
“The difference between the best and the worst performing fund was 1.33 percentage points, which was lower than previous month’s figure. Pure cat bond funds as a group were up by 0.24% while the subgroup of funds whose strategies include private ILS increased by 0.50%, he continued.”
In January 33 of the 34 constituent funds reported positive returns, with a single cat bond fund reporting a slight negative for the month. Over the course of January two of the constituent ILS funds were removed from the Eurekahedge ILS Advisers Index, after they were closed by their investment manager. Two private ILS funds were added to the index as replacements.
So January starts much as 2014 tailed off, with the average return of insurance-linked investment funds tracking below the historical averages as the lower rate environment continues to be reflected in average market returns.
The difference in available strategies continues to be apparent, with private ILS transactions providing much higher returns than those focused purely on catastrophe bonds. This trend looks set to continue until some higher yielding cat bonds come to market, something investors have a strong demand for, or rates rise due to a market impact.
You can track the Eurekahedge ILS Advisers Index on Artemis here including the new USD hedged version of the index. It comprises an equally weighted index of 34 constituent ILS 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.