The Mercury investible Catastrophe Risk Index, or MiCRIX for short, one of the indices that we play host to here on Artemis, has seen near record performance in 2013, returning 15.8% for the full year.
The MiCRIX, an index established by Bermuda based insurance-linked securities and industry loss warranty investment manager Mercury Capital, is interesting as it tracks the performance of a diversified portfolio of peak peril industry loss warranties (ILW’s), emulating the return an investor could make if following an ILW focused investment strategy.
This is useful for making a comparison of the various reinsurance-linked investment opportunities that are available to investors, which range from dedicated catastrophe bond strategies, broader collateralized reinsurance strategies, sidecars and funds offering a mix of underlying assets.
The MiCRIX returned an impressive 15.8% over the course of 2013, with twelve positive monthly returns during the year. This is the second strongest annual performance for the index since its inception in 2006. It is only exceeded by 2009, which returned 16.2%, as pricing peaked following hurricane Ike in 2008. 2013 is the 5th year (out of 8) in which the index has avoided any loss events.
Charlie Griffiths, CEO of Mercury Capital, told Artemis; “The index performance clearly shows the opportunities presented by a diversified strategy within the reinsurance risk space.”
The MiCRIX is perhaps the only example of the returns that can be made from an investment strategy solely focused on the returns achievable from a diversified portfolio of ILW’s. This is a very different strategy to collateralized reinsurance, where the majority of contracts will be indemnity based, with ILW’s utilising a trigger based on industry-wide insured losses.
Mercury Capital opened the Mercury iCRIX Tracker Fund to external investors in May 2013. The fund is the first index-tracking catastrophe risk investment fund, tracking the MiCRIX and offering investors the typical ILS style low correlation, high yield returns of a portfolio of natural catastrophe event risk, but without the idiosyncratic exposure of individual risk selection.