Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Private ILS funds deliver average returns for H1 despite Ukraine & loss creep


The first-half of 2022 saw private insurance-linked securities (ILS) funds, so those allocating to collateralised reinsurance, retrocession and other ILS assets, as well as catastrophe bonds, deliver an average performance, in terms of returns to their investors.

up-chartOver the first-half, private ILS funds tracked by ILS Advisers as part of its Eurekahedge ILS Advisers Index delivered an average return of 0.80% for the six month period.

That’s aligned with the prior two years, as private ILS funds as a group delivered 0.80% performance for H1 2021 and 1% for H1 2020.

One factor to remember is that ILS funds tend to accumulate much of their premiums over the US wind season, which is not yet at its peak, so premium accumulation tends to be lower through the first-half.

Also, in 2022 USD money market returns have been somewhat depressed, making a larger contribution to ILS fund performance in both of the prior two years.

When you also consider that some ILS funds that invest in specialty collateralised reinsurance or retrocession arrangements have had some exposure to Ukraine, or at least potential exposure as this is largely on an IBNR basis and not actual reported claims, the H1 2022 performance of private ILS funds is perhaps impressive.

In addition, through the first-half of the year there has been loss creep to deal with, as some private ILS focused funds had to increase loss reserves for prior-year catastrophe loss events.

All of which means 2022 has not started badly at all for these ILS funds that invest in private ILS instruments and reinsurance deals.

Of course, the spread of performance between the worst and best performing private ILS funds tracked by ILS Advisers shows the wide range of outcomes possible for investors.

The worst performing strategy from the private ILS fund group fell to a -1.5% negative return for the first-half of 2022.

Meanwhile, the best performing strategy of the private ILS fund group delivered a very attractive and positive 3.2% return to its investors for H1 2022.

Obviously the ILS fund market is hoping for a quieter hurricane season in 2022, but as the seasonal premium accumulation begins we should get to see some much stronger returns coming through for the private ILS segment of the market.

It may also become apparent how the private ILS underwriters have been adjusting their portfolio exposure, as well as contract terms and conditions, with higher attachments and improved terms seen across the market, as well as higher rates-on-line that should flow through as well.

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 28 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.

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All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

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