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Stone Ridge interval ILS fund delivers positive annual return despite Ian

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Stone Ridge Asset Management’s mutual insurance-linked securities (ILS) fund that is structured in an interval style has delivered a positive annual return in the period to October 31st 2022, despite its broad exposure to hurricane Ian.

stone-ridge-asset-management-logoStone Ridge Asset Management’s Reinsurance Risk Premium Interval Fund invests across the spectrum of ILS assets, with its portfolio including collateralized reinsurance instruments and quota shares, reinsurance sidecar investments and also catastrophe bonds.

As a result, you’d expect the strategy to have experienced a significant hit from hurricane Ian, after the major storm made landfall in Florida in September.

Which certainly turned out to be the case, as the share price for the Stone Ridge Reinsurance Risk Premium Interval Fund was down by almost 14% immediately after hurricane Ian’s landfall.

But this ILS fund had delivered strong performance through most of the year-in-review, prior to Ian, and those gains were sufficient to ensure the strategy delivered a positive total return of 0.93% for the twelve months ended October 31st 2022.

“There were a number of natural and non-natural catastrophes around the world (most significantly, Hurricane Ian making landfall in Florida), that negatively impacted many of the Fund’s risk exposures, and, therefore, negatively impacted Fund performance. The last few years have seen a high number of medium-sized catastrophe events, and the reinsurance industry has responded by raising premiums,” Stone Ridge commented.

The interval ILS fund managed by Stone Ridge shrank during the year though, as it continued to experience shifts in the investor-base, which we believe is due to some exiting, some moving to its more cat bond focused mutual ILS fund and others moving to private ILS fund strategies operated by the manager.

The assets under management of the Reinsurance Risk Premium Interval Fund were down roughly 39% for the year, falling to $1.01 billion at October 31st 2022.

Recall that back in 2018 this ILS fund strategy counted $6 billion plus in AuM, so it’s now considerably smaller, while Stone Ridge has at the same time grown its private ILS fund strategies instead, which we understand added more capital for this recent 1/1 renewal season.

Stone Ridge’s other mutual ILS fund, the more catastrophe bond focused and not an interval-style Stone Ridge High Yield Reinsurance Risk Premium Fund, suffered due to the pricing pressure seen in the cat bond market through 2022, as well as hurricane Ian.

For the year to October 31st, the Stone Ridge High Yield Reinsurance Risk Premium Fund experienced a total return of -6.40%.

“There were a number of natural and non-natural catastrophes around the world (most significantly, Hurricane Ian making landfall in Florida) that negatively impacted some of the High Yield Reinsurance Fund’s risk exposures, and, therefore, negatively impacted Fund performance,” Stone Ridge Asset Management explained.

This fund did fall a -13% decline on the back of hurricane Ian, but it was already slightly down even before Ian struck Florida, as spread widening related price pressures had dented the performance of the catastrophe bond market over that period.

Hence it ending the annual period with negative performance, as the recovery and performance since Ian has not been sufficient to wipe out that loss yet, where as the Interval fund was already up nearly 13% in the year to Ian’s formation.

Such are the differences in risk and return profile of a catastrophe bond focused fund versus one more invested in collateralized reinsurance structures and assets.

The cat bond investment focused Stone Ridge High Yield Reinsurance Risk Premium Fund grew over 9% during the year, to close out October 2022 with $1.55 billion of assets under management.

That’s down around 9% on the $1.71 billion of AuM this fund had reported at the end of April, so half-way through this annual period of record.

So a mixed year overall for the Stone Ridge mutual ILS funds.

But the fact the interval ILS fund has performed so well under the shadow of losses from hurricane Ian, should bode well for its future, as well as read-across very positively for Stone Ridge’s larger private ILS fund strategies.

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