The steady growth of Stone Ridge Asset Management’s more catastrophe bond focused mutual insurance-linked securities (ILS) fund has continued in the last quarter of record, while at the same time the investment manager’s interval ILS fund strategy shrank further as it realised more losses and return of capital.
Overall, in the quarter to July 31st 2021, ILS assets under management across the two main mutual ILS funds operated by Stone Ridge Asset Management shrank slightly, by roughly 1%, to $3.37 billion.
When we last reported on Stone Ridge’s mutual ILS investment funds, assets across the two strategies sat at $3.4 billion, as of April 30th.
So the change in the last quarter has not been significant, overall, but the mix has changed more, as investors continue to favour the lower-risk and more catastrophe bond focused Stone Ridge High Yield Reinsurance Risk Premium Fund (SHRIX).
In the quarter to July 31st, the Stone Ridge High Yield Reinsurance Risk Premium Fund (SHRIX) grew its total net assets by more than 8%, reaching just under $1.4 billion in size.
That’s a new record size for this more cat bond focused strategy, which has now grown by 44% in just one year, and has clearly become the easier strategy to market to mutual fund investors in the United States, given it recovered far more quickly from loss activity of recent years than Stone Ridge’s interval ILS fund, which allocates to more private, collateralized reinsurance and retrocession deals.
Catastrophe bonds now make up almost 89% of the assets in the Stone Ridge High Yield Reinsurance Risk Premium fund strategy, while sidecar and quota share reinsurance participation notes and preference shares are the remaining ILS assets invested in by this strategy.
There’s evidence of some further depreciation of a few of the cat bonds which are loss affected in the market, but in general this fund portfolio appears to be far more stable than the more risky interval fund, with many positions gaining price related appreciation and coupons surely collected.
Meanwhile, Stone Ridge’s higher-risk, less liquid interval style mutual ILS fund, the Stone Ridge Reinsurance Risk Premium Interval Fund (SRRIX) had shrunk further by July 31st 2021, contracting by another almost 7% to $1.97 billion.
At April 30th, this fund was $2.11 billion in size and a year ago, at July 31st 2020, the Stone Ridge Reinsurance Risk Premium Interval Fund was a full 36% bigger than today, at just under $3.1 billion.
As well as investor redemptions, after a number of challenging catastrophe loss years, Stone Ridge’s interval style ILS fund also saw some investors leaving for the lower-risk cat bond focused strategy mentioned above, but at the same time Stone Ridge was switching some institutional investors to its private ILS fund strategies, we understand.
As a reminder, Stone Ridge has been repositioning its ILS investment management strategy over the couple of years, with an increasing focus on private ILS funds and an expansion into non-catastrophe and longer-tailed lines of business.
Loss development continues for the interval fund as well, with seemingly more realised losses in the last quarter than the one prior.
Of course, being data as of July 31st, this latest portfolio disclosure does not contain the full implications of some significant catastrophe events, such as the European flooding and certainly not August’s hurricane Ida.
So it will be interesting to see what those events mean for the Stone Ridge mutual ILS funds when the next disclosures are made.
As we explained a fortnight ago, Stone Ridge’s interval style ILS fund was one of those hit by a decline in the wake of hurricane Ida, losing roughly 5%.
As of today, the price of the fund has declined a little further, by another almost 1%, to now stand down to now stand down roughly -6% since hurricane Ida struck.
Stone Ridge’s cat bond focused High Yield Reinsurance fund strategy is currently down just less than -2% since hurricane Ida’s landfall, which is a slight worsening of the price than when we reported a couple of weeks ago.
With industry loss estimates now flowing and expectations rising for a hurricane Ida insurance and reinsurance market loss of around $30 billion to $35 billion, a narrower range than a few weeks ago, it’s possible further declines may be seen and almost certainly some mark-to-market losses will be evident when Stone Ridge next reports on these ILS portfolios.
With the catastrophe bond issuance market likely to be busy through the rest of this year, it will be interesting to see if Stone Ridge capitalises on that to expand the High Yield Reinsurance fund strategy further.