Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Strong capital inflow compresses ILS fund spreads in April


The average return achieved by insurance-linked securities (ILS), reinsurance linked investment and pure catastrophe bond funds was just 0.31% in April 2014, which is below average for the month, according to the latest data from the Eurekahedge ILS Advisers Index.

Strong inflows of capital into the sector compressed the ILS and cat bond markets spread in April, according to ILS Advisers. Record levels of new catastrophe bond risk capital came to market in April, allowing more capital to be deployed and resulting in pressure on spreads.

Stefan Kräuchi, founder of ILS Advisers, commented; “April 2014 was the lowest April return for the index since 2011 and below the April average (since inception of the index) of 0.49%. This is the reflection of the continued strong inflow of liquidity into the asset class.”

The catastrophe bond market as a whole saw negative development in terms of price return as well as a lower total return than recent months, with the Swiss Re price index down by 0.26% and its total return index up by just 0.36% for April.

Kräuchi explained; “The Swiss Re Cat Bond Price Index was slightly negative and returns driven by current yields rather than price appreciation.”

April was the lowest average return of the group of ILS funds tracked by the Index this year and also the lowest single months return since June 2013. ILS Advisers said that the inflows of capital supporting strong catastrophe bond issuance during the month have compressed the ILS markets spread resulting in the below average month.

Still, the impressive track record of the ILS market continues with April becoming the 18th consecutive positive month and taking the average return of the ILS fund market to 1.76% for the first four months of 2014. This remains below the returns achieved in previous years, with price declines on catastrophe bonds and property catastrophe reinsurance clearly responsible for a reduction in average return.

Of the 34 ILS funds tracked by the Eurekahedge ILS Advisers Index, 32 reported positive returns in April. The gap between best and worst performers was 1.19%, which was narrower than in recent months.

Pure catastrophe bond funds underperformed the subgroup of ILS funds which also engage in private transactions. Kräuchi said; “Pure cat bond funds as a group underperformed funds investing in private transactions by 0.14% points.”

Pure cat bond funds returned 0.26% on average for the month while the subgroup including ILS funds that invest in private transactions achieved an average return of 0.4% for April.

Now that the 2014 Atlantic hurricane season has officially started we will be watching this index closely for any change after any tropical storms or hurricanes threaten the U.S. coastline.

Eurekahedge ILS Advisers Index – Tracking the average performance of 34 ILS funds

Eurekahedge ILS Advisers Index – Tracking the average performance of 34 ILS funds (click the image for more details)

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.

ILS Advisers launched its first ILS fund strategy recently, the ILS Diversified Ltd. fund-of-funds, which invests in a selected group of ILS funds from across the market, seeking to offer a market beating return with lower volatility. Read more about ILS Diversified Ltd. here.

Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.

Artemis ILS Asia 2023 - Insurance-linked securities conference in Singapore

Get a ticket soon to ensure you can attend. Secure your place at the event here!

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