Swiss Re Insurance-Linked Fund Management

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Strong ILW demand at January renewal, more expected in June: CNR


Investment adviser City National Rochdale (CNR) explained that strong demand was seen for industry-loss warranty (ILW) capacity at the January 2021 reinsurance renewals and with capacity for this market still seen as more limited, more of the same is expected for June.

city-national-rochdale-logoThe adviser offers the City National Rochdale Select Strategies (CNRLX) fund, an interval style mutual fund with a focus on investments in industry loss warranty (ILW) reinsurance and retrocession contracts across global peak peril zones and regional U.S. ILW contracts. In addition, the fund holds some investments in catastrophe bonds as well.

The CNR fund accesses the returns of the ILW market and sources its risk-linked investments through a relationship with asset manager Neuberger Berman’s experienced ILW and index trigger focused reinsurance investment team.

The assets of this mutual fund structure are deployed into segregated cells of the Neuberger Berman ILS team’s NB Re Ltd. underwriting and transformer vehicle (which was previously named Iris Re).

The City National Rochdale Select Strategies ILW focused investment fund had reported its total net assets as reaching almost $123.2 million at January 31st 2020.

By July 31st 2020 this had increased to just over $131 million, as we previously reported here and the investment manager cited a significant opportunity for growth in the firming reinsurance market environment.

By October 31st 2020, the fund’s ILS assets under management had increased again, with CNR reporting that the funds total net assets had risen by around 13% to reach just over $147.8 million.

Some further growth has been seen in the last quarter of record, with the City National Rochdale Select Strategies (CNRLX) fund growing again to reach total net assets of $154.3 million as of January 31st 2021.

That represents roughly 25% growth in net assets held in the mutual CNR ILS fund over the last year.

In announcing its annual results, for the year to January 31st, CNR reports that the ILW focused investment fund delivered a positive net return of +6.42%.

That outstripped the Swiss Re Cat Bond Index’s +5.2%, which CNR puts down to the more active selection of risks for its strategy, as well as the fact its often regional focus on US ILW’s helped it to avoid some of the catastrophe loss activity experienced over the last year.

The year wasn’t loss free though, with the CNR report revealing that the 2020 portfolio of the fund experienced small losses from two parametric ILW’s that were triggered by Hurricanes Sally and Zeta, as well as the commutation of one transaction related to Hurricane Laura.

Overall, the fund benefited from strong risk-adjusted pricing in the insurance-linked securities market, CNR said, which enabled it to deliver stable returns, despite having taken on less modelled risk than in previous years, in expectation of an active hurricane season.

Market conditions are expected to remain positive for the ILW contracts that the fund invests in.

“Current market conditions continue to be favorable from both a pricing and demand standpoint, as many participants faced new and uncertain losses from 2020 events, most notably as a result of the ongoing COVID-19 pandemic, social unrest, and a confluence of severe convective storms, wildfires and hurricanes across the United States.

“Pricing in the ILW market continued to improve throughout 2020, and we are seeing strong demand from reinsurers requesting larger transactions with limited competition in the market and continued new interest from insurance and operating companies,” City National Rochdale explained.

The fund has clearly benefited from a reduction in retrocessional reinsurance capacity and expects this might continue to help it deliver returns to its investors, with a positive outlook expected for the upcoming renewal season.

CNR said, “In terms of expectations for 2021, due to seemingly very few capacity providers and widespread increase in demand for ILWs, the Fund saw a lot of positive opportunities during the January renewal period and expects more of the same in the upcoming June period.”

The ILW market stands to benefit as reinsurance and in particular retrocession pricing continues to rise, or at least remain firm, for the June and July 2021 mid-year renewals.

The opportunity for returns in ILW’s and other index based reinsurance or retro products is set to increase, alongside firmer pricing, making these instruments an attractive strategy for investors looking for diversified and alternative returns.

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