ILS funds average 0.12% return in muted May performance

The average return of catastrophe bond and insurance-linked securities (ILS) funds was just 0.12% in May 2020, as muted performance was the order of the day and a number of funds fell to a decline.

May 2020 saw the average ILS fund return just 0.12%, according to the Eurekahedge ILS Advisers Index.

Stefan Kräuchi, ILS Advisers Founder, explained that May was muted month, and “uneventful in terms of fund performance with most funds posting a small gain.”

“As is typical for this time of the year, returns on US wind exposed investments tend to be lower ahead of the official start of the North Atlantic hurricane season which begins in June,” ILS Advisers said.

The difference in ILS fund performance was less stark across the two sides of the market, pure catastrophe bond funds and those funds investing in private ILS or collateralised reinsurance and retrocession, the data shows.

Pure cat bond funds outperformed, rising by 0.15% as a group. Meanwhile the subgroup of funds whose strategies include private ILS only managed to increase by 0.10% in May.

Some ILS funds continued to benefit from returns of value, in terms of reserves from prior years developing positively in May.

The best performing ILS fund in May 2020, that is tracked by the ILS Advisers Index, managed a 1.1% return as it benefited from positive developments of prior year loss reserves in the period.

The worst performing ILS fund fell to a -0.75% decline in May, possibly due to reserve adjustments, or perhaps even some further portfolio management moves having to be made due to potential Covid-19 exposures. At this stage we cannot be sure.

As a result, the range between the best and the worst performing ILS fund was 1.85% in May 2020.2

Overall, 24 of the ILS funds represented in the Eurekahedge ILS Advisers Index were positive for the month while 9 are reported to have lost money.

With catastrophe loss activity relatively light globally, although some convective storm loss impact in the United States is possible.

It seems possible the majority of these negative ILS funds may have been falling in May due to further markdowns as a result of potential business interruption claims from the pandemic (as was seen last month), although we have to reiterate that we cannot be certain at this time.

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 33 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.