Cat bonds perform post loss but uncertainty for private deals

That is according to the latest commentary from ILS Advisers in relation to the Eurekahedge ILS Advisers Index, which tracks the performance of participating Insurance Linked Investment funds.

The index is a benchmark that allows a comparison between different insurance-linked investment funds in the insurance-linked securities, reinsurance and catastrophe bond investment space. It is calculated and maintained by Eurekahedge and includes funds that allocate at least 70 percent of their assets to non-life risk.

The report noted that it has been a good year for ILS generally. Especially after hurricanes HIM, quite a number of new bonds came to the market. The year-to-date cat bond issuance amounted to a record high USD 11.45bn and the outstanding cat bonds also reached the historical high level of $30.68 billion.

“In the secondary market, we observed strong improvement in the total return of US windstorm cat bonds, with plus 3.35 percent. On average, cat bond total return for October is up 1.80 percent while the price return increased 1.28 percent (Swiss Re Cat Bond Indices),” the report said.

“On the private ILS side, performances diverge among different managers. Due to the short interval and extreme complexity of the three devastating major hurricanes, managers are still in the process of gathering loss information. The record breaking California Wildfires also add more uncertainty to the loss reserves.

“As a result, the final actual losses for some ILS managers could be significantly different from their loss reserves today.”

The report showed that 24 of the 34 funds represented in the Eurekahedge ILS Advisers Index were positive for the month. The difference between the best and the worst performing fund was 5.45 percentage points, which was lower than previous month’s figure.

Pure cat bond funds as a group were up by 0.78 percent while the subgroup of funds whose strategies include private ILS increased by 0.05 percent. Private ILS funds underperformed pure cat bond funds by 10.67 percentage points on annualized basis year-to-date.