The ILS mutual funds take over Ida. Stone Ridge Interval Fund Drops About 5%
Major insurance-linked mutual funds (ILS) and reinsurance have seen declines following the recent passage of Hurricane Ida.
Hurricane Ida made landfall on August 29 in Louisiana with major winds of 150 mph. The storm devastated parts of the coast, affected New Orleans and other built-up areas, after which the remains traveled north and east, causing significant flooding along the way.
Following estimates of insurance and reinsurance market losses from Hurricane Ida, which now suggest something in the order of $ 25 billion to $ 35 billion, including the impacts of flooding further north It’s not surprising to see that the US mutual ILS funds have taken a hit.
The Stone Ridge Reinsurance Risk Premium Interval Fund was the hardest hit, it seems, falling about 5% from its valuation of 40.42 before Hurricane Ida hit 38.41 yesterday. .
This mutual ILS strategy has probably the broadest exposure, being the largest and having a moderate risk-return profile, with investments in many shares of private reinsurance allowances, sidecars and other ILS instruments, including some catastrophe bonds.
Stone Ridge’s other ILS mutual fund strategy, the Stone Ridge High Yield Reinsurance Risk Premium Fund, which is much more focused on catastrophe bonds and not on an interval structure, saw a much smaller decline at the end of the day. aftermath of Hurricane Ida.
This fund initially fell around 1.5% on August 31, with Ida’s initial hit clearly causing some markdowns, which we have documented previously, but then this week the Stone Ridge High Yield Reinsurance Risk Premium Fund had recovered nearly half of that and is now retreating 0.87% since Hurricane Ida.
Another major ILS Interval Fund strategy, which this time is managed by Amundi Pioneer asset manager, the Pioneer ILS Interval Fund, also saw a downturn due to Hurricane Ida.
The Pioneer ILS Interval Fund fell 0.58% for the month of August, taking into account the initial blow and the implications of Hurricane Ida.
But the fund’s valuation fell 1.94% from Aug. 30 to yesterday as more of the implications of any hurricane losses on the reinsurance market were taken into account.
Finally, the City National Rochdale Select Strategies Fund, an industry loss guarantee (ILW)-focused mutual fund strategy offered by the City National Rochdale (CNR) investment advisor, fell about 0. 2% in the immediate wake of Hurricane Ida, but has since recovered half of that, to hold only slightly down.
This reflects the fact that this is largely an ILW strategy, hence an index-based risk transfer that is widely used as retrocessional reinsurance, while also holding a few index-triggered cat bonds.
As a result, this fund’s exposure is likely to be limited, given that the majority of ILW’s Gulf Coast purchases start at relatively high industry triggers. There’s also the fact that it may take some time to understand the impacts of the retro market and to confirm the industry’s loss estimates, so at this point it looks like City National Rochdale ILW’s portfolio managers seem confident enough that they will not see any significant impact from Hurricane Ida.
It’s no surprise that these ILS mutual funds saw some negativity in their valuations in the aftermath of Hurricane Ida.
Ida is exactly the type and scale of catastrophic losses against which the ILS market provides reinsurance capital to hedge against, so some losses on certain positions are to be expected with a major hurricane of this type.
It should be noted that at this still early stage in the evolution of losses from Hurricane Ida, these declines are likely largely based on mark-to-market impacts on certain catastrophe bonds, as well as on the own branding of certain managers of other private reinsurance positions. .
As a result, some of the value should be recovered, against positions that improve positively over the next few weeks. But there may be more concrete impacts to come on certain ILS positions held in these portfolios as clarity of losses is gained from cedants.