Newsletter March 2017

Little impact on ILS funds from various events

Stable cat bond performance

The average ILS fund was up by 0.32% in February as measured by the Eurekahedge ILS Advisers Index.

At the beginning of the month, a significant outbreak of tornados hit several states in the U.S. and caused damage to over 1,000 homes. An earthquake of Mw 6.5 struck the southern Philippines and destroyed over six thousand houses. New South Wales was hit by a series of fierce thunderstorms that brought strong rains, winds and hails in some areas. The estimated insured losses reached USD 250m. Storm Doris or Thomas struck the northwest of Europe. It is the 4th named storm that hit the area this year and caused widespread disruption to transportation, such as flights and railway. The total losses for the event is still unknown but it caused insured losses of over USD 100m in Germany and the UK. At the end of the month, there was another outbreak of about 60 confirmed tornados in the U.S.. Hundreds of homes were damaged and losses were estimated to be several hundred million USD.

Primary issuance for cat bonds was slightly lower than in January. Cin-cinnati Insurance Company came to the market with a USD 180m trans-action to provide cover from U.S. earthquake and severe thunderstorms. Repeating issuer Heritage issued its 5th cat bond, amounting to USD 125m. The bond covers U.S. named storms and provides a coupon of 6%, the bottom of end of the original price guidance, against an expected loss of 3.08%. In a rare case, Lloyd’s of London catastrophe lines focused syndicate ICAT 4242 issued a cat bond with an amount of USD 164.5m which coveres U.S. storms and earthquakes. The bond was also priced at the lower end of the price guidance. Cat bond price return was minus 0.11% and total return was 0.32% (Swiss Re Cat Bond Indices). For private ILS funds, we didn’t see material impact from events durig the the month and the returns were determined by premium allocation according to seasonality.

All 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 0.99 percentage points, which was higher than pre-vious month’s figure. Pure cat bond funds as a group were up by 0.24% while the subgroup of funds whose strategies include private ILS increased by 0.38%. Private ILS funds outperformed pure cat bond funds by 1.57 percentage points on annualized basis.

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