Stone Ridge leads managers cutting mutual cat bond or ILS fund NAVs on hurricane Milton

Yesterday saw a number of the 1940’s Act registered US mutual investment funds that allocate to catastrophe bonds and other insurance-linked securities (ILS) declining, presumably as asset managers cut their net asset values (NAV’s) on the potential for losses from hurricane Milton.

Stone Ridge Asset Management, the New York based alternative investments specialist, made the most evident cuts to NAV for its more catastrophe bond focused mutual fund and its more quota share and collateralized reinsurance interval-style fund.

These cuts came on the same day that traditional reinsurance company share prices declined, with Bermudians such as RenaissanceRe seeing some of the biggest drops of almost 10%.

While there remains great uncertainty over the eventual insurance and reinsurance market losses from hurricane Milton, its path towards Florida’s west coast is locked in and the models remain focused around the Tampa Bay region.

Which brings up potential loss numbers in the tens of billions of dollars, so it’s no surprise that those actively managing portfolios of reinsurance-linked assets for their investors and needing to give a price for their funds at the end of each day, have in some cases reduced them.

First, Stone Ridge Asset Management’s more catastrophe bond focused Stone Ridge High Yield Reinsurance Risk Premium Fund, which is now more than $3.25 billion in size (as we reported recently).

The NAV of the Stone Ridge High Yield Reinsurance Risk Premium Fund was -3.13% down yesterday, presumably due to hurricane Milton’s threat.

Next, Stone Ridge’s mutual fund that invests across the spectrum of ILS and reinsurance-linked assets with a particular focus on sidecars and private quota shares, as well as other collateralized reinsurance arrangements and to a lesser degree catastrophe bonds, the Stone Ridge Reinsurance Risk Premium Interval Fund.

Here, this interval-style ILS fund was -3.63% down, in terms of its net asset value yesterday, again presumably a response to the threat posed by hurricane Milton.

It’s important to note that no losses have been realised here. Rather this seems a proactive case of trying to reduce the NAV of these ILS funds to account for the estimated potential losses hurricane Milton may cause.

It’s often preferable to reduce fund NAV’s as a storm approaches, rather than reduce it after the event. It means investors are signalled early about what may be coming and then any further reductions that may be required can seem of a lesser magnitude. Stone Ridge has been particularly proactive, in reducing its mutual ILS fund NAV’s more than other asset managers, it seems.

It will also be interesting to see whether they fall any further, prior to hurricane Milton’s landfall in Florida late on Wednesday.

Interestingly, asset manager Amundi US has taken a different approach, only reducing the NAV’s of its Pioneer CAT Bond Fund and Pioneer ILS Interval Fund by -0.1% each as of yesterday’s pricing.

This implies a different strategy when it comes to live catastrophe events, so again it will be interesting to see whether any further movements occur prior to Milton making landfall in Florida.

The Ambassador US mutual catastrophe bond fund strategy, operated by advisor Embassy Asset Management, has gone with a more Stone Ridge-like approach and its net asset value (NAV) fell -2.41% yesterday, again implying a proactive move in advance of hurricane Milton.

At this stage we haven’t seen any price movements in any UCITS catastrophe bond fund strategies given they tend to be weekly pricing.

With no broker pricing sheets available on a daily basis, the catastrophe bond market tends to mark its NAV after Friday sheets are published.

For the US mutual funds, there is a need to publish a price on a daily basis, so we assume that the investment managers make best efforts from the information they have available and their portfolio’s exposure to a specific yet-to-occur catastrophe event.

Note: We cannot confirm the reductions in NAV are Milton-driven, but we’re struggling to think of another reason more than one manager would have reduced the fund price in this way yesterday.

You can track this and every Atlantic hurricane season development using the tracking map and information on our dedicated page.

Also read:

– Hurricane Milton could be a huge test for the entire (re)insurance market: Evercore ISI.

– Hurricane Milton losses could amount to tens of billions, but uncertainty high: BMS’ Siffert.

– As hurricane Milton intensifies, Mexico’s catastrophe bond comes into focus.

– Material hurricane Milton losses could change 2025 property reinsurance price trajectory: KBW.

– Cat bond & ILS managers explore options to free cash, as hurricane Milton approaches.

– Hurricane Milton: First Tampa Bay storm surge indications 8 to 12 feet.

– Hurricane Milton is biggest potential ILS market threat since Ian in 2022: Steiger, Icosa.

– Hurricane Milton forecast for costly Florida landfall. Cat bond & ILS market on watch.