Private ILS funds help Index stay positive despite cat bond spread widening in May

Despite the fact catastrophe bond spreads widened considerably in May 2024, the Eurekahedge ILS Advisers Index still managed a positive return for the month, helped by the returns of collateralised reinsurance and retrocession investments from the private ILS funds it tracks.

Last month, the Eurekahedge ILS Advisers Index that tracks a basket of catastrophe bond and insurance-linked securities (ILS) funds, was also impacted by the cat bond spread widening that the market had been experiencing, but still delivered a positive return of 0.51% for the month of April.

As we’ve documented though, the spread widening was more significant in May and that dented many cat bond funds, resulting in negative months for some of the market.

Because of this, the Eurekahedge ILS Advisers Index only managed a positive 0.04% return for May 2024.

That takes the return for the first five months of the year to 3.62% for the Index after May.

It’s worth noting here, that even after slower April and May performance, the return of the ILS Advisers Index to the end of May 2024 is still the third highest on-record for this benchmark at this stage of the year.

At that level, the Index is currently trailing the return of the catastrophe bond market, as measured by Swiss Re, with that reinsurance firms cat bond index up by 4.62% after May.

Looking at the constituent parts of this insurance-linked securities (ILS) fund index, the pure cat bond funds as a group fell to a -0.12% return for the month of May, while those funds investing in private ILS, such as reinsurance and retro as well, managed a positive 0.16% return for the period.

It’s notable that May 2024 is the first negative month for the catastrophe bond market since September 2022 after hurricane Ian’s landfall in Florida.

Cat bond prices fell by 1.6% across the market in May, thanks to the spread widening developments that were seen.

ILS Advisers noted that 14 ILS funds represented in this Index were negative for May 2024, while 12 were positive, reflecting the impacts of the catastrophe bond spread widening that was experienced.

Across all 27 ILS fund strategies included in the Index, monthly performance ranged from -0.78% to +0.99% for May.

The experience of the ILS market in May, as cat bond spread widening dented returns, also shows the benefits of a strategy focused on other ILS and reinsurance instruments as well, given their different return profiles and fundamentals.

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 27 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.