ILS Capital makes 19% 2020 portfolio return, but faces 2018 loss creep
Bermuda-based ILS Capital has reported a 19.4% gain from its 2020 portfolio, although loss deterioration from its 2018 portfolio combined with trapped capital dampened overall returns for the fund.
The Don Kramer-backed 1609 Fund's return for the year fell to 1.6% after accounting for the prior-year loss creep, encompassing existing investor capital invested before 2020.
The manager told investors in its annual letter that it was hopeful that prior-year losses had now stabilised, and said that its trapped capital securitisation last year would reduce cash drag in the future.
The manager now expects its 2018 year of account to turn a loss of 11.5%, following the 29.1% loss borne on 2017 positions. Since inception in 2014, the 1609 Fund has made an accumulated gain of 14.7%, clawing back some of the 2017-2018 losses with a 15.8% gain in the 2019 portfolio year.
Reinsurance was the only line of business written by the fund to post a negative year in 2020, with the segment taking a 12.8% loss. But its retro, Florida, specialty and insurance portfolios all made gains – with the insurance unit posting the highest return.
"While we saw premium amounts decline early in the pandemic for our non-standard auto program, levels rebounded in the second half of the year, and profitability increased as Covid-19 lockdowns led to a significant reduction in claims," ILS Capital outlined. "Our specialty insurance book saw substantial rate increases in the fourth quarter of 2020 across all business lines, and we are excited to continue building this book in 2021."
As part of its primary market expansion, the firm plans to grow relationships with Lloyd's syndicates this year, focusing on Covid-19 segments of dislocation such as contingency.
It has previously been revealed as a backer for Dale and Apollo syndicates as part of this expansion.
The firm said that the pace of primary rate increases may slow down this year, but that "fundamentals are still at a level that primary markets will seek to achieve price improvements across all lines at upcoming renewals".
Some 95% of its 2020 portfolio capital was released at year-end, which the firm said illustrated changes made in the past three years to the portfolio, including trapping penalties, contract wording and control of collateral where it holds equity positions.
The firm said its 2020 result was "a testament to our ability to act on lessons learned, to build a more resilient portfolio, and capitalize on market opportunities across sectors."