Hedge Fund Fermat Says Surge in Cat-Bond Sales Is ‘Breathtaking’

Market Overview - The market for catastrophe bonds is experiencing an unprecedented influx of new issuers, with 16 new issuers expected in 2025, which is up to eight times the historical average for first-time issuers [1] - Cat bond sales are projected to reach approximately $24 billion this year, potentially matching last year's record [1] Drivers of Growth - The rise in inflation has increased the cost of rebuilding property by about 50% over the past five years, prompting insurers and reinsurers to transfer more risk to capital markets [2] - This trend has allowed alternative investment managers like Fermat Capital Management to play a larger role in providing financial support during natural disasters [2] Investment Performance - Fermat's returns in 2025 are expected to align with the 11% increase in the Swiss Re Cat Bond Index from the previous year [3] - Catastrophe bonds have yielded returns comparable to the MSCI World Index over the past five years, outperforming US corporate bonds [3] Market Dynamics - The influx of investor capital has led to a decrease in cat bond yields, currently around 6.5% above the US Treasury rate, down from approximately 11% in early 2023, yet still above the historical average of 5% [6][7] - The cat bond market is anticipated to reach $70 billion this year, factoring in the expected expiry of older bonds [7] Company Growth - Fermat Capital Management now manages about $11 billion in assets, an increase from $10.2 billion a year ago, despite losing a $3 billion portfolio management deal [8] - The flagship UCITS Cat Bond Fund has seen its net asset value grow to approximately $2.6 billion, more than tripling in size over the past year [9] New Developments - The UK government-backed program Flood Re issued its first cat bond for flood-related losses, reflecting the increasing severity of floods in Britain [10] - Fermat has confirmed its investment in the Flood Re cat bond, highlighting its commitment to addressing significant issues in the market [10]