Fermat has best year ever in 2023. Attractive returns also expected for 2024: Houghton

Fermat Capital Management has been investing into catastrophe bonds ever since John and Nelson Seo launched the company in 2001, so it says something for the current attractiveness of the insurance-linked securities (ILS) asset class when you learn that Fermat’s cat bond funds had their best ever year in 2023.

Bloomberg has interviewed Brett Houghton, Managing Director at Fermat Capital Management, who had joined the investment manager back in 2010, but had invested in catastrophe bond market opportunities since at least 1998.

Houghton told Bloomberg that Fermat’s cat bond fund returns were “in line” with the record returns of the Swiss Re cat bond Index.

As we reportedly recently, the total-return of the outstanding catastrophe bond market in 2023 reached a record level of 19.69%, according to full-year data from the Swiss Re Cat Bond Performance Indices.

Which means many players in the cat bond fund management space have seen their strategies delivering record returns.

Houghton called 2023 a “unicorn year” for the catastrophe bond market, in his interview with Bloomberg.

There were “great returns” but also an “equilibrium in the market”, which was matched by “strong investor interest” and a rising demand for catastrophe bond coverage in the insurance and reinsurance market.

As the world’s biggest investor into catastrophe bonds, with positions in roughly 80% of the market’s outstanding cat bond deals, Fermat is a significant force and, with its twenty-year plus history, one of the most experienced investment managers in the insurance-linked securities (ILS) space.

Houghton said that while the size of the market has increased, it hasn’t increased enough to fill the need for coverage.

He also noted that while some secondary perils remain attractive to invest in, they come with uncertainty and less well-developed risk models.

But, on cyber, which is the newest segment of the catastrophe bond market, Houghton said that at Fermat, “We’ve identified that part of the market as a major area of growth over the next five to 10 years.”

Adding that, “2024 promises to be another interesting year for investors in terms of attractive returns.”

Fermat Capital Management’s Director of New Markets Joanna Syroka will moderate a panel discussion on cyber catastrophe bonds at our upcoming New York conference, ILS NYC 2024, on Feb 9th. Register here to attend.