Hedge fund Fermat predicts catastrophe bond market to grow 20%

Hedge fund Fermat Capital Management expects the catastrophe bond market to grow 20% this year as products that address disaster risks become more popular as extreme weather, population density and inflation increasingly affect the world.

The market "has reached an inflection point," John Seo, managing director and co-founder of Fermat, said in an interview.

"The main problem is inflation," he said, which has made reconstruction costs in Europe and the United States after natural disasters much higher.

Fermat's forecast means the catastrophe bond market will be about $60 billion by the end of 2025. Such bonds are usually issued by insurance companies that want to transfer extreme risks to capital markets.

In recent years, such bonds have outperformed other high-yield markets and even weathered the market turmoil caused by U.S. President Trump's tariff war. Against this backdrop, a product that was once purchased only by sophisticated investors is now attracting a wider range of buyers.

Fermat is one of the companies that has started offering catastrophe bonds through UCITS funds, opening the door to retail investors. This year, the world's first catastrophe bond-based exchange-traded fund was also launched.