Fermat Capital Management forecasts a 20% expansion in the catastrophe bond (cat bond) market in 2025, pushing its total size to approximately $60 billion. This growth reflects increasing demand for financial products that transfer disaster risk, driven by escalating extreme weather events, higher population density, and notably inflation—which raises reconstruction costs after catastrophes in Europe and the U.S.
Key Highlights:
Inflation Impact: Inflation has increased nominal rebuilding costs by 50% over the past five years, boosting demand for cat bonds as insurers seek to offload risk.
Market Performance: Cat bonds have outperformed many high-yield markets, returning about 14% over the past year, and proved resilient through geopolitical and economic turbulence, such as the US-China tariff war.
Investor Base Broadening: Once limited to sophisticated investors, cat bonds are now accessible to retail investors via UCITS funds, and 2025 saw the launch of the first exchange-traded fund (ETF) based on cat bonds.
Market Realignment: Fermat ended a 20-year partnership with GAM Holding AG, which now partners with Swiss Re—a major cat bond issuer. Despite this shift, Fermat attracted $1.1 billion in new client money, while GAM saw $1.2 billion in redemptions.
Swiss Re’s Role: Swiss Re’s $6.9 billion insurance-linked securities portfolio (including $3.7 billion in cat bonds) underlines the growing scale and diversification of the market. Swiss Re plans to leverage its extensive proprietary catastrophe models and scientific expertise to navigate rising climate risk uncertainties.
Industry Outlook: Experts emphasize the importance of scale for managing cat bond portfolios due to complex risk modeling and compliance demands. With a forecast for a more active Atlantic hurricane season, the market anticipates both challenges and opportunities ahead.
Market Growth Drivers: Rising inflation and increased demand for reinsurance capacity are key drivers. Cat bonds help fill gaps where traditional reinsurance capacity is limited or costly.
Bloomberg Intelligence Insight:
The catastrophe bond market has doubled in size over the last decade, with retail investor participation in UCITS-format cat bond funds rising to 30% in early 2025 from 12% in 2015, highlighting growing mainstream acceptance.
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