After the hurricane is before the hurricane
John Seo, investment director for insurance-linked securities and managing principal at Fermat Capital Management
In 2018, we expect a 10% increase in risk-adjusted yields in catastrophe bonds and adjacent areas of the insurance-linked securities (ILS) sector. In the year just ending, active returns helped offset losses to deliver a net positive return, despite a string of loss events led by hurricanes Harvey, Irma and Maria (HIM). The ILS market has not fully come to grips with some fundamental realities, which emanate from the fact that HIM insured losses, though still substantial, will be approximately USD 60 billion, not the USD 100 billion widely assumed. In 2018, we expect to adopt a moderately offensive stance in our portfolios by selectively investing in higher yield positions. We also expect 2018 catastrophe bond issuance to break all previous records with USD 12 billion in bonds coming to market.