In order for the catastrophe bond market to meet its full potential John Seo of Fermat Capital Management LLC believes onshore United States options for issuers would be beneficial, saying it’s time this was seriously considered.
Onshore options for cat bonds in the United States is a topic that has repeatedly been raised over the market’s history, both on the issuance front and on ease of access for certain types of investors.
As we’ve often said when commenting on new cat bond issuance domiciles, we see no reason any sufficiently well-regulated and sophisticated domestic capital market should not make issuance of insurance-linked securities part of its offering. That applies to the US, just as much as to any other region of the world.
During a recent webinar hosted by Fermat Capital Management, Co-Founder and Managing Director John Seo was asked, if he could fix one thing about the cat bond market, what would it be?
Seo responded, “I would bring it onshore. As I alluded to before, everybody flies offshore to actually get a deal done, and that’s great.
“By the way, it benefits us, right? We’re a leader in the market, we’ve been there since the beginning. So offshore is beautiful for us, because people have a hard time learning about it and figuring it out and entering that marketplace.
“But I think it’s time to bring it onshore.”
Seo added, “So that would require an act of Congress. It needs a tax opinion, in a sense, by Congress to bring it onshore.
“But, I think that it’s time to do that and to open it up.”
Seo finished up his answer by commenting, “So Fermat, okay we’ll always be around. But we need a couple of dozen more Fermat’s, and you can only get that if you bring it onshore.”
His comments show that Seo recognises the opportunity for the catastrophe bond market to become much larger, while more options for sponsors, issuers and investors to locate activity in their domestic markets can be a meaningful catalyst for greater adoption of these risk transfer instruments and growth of the ILS asset class over time.
Later during the webinar, Seo explained the importance of engagement with actors outside of the industry to realise the potential of the cat bond market.
“It’s not just managing the money and earning the fees, but actually engaging with people at a very fundamental basis to build the future evolution of the market five, ten years before it actually happens,” he explained. “This is a tool, but it hasn’t yet been fully applied to a lot of societal problems, and so what we need to do is continue to be at the forefront of making that happen.”
Also read:
– Cat bond market fundamentals are tremendous. Growth absolutely expected & sustainable: John Seo.
– ‘Very likely’ cat bonds will be used to source risk capital for data centre build out: John Seo.
