What are sidecars in insurance?

What are sidecars in insurance?

Reinsurance sidecars, conventionally referred to as “sidecars”, are financial structures that are created to allow investors to take on the risk and return of a group of insurance policies (a “book of business”) written by an insurer or reinsurer (henceforth re/insurer) and earn the risk and return that arises from …

How does ILS insurance work?

How Do Insurance-Linked Securities Work? Through the ILS transaction, investors essentially provide coverage for the event underlying the securities, providing the issuer capital up front with the securities’ ultimate value determined by any insured losses resulting from the covered event.

What is alternative capital?

Alternative capital comes from the financial markets: hedge funds, mutual funds, sovereign wealth funds, pensions and institutional investors. Hedge funds and other investors have always been able to invest in reinsurance companies by purchasing stock. Now they create their own investment vehicles.

How do Catastrophe bonds work?

A CAT bond allows the issuer to receive funding from the bond only if specific conditions, such as an earthquake or tornado, occur. If an event protected by the bond activates a payout to the insurance company, the obligation to pay interest and repay the principal is either deferred or completely forgiven.

How are sidecars used in the insurance industry?

Under the quota share treaty the ceding company and reinsurer share premiums and losses on a fixed percentage. These sidecars are used by insurance companies to underwrite a portion of their book of business. Insurance companies usually set up reinsurance sidecar structures to underwrite some portion of their book of business.

When was the first sidecar reinsurance company created?

The earliest sidecars were created in Bermuda in the 1990s in such a fashion, and included Top Layer Re and OpCat, both of which placed capacity under the control of Renaissance Re on the part of other re/insurers (Overseas Partners, State Farm).

Who are the people behind the Sidecars program?

SideCars is the team of people behind the TruWarranty program. Take this path to learn more about what makes the company tick. TruWarranty is the official brand name of the SideCars program. Want to learn about our products for automotive dealerships? Click away. SideCars is the team of people behind the TruWarranty program.

How did Katrina affect the reinsurance sidecar market?

The 2005 hurricanes of Katrina, Rita, and Wilma caused insurance rating agencies, like A.M. Best, to set new reinsurer capital requirements. These companies created more sidecars to free up this capital, and the reinsurance sidecar market grew.