Guy Carpenter on the use of Sidecars

Guy Carpenter on the use of Sidecars

Following US hurricanes Katrina, Rita and Wilma in 2005 and the ensuing “hard” property catastrophe reinsurance market, reinsurers and investors increasingly started turning to sidecar insurance linked securities (ILS) to access new and replacement capacity.

Rather than simply launching new reinsurance startups with fresh balance sheets to take advantage of rising reinsurance prices as was done after Hurricane Andrew (1991) and the World Trade Center attack (2001), investors more frequently opted to partner with existing reinsurers in sidecar structures.

These vehicles allow investors to access a purer form of the non-correlating natural catastrophe risk they seek without the market, operating and execution risks associated with a direct investment in a startup reinsurer while augmenting the sponsor’s capacity to empower more robust product offerings.

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