A new report from S&P Global Ratings highlights a structural shift in the sidecar market, as casualty reinsurance sidecars have grown to account for approximately 10% of total sidecar capacity. Driven by a wave of recent high-profile launches these vehicles are attracting alternative capital by offering returns largely uncorrelated with broader financial markets.
Unlike traditional property sidecars that require high short-term liquidity, casualty sidecars leverage the long-tail nature of their underlying liabilities. This extended claims development period ultimately allows investors to deploy capital into higher-yielding, illiquid asset strategies, effectively capturing both underwriting profits and enhanced investment income over a multi-year horizon.
In its report, the agency outlines that sidecar investors typically enjoy a lower cost of capital than traditional reinsurers, while also highlighting that these Special Purpose Vehicles (SPV’s) give investors who have not participated in the insurance industry before easier direct access to insurance risks.
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