As asset-driven sidecars expand in the casualty market, focus is shifting from capital efficiency to risk management. Given this, Ledger Investing indicates that turning collateral into a second source of return requires market participants to underwrite the supporting asset portfolio with the same discipline as the liabilities.
The insurtech and casualty ILS specialist shared these details in a recently published report, which examined the rise of asset-driven sidecars, how the economics surrounding them works, and what their growth could mean for the expanding casualty ILS market.
“Sidecars have traditionally been easiest to understand on the liability side: an insurer or reinsurer cedes a defined share of underwriting risk to third-party capital, which posts collateral against that exposure. What is changing is the role of the collateral itself. In a growing set of long-duration structures, particularly in life and annuity reinsurance but increasingly relevant to casualty, the investment portfolio is no longer simply a place to hold capital safely. It can become a second source of return,” Ledger explained.
FULL ORIGINAL PUBLICATION HERE