Credit FAQ: Assessing The Rise Of P/C Insurance Sidecars
Sidecars began to be widely adopted in the mid-2000s, primarily to channel third-party capital into property catastrophe reinsurance following significant hurricane losses. Since then, sidecars have become an effective way of transferring risk from insurers and reinsurers (re/insurers) to investors and supporting the amount of capacity in the global reinsurance market.
More recently, attention has shifted toward life insurance sidecars. These have seen substantial growth in the U.S., particularly in the asset-intensive reinsurance market, as the long-term, illiquid cash flow profile of life insurance has proved attractive to third-party investors. Casualty sidecars are now exhibiting a similar trend, benefiting from favorable economic conditions to expand beyond traditional property catastrophe risks.
This Credit FAQ outlines how casualty sidecars differ from traditional sidecars. It also explains how S&P Global Ratings assesses the risks and credit implications of property/casualty (P/C) sidecars for its insurance ratings.
Sidecars are special-purpose vehicles that re/insurers (cedents or sponsors) set up to transfer a portfolio of risk to investors, who provide the supporting capital (see chart 1). These vehicles generally have limited durations and assume risks solely from the cedent. The cedent typically retains the responsibility for underwriting the risks that the sidecar covers. It may take a considerable time to establish such arrangements due to their structural complexity.
The investor base for sidecars is diverse, comprising institutional investors such as pension funds and sovereign wealth funds, alongside specialized asset managers, private-equity firms, dedicated insurance-linked securities (ILS) funds, and reinsurers. These participants generally have some track record and expertise in the insurance and ILS markets. More recently, sidecars have also drawn interest from asset managers with private-credit origination capabilities.
All types of P/C insurance companies, whether private, public, or mutual, may use a sidecar to access third-party capital. Investors in sidecars typically appreciate reinsurers' robust approach to asset concentration, underwriting, and risk management.
Chart 1 | P/C sidecar capacity is increasing more quickly than other forms of third-party capital(Bil. $)
Q--Quarter. Source: European Insurance and Occupational Pensions Authority.
Growth in the use of sidecars is part of a broader expansion of alternative capital in the insurance sector (see chart 2). Supporting this trend are the same economic factors driving traditional ILS, including returns and risks that are largely uncorrelated with financial market conditions and attractive insurance returns. Moreover, sidecar investors typically enjoy a lower cost of capital than traditional reinsurers. Sidecars also give investors who have not participated in the insurance industry before easier direct access to insurance risks.
Chart 2 | Simplified reinsurance sidecar structure
The recent growth in the number of new sidecars reflects the broader range of risks that re/insurers are transferring into them. These vehicles' evolving structures, together with supportive market conditions, have increased investor appetite for non-property catastrophe risks such as casualty re/insurance. Historically, casualty risk has not penetrated into the alternative capital reinsurance space, yet casualty sidecars now represent approximately 10% of total sidecar capacity (see table 1).
Table 1 | The number of new casualty sidecars has been rising since early 2025
Reinsurance sidecar
Sponsor
Investor
Exposure
Size
Date
Domicile
Annapurna Re Ltd.
Everest Group
Stone Point
Casualty reinsurance
$600 mil.
June 2026
Bermuda
Ada Re, Ltd.
Hamilton Insurance Group
Sixth Street
Undisclosed
April 2026
George Street Re
QBE Re
Culpeper and Calidris
$550 mil. +
Jan. 2026
Ryan Alternative Capital Re Ltd. (Rac Re)
Ryan Specialty
Flexpoint Ford and Sixth Street
Specialty catastrophe and non-catastrophe property and casualty risks
$400 mil.
Sept. 2025
Scaur Hill Re Ltd.
Enstar
N/A
$300 mil.
Aug. 2025
Wayfare Re
Ascot Group
Antares Capital
$500 mil.
July 2025
Lifson Re 2025
W. R. Berkley Corporation
Property and casualty reinsurance
$418 mil.
Jan. 2025
Pando Re Ltd.
Aspen Insurance
PIMCO
Casualty insurance and other
April 2024
Monarch Point Re
AXIS Capital
Sept. 2023
N/A--Not applicable. Sources: Artemis.bm, S&P Global Ratings.
Historically, reinsurers have used sidecars to cover natural catastrophe risks such as hurricanes, earthquakes, and wildfires. Because of the event-driven nature of the losses that ensue from such catastrophes, sidecars are typically highly collateralized to at least cover a 1-in-200-year event. Claims are usually settled relatively quickly, providing investors with good visibility on how losses may develop and exit timelines. As a result, property sidecars maintain high levels of liquidity, limit investment risk to preserve collateral value, and usually have relatively short lifespans of one-to-three years.
Casualty sidecars present a markedly different risk profile. Claims develop over longer periods and may take years to come to fully emerge. This creates uncertainty about how much liquidity is required to cover the claims. Due to the claims' long-tail nature, casualty sidecars may have significantly longer lifespans or even operate on a more permanent basis. However, these portfolios are typically more diversified than property catastrophe portfolios, allowing for a reasonably reliable estimation of future losses. Collateral levels are often set based on a multiple of best-estimate claims, rather than on full collateralization of the maximum potential loss.
The extended claims development period means that casualty sidecars may operate with lower liquidity than their property counterparts and may adopt investment strategies that involve more illiquid or higher-yielding assets. This could allow investors to benefit from both underwriting returns and investment income, leveraging the longer duration of the casualty claims.
The primary risk to the cedent is counterparty credit risk. This is the risk that the collateral in the sidecar is insufficient to cover the agreed level of claims, given the cedent's reliance on the vehicle for risk transfer. The cedent may also be exposed if losses exceed the collateral value, particularly if the collateralization has not been structured on a sufficiently conservative basis.
Another key consideration is the durability of the sidecar and the continuity of the coverage. Compared with traditional reinsurance, which usually comes from rated reinsurers, replacing sidecar capacity may prove more challenging because the investor base supporting these vehicles could be narrower and less stable.
In addition, some casualty sidecars are relatively new and may not yet have experienced severe loss events. We therefore see an element of unquantifiable operational and execution risk.
We assess a range of factors when evaluating sidecars, including governance, ownership structure, capitalization, investment strategy, and the quality of the collateral. We also consider the cedent's track record, the design of the reinsurance agreement, and the approach to loss-reserving. This involves looking at who is responsible for setting the reserves, whether such reserves are adequate, and whether an independent third party has reviewed them. We also assess the extent to which the sidecar forms part of a re/insurer's broader risk-management strategy, or whether there is an outsized reliance on the sidecar. The regulatory and legal framework is another important consideration.
Our focus is typically greater if sidecars are material to the cedent's credit profile and if the collateralization is less conservative, increasing the risk of insufficiency. In such cases, we review the cedent's capital-management policies, including its capital levels, capitalization mechanisms, and capital-return strategies.
For casualty sidecars in particular, we place additional emphasis on investment and liquidity risks, considering the potential use of illiquid assets. We evaluate how both risks are managed, especially under stressed conditions, as adverse investment performance could reduce the amount of collateral available to cover claims.
How insurers use risk transfers may affect multiple parts of our credit analysis (see "How We Reflect Risk Transfer Solutions In Insurance Ratings," May 13, 2025). These considerations also apply to sidecars. In particular, under our capital model, we typically assess exposures on a net basis after reinsurance and retrocession.
However, certain risks associated with sidecars may not feature in traditional reinsurance arrangements. We may therefore need to explicitly capture these risks in our capital model assessment, or elsewhere in our insurance analytical framework. In addition, sidecars may represent a material single counterparty and are generally not rated. Consequently, our approach to assessing counterparty credit risk in sidecars can differ from that in more conventional risk-transfer structures.
For example, we may assess the sidecar's capital strength on a stand-alone basis and evaluate the risk of collateral insufficiency using our insurance risk-based capital model. This means that even though the sidecar is not consolidated on a re/insurer's balance sheet, we may look at the risk as if the sidecar was consolidated, regardless of the re/insurer's level of control or ownership.
The regulatory treatment of sidecars varies by jurisdiction. To date, most P/C sidecars have been established in Bermuda, but other jurisdictions like Cayman Islands have also been used as a domicile.
In Bermuda, fully collateralized special-purpose insurers are generally exempt from traditional capital and solvency requirements. We understand that most P/C sidecars domiciled in Bermuda would typically be structured to meet these requirements.
From a cedent's perspective, regulators in most jurisdictions typically recognize sidecars as effective risk-transfer mechanisms. Accordingly, the regulatory requirements generally expect cedents to reflect any associated counterparty credit risk in their solvency calculations, where relevant.
It is generally challenging to assign credit ratings to stand-alone P/C sidecars under our insurance rating methodology. These structures are typically set up as special-purpose vehicles and lack permanent capital. As a result, we do not usually view sidecars as traditional insurers with independent strategies and business plans.
In recent years, we have seen new reinsurance syndicates launch at Lloyd's through the London Bridge 2 protected cell company. Examples include the Allianz Oaktree and AIG Blackstone partnerships, which are broadly similar in nature and purpose to the P/C sidecars established in jurisdictions such as Bermuda. These syndicates are capitalized by third-party investors through the London Bridge 2 platform and are typically aligned with a single sponsoring cedent to share a portion of its reinsurance program.
However, a key distinction is that these sidecar-like syndicates benefit from the Lloyd's chain of security, including the support of the Lloyd's central fund, which serves as the ultimate counterparty for the cedent. This feature differentiates the reinsurance syndicates from traditional sidecars by providing an additional layer of security on top of the collateral. In addition, the collateral may include instruments like letters of credit that are eligible as Funds at Lloyd's--capital that backs Lloyd's syndicates--and that may not feature in traditional sidecars' collateral.From a credit rating perspective, we will continue to monitor the investment risks associated with these syndicates, although we expect the role of private credit to remain limited.
Charles-Marie DelpuechLondon+44-20-7176-7967charles-marie.delpuech@spglobal.com
Taoufik GharibNew York+1-212-438-7253taoufik.gharib@spglobal.com Johannes BenderFrankfurt+49-693-399-9196johannes.bender@spglobal.comRobert J GreenstedLondon+44-20-7176-7095robert.greensted@spglobal.comPatricia A KwanNew York+1-212-438-6256patricia.kwan@spglobal.comMaren Josefs London+44-20-7176-7050maren.josefs@spglobal.com
