Sidecar

Limited-purpose reinsurance vehicle with a finite life, typically formed to take on underwriting risk from ceding insurers or reinsurers. Such vehicles are focused on quota share reinsurance. Investors have a "side-by-side risk" with the ceding company. Recently these vehicles are in demand as instruments to provide capacity, given that there´s been a shrinking of capacity in some areas and certain lines of business, in particular catastrophe-exposed areas. They form an alternative to catastrophe bonds. A sidecar can be realised with less capital, and quicker than the latter. Hedge funds and private equity firms are increasingly interested for investment purposes.