What does Reinsurance Sidecar mean? Read on to discover the definition & meaning of the term Reinsurance Sidecar - to help you better understand the language used in insurance policies.
Limited purpose reinsurance companies that provide insurers and reinsurers with alternative capital to reduce earnings and capital volatility developed in response to hurricanes and other catastrophes. Like traditional reinsurers, the sidecar reinsurer assumes a portion of the ceding company's underwriting risk (including losses and expenses) in exchange for a like-percentage premium (hence the term "sidecar"). The sidecar reinsurance agreement is typically a quota share agreement. Sidecars are usually set up by an affiliated insurer or reinsurer and capitalized by equity and debt financing (often from hedge funds). The capital is invested and used to pay claims. Funds are also returned to the affiliated company to pay debt interest and shareholder dividends.
We hope the you have a better understanding of the meaning of Reinsurance Sidecar.