Glossary

Sidecar

A special-purpose vehicle funded by outside investors that takes a share of an insurer's or reinsurer's business for a set term, usually collateralized.

Also called: reinsurance sidecar, insurance sidecar, sidecar vehicle

A sidecar is a separate vehicle, often a Bermuda special purpose insurer, that an insurer or reinsurer creates with capital from outside investors. The sponsor cedes a defined slice of its business to it, usually through a quota share, for a limited term of a year or a few years. The sidecar posts collateral to back its obligations. Investors earn the return on that slice, which is premium minus losses and costs. The sponsor earns ceding commission and fees and gains capacity without raising permanent capital.

Sidecars appear after large catastrophe losses. Reinsurance prices rise, capital is scarce, and investors see attractive returns, so sponsors can add capacity quickly. When the market softens, the sidecar can be allowed to expire. That flexibility is the draw: it is capital that comes and goes with the cycle.

A sidecar differs from a catastrophe bond. A cat bond is a security that pays out on a defined trigger such as an event loss or index. A sidecar takes a proportional share of a book through a reinsurance contract. Sidecars also back retrocession programs.

The risks are volatility and trapped collateral. Investors can lose money in a bad season, and collateral may stay locked for years while claims develop. Policyholders feel the effect indirectly, since more alternative capital can ease property catastrophe pricing. The guide on Sidecars, collateralized reinsurance and ILS funds explained explains how investors, sponsors and regulators fit together.

Last reviewed October 10, 2026

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Related terms

Catastrophe bond A security sold to investors that pays interest but loses principal if a defined catastrophe occurs, giving an insurer or reinsurer multiyear protection. Retrocession Reinsurance bought by a reinsurer to pass part of the risk it has assumed to other reinsurers or investors, usually to manage peak catastrophe exposure. Treaty reinsurance A reinsurance contract that automatically covers a defined portfolio of an insurer's policies, instead of reinsuring one risk at a time. Cedent The insurer that passes part of its risk and premium to a reinsurer, and stays liable to its own policyholders for the whole. Hard market The phase of the insurance cycle when premiums rise, coverage tightens and insurers cut capacity and become pickier about who they will insure.

Related guides

Catastrophe bonds and ILS: how they work and who they affect A cat bond lets investors fund disaster reinsurance and lose principal if a trigger is hit. How it works, what 2026 data shows and why buyers feel it. Sidecars, collateralized reinsurance and ILS funds explained How investor-backed reinsurance works: sidecars, collateralized contracts and ILS funds, with 2026 capital figures and what they mean for your coverage.