Private & bilateral sidecar ILS deals on the rise: Willis Re

The growth of direct quota share transactions between institutional investors and global insurance or reinsurance companies are on the rise, according to broker Willis Re.

The reinsurance broker believes that 2021 is seeing a resurgence of the private or bilateral reinsurance sidecar arrangement and that this is enabling some large institutional investors to get closer to the source of risk.

It’s also enabling some large investors to effectively bypass the insurance-linked securities (ILS) specialist fund managers, by engaging direct with sponsors to secure their own share of a reinsurance portfolios returns and of course also losses.

Willis Re explained that appetite from investors for access to ILS investment opportunities is currently very high, in particular for the catastrophe bond structure.

But alongside this, the appetite among investors for partnering with a reinsurance or insurance company directly is also seemingly rising.

Willis Re said that the collateralized reinsurance sidecar market has experienced a notable increase in end-investors participating on a bilateral basis with sidecar sponsors.

Willis Re explained that, “Bypassing the traditional ILS investors has allowed the end investor direct access to the risk, securing a mutually beneficial long-term partnership with sponsors on a more direct basis.”

By traditional ILS investors we assume the reinsurance broker means by bypassing ILS fund managers to access the risk.

It’s a trend that has been ongoing for a while, largely the domain of very large pension fund investors, such as the PGGM’s of the world, or private equity players looking for access to reinsurance market returns.

But our sources suggest that increasingly private ILS quota shares are accessible by a broadening range of investors, largely as a result of more sponsors striking up relationships with institutions looking for sources of insurance-linked returns.

Of course, quota shares are not for everyone and many investment managers in the ILS space don’t allocate capital to them, preferring to focus on excess of loss treaties which they feel delivers better results.

But for a large, end-investor or institution, partnering with an insurer or reinsurer to provide capital on a quota share basis to a portfolio of catastrophe, or other, risks, can be a very attractive way to gain access to returns from the reinsurance market and so it is no surprise this is on the increase.

For more details on reinsurance sidecar investments and transactions view our list of collateralized reinsurance sidecars.