Casualty sidecar capital surpasses $2bn, as specialised investor base drives expansion: AM Best

Disclosed capital from casualty sidecars since 2024 has surpassed US $2 billion, driven by a specialised investor base taking on long-tail risks, with casualty vehicles accounting for much of the sidecar market’s recent growth, a recent report from rating agency AM Best has highlighted.

In the report, AM Best notes that sidecar capacity continues to grow at a robust pace, while also emphasising that the market is hard to estimate given that many placements are private and deal sizes often end up going undisclosed.

However, despite this, the agency estimates the broader combined property and casualty sidecar market at $17 billion to $19 billion.

“The search for diversifying risks is a long-standing theme in the ILS market, one that predates the current pricing cycle and is visible in the development of cyber catastrophe bonds alongside growing interest in casualty. Softening property catastrophe pricing has contributed, but casualty was drawing capital before property prices turned,” AM Best said.

Moreover, the agency’s report notes that casualty lines continue to remain under heightened scrutiny across the reinsurance segment following several years of adverse loss development and persistent concerns surrounding social inflation, litigation trends, and a changing legal environment.

“Certain capital market participants continue to view the risk as attractive. They are drawn by the economics of casualty float. Premium collected up front is held as reserves for many years before claims are paid, earning investment income at current interest rates and producing returns that compare favorably with private credit,” AM Best continued.

“The long payout tail also draws a largely different investor base than catastrophe risk. Private credit platforms, insurance-focused private capital, family offices, and sovereign wealth funds have backed the recent vehicles, seeking diversification from their credit books rather than from catastrophe portfolios. The arrangements also let reinsurers write more casualty business than their own capital alone would support.”

According to AM Best’s report, casualty sidecars launched from 2024 through year-end 2025 carried nearly $1.5 billion of disclosed capital, and following the completion of QBE Re’s debut casualty sidecar, George Street Re in January 2026, this took the running total past $2 billion.

Since then we’ve seen additional casualty reinsurance sidecars come to market, from Hamilton Group and Everest, while private arrangements also continue to get done, so the total is now expected to be well-over the $2 billion of capital mark.

In regards to why the investor base for casualty sidecars is different, AM Best notes that traditional ILS funds tend to promise their investors short-tail property risk that resets each year, putting aside the issue of trapped capital in natural catastrophe ILS transactions.

The agency explained that a casualty commitment that runs for seven to ten years does not fit that structure and holding one would ultimately leave the fund less liquid than the terms it offers its own investors.

“The skills needed to evaluate casualty risk are also different. Catastrophe underwriting generally runs on vendor models with quick feedback, while casualty depends on reserving judgment and legal trends that take years to reveal whether a book was priced well. Some models are now emerging for casualty exposures, but they are not mature and are not globally recognized as a way to price such risks,” AM Best explained.

In addition, the float backing these casualty vehicles is commonly invested in credit, which means that one event, or an inflation spike or a credit contraction, can hurt both sides of the vehicle at once, with reserves deteriorating while the collateral behind them loses value.

“Hurricane losses do not depend on the state of the economy, and that independence is the basis of the diversification case for traditional property ILS,” AM Best said.

Concluding: “That linkage between asset values and casualty risk matters directly to AM Best’s tail risk analysis because scenarios in which a sidecar’s capital falls short may also be those in which credit-sensitive collateral is under pressure and the sponsor is less able to absorb the returning risk. The assessment applies stressed correlations between reserve and asset risks and treats illiquid collateral conservatively.”

Find details of numerous reinsurance sidecar investments and transactions in our directory of collateralized reinsurance sidecars transactions.