Casualty sidecar growth to continue. Collateralized reinsurance to see greater flexibility: AM Best

The reinsurance sidecar market is expected to continue expanding thanks to notable momentum being seen in casualty sidecar structures, according to rating agency AM Best. The firm also highlights that the broader collateralized reinsurance space is poised for future expansion due to greater flexibility in structure, modeling, and perils.

The property and casualty sidecar market is a key segment within the insurance-linked securities (ILS) sector that has witnessed prominent growth in recent years.

In a new report, rating agency AM Best has indicated that the size of the sidecar market is estimated to sit between US$17 billion and US$19 billion.

“Historically, most sidecar capacity has been used to assume property catastrophe risk and that is still true. Property cat sidecars provided additional capacity for (re)insurers to grow into the recent hard market,” the agency explained.

However, AM Best stresses that there will likely be less growth in property cat sidecars in the near term, as the property cat market continues to soften, and the underlying pricing weakens, reducing potential returns for ILS investors.

While momentum for property cat sidecars may begin to slow down, casualty sidecars are far likely to experience further growth, AM Best explained.

“Casualty sidecars may offer an additional investment income component because collateral is held for longer periods. Nevertheless, returns remain sensitive to underwriting pricing, reserve development, liability duration and asset-liability liquidity; higher investment yields do not eliminate the need for adequate pricing of the underlying risk,” AM Best said.

The agency also outlines that returns on casualty sidecars remain sensitive to underwriting pricing, reserve development, liability duration and asset-liability liquidity.

AM Best also says that appetite for US casualty risk varies, as some capacity providers are heavily attracted to the insurance float and improvements in underlying pricing, while others remain more cautious of the challenging loss severity trends.

Some ILS capacity providers in the latter group continue to capitalise sidecars to gain exposure to casualty risk, a trend that has accelerated throughout 2026.

At the beginning of the year, QBE Re, the international reinsurance arm of the global insurance group, sponsored its first casualty reinsurance sidecar vehicle, securing over $550 million in fully collateralised quota share reinsurance through George Street Re.

Then in June, we Everest Group launched its first casualty reinsurance sidecar, Annapurna Re Ltd., with the firm also revealing an expectation of deploying $600 million of third-party capital through the structure.

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

While the overall size of total capital in the casualty sidecar market is still relatively small compared to the broader reinsurance market, AM Best states that further growth in capacity is likely. As the segment matures, it could eventually also exert downward pressure on casualty reinsurance pricing at future renewals.

Shifting attention beyond sidecars, AM Best’s report estimates the broader collateralized reinsurance market at between $37 billion and $41 billion.

“This segment has not experienced the growth that cat bonds and sidecars have experienced in recent years. ILS managers believe this market may see more growth in the future because of greater flexibility in structure, modeling, and perils,” the agency said.

Adding: “As noted elsewhere in this report, the cat bond market in particular is still dominated heavily by US wind risk, so there may be greater potential for peril diversification in the private collateralized reinsurance market.”

Also read: Traditional reinsurance capital build-up more impactful to softening than ILS: AM Best