Demand for alternative reinsurance capacity to support sidecars and quota share structures is outpacing supply, according to Shiv Kumar who explained that the reinsurance sidecar market has grown despite facing challenges in recent years.
According to GC Securities numbers the private collateralized quota share and reinsurance sidecar market now makes up around $11 billion of total insurance-linked securities (ILS) or alternative capital.
Speaking during a media briefing held by reinsurance broker Guy Carpenter last week, the parent to GC Securities, Kumar discussed reinsurance sidecar market conditions, explaining that the segment had bounced back.
“The sidecar protection market has actually grown, despite the past challenges of surprise losses, loss creep and collateral trapping,” he explained.
Adding that, “The increased allocation has mainly come through direct, bilateral arrangements with foundational investors, rather than through syndicated placements with dedicated ILS funds.”
However, it’s not a sector where cedants can expect to access capital easily, as investors and ILS funds are strongly differentiating in the quota share and proportional ILS space, according to Kumar.
He said that, “In these arrangements there is a keen differentiation across cedants, based on their past underwriting experience, loss reporting and collateral release terms.”
Also saying that, “Besides pressure on structural terms and conditions, there is a real focus on the over-ride.”
Which has led to a situation where demand for investor capacity to support sidecars and private collateralized reinsurance quota share arrangements is high, which according to Kumar means that, “Demand for this capacity is currently outpacing supply.”
Kumar also noted that the sidecar segment has been able to expand its remit in the last year as well, highlighting that we’ve now seen, “The sidecar market expand into the casualty and legacy spaces.”
For more details on reinsurance sidecar investments and transactions view our list of collateralized reinsurance sidecars.