Sidecar growth signals strong investor appetite, but structure remains key: Anthony McKelvy, Northern Re

While growth in sidecar capital reflects a healthy demand for insurance-linked returns, long-term success will depend on the level of sophistication of structures sitting behind carrier balance sheets, Anthony McKelvy, Managing Partner of collateralized reinsurance company Northern Re told Artemis.

Speaking to Artemis around the time of the 2026 Monte Carlo Rendez-vous event, McKelvy shared what Northern Re’s perspective is regarding the momentum that the casualty reinsurance sidecar market has gained in recent years, along with the company’s insights regarding the relationship between carriers and sidecar investors.

The outstanding market for collateralized reinsurance sidecar structures has experienced rapid momentum in recent years, with the market growing by more than $5 billion in capacity terms over the course of full-year 2025, with casualty and non-catastrophe vehicles heavily cited as being key driver of the market’s expansion.

Given this momentum, McKelvy shared with Artemis what Northern Re’s assessment is of the current sidecar boom.

“The growth in casualty sidecar capital reflects genuine investor appetite for insurance-linked returns, and that’s healthy for the market overall. That said, there’s meaningful dispersion in how these vehicles are being built,” McKelvy told Artemis.

“The transactions vary widely in terms of underwriting margin, the asset strategies used to generate yield, and the level of visibility carriers have into those assets. In certain instances, the current generation of vehicles have echoed earlier structures that relied on cash flow underwriting,” he continued.

“These strategies function primarily as financial products sitting behind insurance balance sheets, rather than as reinsurance businesses in their own right. The distinction matters, and we’d encourage investors and cedents to look closely at which one they’re actually transacting.”

In terms of where Northern Re sees the risks associated with these vehicles, McKelvy highlighted the crucial role of capital-side mechanics and the structural asymmetry between carriers and investors.

“Much of the diligence in this space focuses, appropriately, on the underwriting. But the capital side of the equation deserves equal attention, and that’s where we see an analogous range of outcomes. The mechanism through which capital is posted, how and when it’s released, which buffers or credits are sized and to what degree, all have a significant impact on investor economics – and the culminating result is often less efficient than it could be,” he said.

Adding: “There’s also a structural asymmetry worth understanding: a carrier receives capital upfront and strengthens its balance sheet in the early years, but once capital is released back to investors, it generally can’t be recalled if reserves develop adversely. That’s a feature both sides should go in understanding clearly, because it shapes incentives on both ends of the transaction.”

McKelvy outlined to Artemis that Northern Re’s expectation is that some portion of the capital that entered opportunistically will end up finding that realised returns fall short of initial expectations, while also highlighting that the capital will either rotate out of the asset class or re-enter through a more sophisticated channel.

“When that happens, premium comes back into the market and carriers who relied on that capacity will be looking for durable solutions. We don’t see this as a systemic event for the reinsurance industry – but we do think it will be a sorting mechanism that distinguishes structures built for the long term from those built for a moment in the cycle,” McKelvy told Artemis.

We then asked McKelvy to explain how he would describe the carrier-sidecar investor relationship.

“The most important variable is alignment of time horizons. Most carriers we speak with are looking to lay off liabilities on a long-term basis; they want partners who will be there across cycles. Where capital enters with a shorter-term orientation, that mismatch eventually surfaces – often at a point of non-renewal or commutation, when liabilities come back to the carrier years down the line. Neither side is wrong to pursue its objectives, but structures work best when both sides are transparent about their horizons at the outset,” the executive said.

Moreover, Northern Re positions itself as a hybrid between an ILS sidecar and traditional reinsurance. Given this, we asked McKelvy to explain what that looks like.

“Northern Re is a modern reinsurer: reinsurance expertise combined with the speed and creativity of capital markets, supported by a full stack technology platform. Our team focuses on positive underwriting margin – that’s foundational,” McKelvy said.

He continued: “We spend considerable time arranging bespoke capital structures that work efficiently with our capital stack. On the asset side we invest in fixed-income securities and other qualified investments consistent with the requirements of the ceding company’s domicile. Managing a reinsurance trust portfolio is a specialized discipline, and we believe it requires careful stewardship by an experienced, insurance-focused asset manager.

“Our view is that the security we provide our counterparties should be compliant, liquid, and transparent – the creativity belongs in the structuring, not the collateral.”

To end, McKelvy shared some details regarding how Northern Re views the current trends and dynamics being seen within the property and casualty reinsurance markets.

“We continue to see attractive opportunities, with rate adequacy and projected rate change at or above trend for many of the classes we have an appetite for. We don’t see broad softening at this point, though there are certainly segments where this can be observed,” McKelvy shared.

“On the property side – we tend to participate on net quota shares, so rate pressures in the Cat XOL markets have provided more favorable economics in certain instances. More traditional companies are entering casualty in pursuit of growth, but that hasn’t put pressure on us – we operate in specific niches, focused on low-severity business, and we’re complementary to traditional reinsurers rather than competing head-on.

“Importantly, we’re not writing to a growth target – that gives us room to walk away from business that does not meet target returns. Our capital providers work with us because they have confidence in our ability to manage underwriting through cycles, and we see our patience as a genuine competitive advantage,” McKelvy concluded.

Read all of our interviews with ILS market and reinsurance sector professionals here.