Reinsurance Sidecar

AAA

DEFINITION of 'Reinsurance Sidecar'

A limited purpose company created to work in tandem with insurance companies. Reinsurance sidecars will purchase a portion or all of an insurance policy from an insurance company to share in the profits and risks. If the underwritten policies have low claim rates while in possession of the sidecar, the investors will make higher returns.

INVESTOPEDIA EXPLAINS 'Reinsurance Sidecar'

Sidecars are used as a way to increase the original underwriter's business while reducing liabilities. The reinsuring company sometimes sets up a type of insurance investment vehicle, called sidecars, for investors who lack underwriting experience. The investors' funds are used by the reinsuring company to underwrite a portion or all of an existing policy from a separate company for a percentage of the premiums.

RELATED TERMS
  1. Assumption Endorsement

    A supplemental insurance policy stipulating that, should the ...
  2. Cedent

    A party to an insurance contract who passes financial obligation ...
  3. Insurance Claim

    A formal request to an insurance company asking for a payment ...
  4. Reinsurance

    The practice of insurers transferring portions of risk portfolios ...
  5. Premium

    1. The total cost of an option. 2. The difference between the ...
  6. Insurance

    A contract (policy) in which an individual or entity receives ...
RELATED FAQS
  1. What is reinsurance?

    Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit ... Read Full Answer >>
  2. How do insurance companies use a whistleblower?

    Fraudulent claims are among the most prevalent and serious business risks that insurance companies face. Many consumers have ... Read Full Answer >>
  3. How is maintenance of standard of living for survivors accomplished in estate planning?

    Estate planning is an integral component of comprehensive financial planning, as it allows individuals and couples to maintain ... Read Full Answer >>
  4. What options strategies are best suited for investing in the insurance sector?

    Three segments comprise the insurance sector. The largest, property and casualty insurance, exhibits significantly less volatility ... Read Full Answer >>
  5. Why should value investors consider the insurance sector?

    Insurance companies receive steady cash flows for years with irregular payouts. Following these payouts, insurance companies ... Read Full Answer >>
  6. What do insurance companies qualify as hazardous activity?

    An insurance company defines a hazardous activity essentially as any type of undertaking with a high level of risk of injury ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  2. Options & Futures

    Exotic Options: A Getaway From Ordinary Trading

    Exotic options are like regular options, except that they have unique features that make them complex. These unusual investment vehicles can reignite your interest in trading.
  3. Home & Auto

    When Things Go Awry, Insurers Get Reinsured

    Guru Warren Buffett is making this sector popular. Learn more here.
  4. Insurance

    Why Is Health Care So Expensive In The Us?

    The U.S. is the world leader in only one area of health care: costs. Why is it so hard to rein in these expenses?
  5. Insurance

    Do You Need Kidnap & Ransom Insurance?

    Americans working abroad – and high-profile individuals traveling frequently in kidnapping hot spots – should consider this type of protection.
  6. Insurance

    A Guide To Kidnap & Ransom Insurance

    Every year, thousands of people are kidnapped for ransom all over the world. This insurance offers protection – and peace of mind.
  7. Insurance

    Should I Insure My Wedding Ring?

    It depends, in part, on the ring's value and your current insurance coverage. Here's a guide to making a decision that's right for you.
  8. Insurance

    How To Insure Your Wedding Ring

    Read on for everything you need to know to make sure this precious possession is covered against theft, damage, loss and more.
  9. Insurance

    Is My Health Insurance Good In Another State?

    Under ACA, is health care insurance something you can take with you state to state?
  10. Professionals

    How Advisors Can Help When a Service Member Dies

    Finances are probably last thing that survivors of our nation’s deceased service members want to deal with. Here's what advisors can do to help.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!