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.

BREAKING DOWN '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. Insurance

    A contract (policy) in which an individual or entity receives ...
  5. Reinsurance

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

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

    Who is a Beneficiary?

    A beneficiary is a person or entity that receives funds, assets, property or other benefits from a trust, will, or life insurance policy.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  6. Insurance

    Top 5 Car Insurance Companies in Florida

    Learn which car insurance companies lead the Florida market in terms of market share and new premium dollars, and discover which companies are growing fastest.
  7. Retirement

    Strategies for a Worry-Free Retirement

    Worried about retirement? Here are several strategies to greatly reduce the chance your nest egg will end up depleted.
  8. Markets

    The 5 Biggest Canadian Insurance Companies

    Learn more about the insurance industry as a whole, how it functions in Canada, and the five largest Canada-based insurance companies.
  9. Professionals

    What Kind of Insurance Do RIAs Need?

    Advisors spend a lot of time discussing insurance with clients but they also need to consider their own coverage needs as small-business owners
  10. Investing

    Things Nursing Homes Are Not Allowed to Do

    What rights do a home's residents have? The same ones they they had before they entered the facility.
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. What happens if my insurance claim falls below the deductible level?

    Though the ins and outs of health insurance are often confusing, the concept of the insurance deductible is relatively straightforward. ... Read Full Answer >>
  3. How is the deductible I paid for my insurance claim treated for tax purposes?

    The deductible you pay on your health insurance policy may be tax-deductible if you meet certain conditions. However, whether ... Read Full Answer >>
  4. What level of reserve ratios is typical for an insurance company to protect against ...

    In the United States, and most developed nations, regulators impose required statutory capital reserve ratios on insurance ... Read Full Answer >>
  5. What risks do I face when investing in the insurance sector?

    Like all equity investments, insurance companies present investors with market risk. Insurance companies, like banks, also ... Read Full Answer >>
  6. What are the main factors that impact share prices in the insurance sector?

    The main factors that impact share prices in the insurance sector are interest rates, earnings and actuarial risk. In the ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
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!