Reinsurance Sidecar

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.

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RELATED FAQS
  1. Why do some companies in the insurance sector engage in reinsurance?

    Discover how some companies in the insurance sector engage in reinsurance. Reinsurance allows insurance companies to transfer ... Read Answer >>
  2. What is reinsurance?

    Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit ... Read Answer >>
  3. What is the difference between underwriting and investment income for an insurance ...

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