Analysts at Moody’s Investors Service are predicting that life insurers will join the movement to use “reinsurance sidecars.”
The sidecar arrangements are simple, short-lived companies that can get cash from hedge funds and other institutional investors.
The sidecars then sell simple quota-share reinsurance or other reinsurance to reinsurers, according to Moody’s new report on the arrangements.
In some ways, the sidecars are similar to the reinsurers, but they usually have a limited purpose, a short lifespan and only one client. Sidecar capital may be easier to tap during a severe crisis than sources of cash, such as issuers of bank letters of credit, that must serve several different reinsurers, the Moody’s analysts write in the report.