Sidecars steering towards casualty and specialty risks - Aon

Demand for sidecars – an established form of insurance-linked security (ILS) for reinsurers – has escalated over the past two years as its typical structure parameters have broadened to encompass new classes of business, such as casualty and specialty lines.

According to a bulletin published by Moody’s Ratings on 1 September 2026, entitled ILS resilient as softer reinsurance market shifts mix of transferred risk, a sidecar is a special purpose vehicle that assumes risk from a (re)insurer’s or managing general agent’s (MGA) underwriting portfolio, usually on a 12-monthly basis.

Designed like a “private club”, investors in sidecars are able to “share proportionally in premiums and losses” alongside the reinsurer or MGA.

This bulletin from Moody’s shared statistics from broker Aon, confirming that outstanding investments in sidecars reached $23bn in 2026’s first half – an increase of around 50% since the end of 2024.

Ahead of the Rendez-Vous de Septembre conference in Monte Carlo (6 to 9 September 2026), market commentators concurred that greater appetite for sidecar structures has been driven by a few key factors – the primary one being the model’s expansion to cover new classes.

Historically, sidecars have been used for property or natural catastrophe risks. However, reinsurance thought leaders have flagged that this form of alternative reinsurance capital is now being funnelled into casualty classes and specialty lines.

Speaking during an online renewal briefing event on 3 September 2026, Richard Pennay, chief executive at Aon Securities, explained: “Sidecars have been around since the ILS market’s inception. They have predominantly been property based, but in the last 18 or 24 months, we have seen a true expansion of sidecars into either whole account sidecar structures or casualty-based structures.

“Some of these transactions are garnering a great deal of attention from some of the world’s largest investors and we continue to see potential for that market to really grow as we move forward.

“There will be strong demand as we go into year end and further into 2027 [because] clients have the ability to lock in multiyear capacity at what will be relatively attractive pricing relative to prior years [due to soft market conditions].”

Pennay’s colleague, Amanda Lyons, senior managing director at Aon Reinsurance Solutions, agreed.

She added: “Investor interest in casualty business is significant and there’s not a conversation we’re having with a casualty insurer or reinsurer where the topic doesn’t come up. Most [insurer] clients are utilising this capacity in the right way – not replacing traditional reinsurance, but using the capital to supplement their existing programmes and manage the [current soft] cycle.”

The aforementioned bulletin from Moody’s additionally pointed to sidecars being utilised for “MGA-originated business” delving into casualty risk.

It stated: “On the property and casualty side, sidecars increasingly support MGA-originated business, where underwriting quality is harder to assess given limited operating histories and sparse public disclosure.

“Such vehicles often reach beyond property catastrophe into risks that are less standardised and harder to model, including longer-tail casualty lines where losses may emerge only years after underwriting.”

Greater cycle resilience

For Charles-Marie Delpuech, insurance analyst at S&P Global Ratings, sidecars provide a form of capital that is more “resilient” to soft cycle conditions – he observed that these structures have “grown quicker than other forms of alternative capital”, with S&P Global Ratings knowing of around 10 sidecars that have been launched in the last year.

This includes, for example, December 2025’s collaboration between insurer Allianz and global investment firm Oaktree Capital Management. The organisations created a reinsurance sidecar syndicate at Lloyd’s of London via Oaktree’s Syndicate 1890. This syndicate started underwriting in January 2026.

Delpuech explained: “What is driving [sidecar growth] is the appetite from asset managers [and] private equity. The second part of it is the type of structure and the risks that are covered. So, casualty risks are now covered and it used to be natural catastrophe risk.

“The question is whether the appetite for sidecars will continue [in the] softening cycle. What we see [is] it’s a question of economics. Do asset managers get return on capital on the sidecar? Technically, with the demand we are seeing, it seems that at the current pricing level there is demand – and we expect the demand to continue for two reasons.

“The first one is that the cost of capital of those private equity asset managers is lower than the cost of capital of venture. And the second point is that with those new structures, they can use the asset [to] invest in riskier assets to improve the yield.

“Basically, the return they are making on sidecars is not just about the underwriting – it’s also on the asset side. Those two components make [them] a bit more resilient to [the] softening cycle. But this is [a] fairly new the structure, so it still needs to be tested. But we think that it’s not just a one-off and we are hearing that everyone is looking for sidecars.”

Brandan Holmes, senior vice-president at credit agency Moody’s Ratings, concurred with Delpuech.

He added: “Sidecars have grown – they have doubled over the last year or two and a lot of interest [is] there [around them being] asset-intensive. So, you could put more interesting assets into the sidecar than you can in a catastrophe bond, which is really just [a] money market.

“Some growth in casualty risk coming into sidecars. Sidecars [are] a fairly good vehicle for that.”

Risk profile evolution

Delpuech warned, however, that casualty sidecars have a “very different risk profile compared to property sidecars”, with “a long tail risk profile” that showcases losses emerging over time.

“Compared to [a non-traditional property] sidecar that [will take maybe] one [to] three years [until] you can commit the claim, casualty sidecars will be much longer,” he said.

“We think you can get up to 10 years in terms of covering the losses. What we have seen is that the structure in the past was difficult because of that. We are seeing new ways to close those structures.

“Sidecars are not going to take the risk forever. They will take the risk for a defined period, maybe 10 years, and after 10 years, the risk may revert back to the to the cedent.”