Reinsurance sidecars return to growth, volumes hit $7.1bn in 2023: Aon

The market for collateralized reinsurance sidecar vehicles has returned to favour, with resilience demonstrated as it returned to growth after two years here it had shrunk back, Aon Securities has explained.

The reinsurance sidecar market, as a segment of insurance-linked securities (ILS), had been one area that suffered and saw dwindling interest from investors after consecutive years where these structures took relatively heavy losses.

But adjustments to sidecar terms have helped and now the much higher returns available in ILS and reinsurance in general have rekindled investor interest, Aon Securities has said.

“The sidecar market also demonstrated resilience by returning to growth after two consecutive years of decline,” Aon Securities explained.

Adding, “Over the last year, outstanding sidecar volume increased to $7.1 billion from $6.4 billion in 2022.”

It’s still a way below the peak year of reinsurance sidecar issuance volumes, when it had reached $8.4 billion way back in 2015.

But Aon Securities is positive on the sidecar market potential, saying that, “positive issuance trends are emerging to match the general pricing trends in the reinsurance market.”

In 2023, the reinsurance sidecar market saw growth return thanks to the expansion of a number of existing reinsurance sidecar vehicles, as well as some new sidecars being established, Aon Securities said.

As a result, the company noted that this resumption of sidecar market activity and expansion has also prompted the return of some investors to the sector that had temporarily pulled back from investing in these proportional reinsurance structures during the softer market pricing.

“Interest in the sidecar sector is escalating as investors recognize the mutually reinforcing impacts of higher pricing, more remote attachments, and restricted coverage,” Aon Securities noted.

They also note the return of some more opportunistic investors, some of which are “known for astutely playing reinsurance market cycles in the past.”

These investors are once again “researching the sector to calibrate return expectations and identify preferred partners amongst insurers and reinsurers,” Aon Securities said.

While the company also noted that, “Strategic investors with long-term commitments in the ILS market continue to carefully review their portfolios to optimize weightings and consider potential reallocations.”

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