Best’s Market Segment Report: Casualty Sidecars Transfer the Risk, But Not Always the Tail

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)-- A new AM Best report delves into the growing capacity materializing in the combined property and casualty sidecars segment within the insurance-linked securities (ILS) market, placing a broad estimate for the niche segment at USD 17 billion to USD 19 billion.

The Best's Market Segment Report, “Steering Profitability Remains Crucial for Lloyd’s in a Softening Market,” is part of AM Best’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo. Other reports, including AM Best’s ranking of top global reinsurance groups and in-depth looks at the Lloyd’s, insurance-linked securities, life/annuity and regional reinsurance markets are available.

According to this report, casualty lines remain under heightened scrutiny across the reinsurance segment after several years of adverse loss development and persistent concerns about social inflation, litigation trends, and a changing legal environment. Certain capital market participants continue to view the risk as attractive, drawn in by the economics of casualty float.

Premium collected up front for casualty-related coverage is held as reserves for many years before claims are paid, earning investment income at current interest rates and producing returns that compare favorably with private credit. The long payout tail also draws an investor base largely different from the one supporting catastrophe risk. Private credit platforms, insurance-focused private capital, family offices, and sovereign wealth funds have backed the recent vehicles, seeking diversification from their credit books rather than from catastrophe portfolios. “The question ultimately becomes whether the ceded risk has truly left the balance sheet,” said Emmanuel Modu, managing director, AM Best.

Among the report’s other highlights:

Disclosed capital from casualty sidecars announced since 2024 has surpassed USD 2 billion, and casualty vehicles have driven much of the sidecar market's recent growth.
Casualty sidecars generally are not fully collateralized, so social inflation, litigation trends or other factors can drive adverse reserve development that pushes ultimate losses beyond the vehicle's capital. AM Best defines this residual sponsor exposure as tail risk and charges the largest projected capital shortfall over the sidecar's remaining life against the sponsor's Available Capital.
Exit mechanisms can provide investors with liquidity or contractual finality, but they do not eliminate the underlying reserve risk. Their significance depends on which party retains or assumes that exposure when an exit occurs.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=368159.

For global reinsurance reports ahead of Rendez-Vous de Septembre, as well as video coverage of the event, please visit AM Best’s Reinsurance Information center.

Lastly, AM Best will host its annual reinsurance market briefing at Rendez-Vous de Septembre on Sept. 6, 2025, at 10:15 a.m. (CEST) in Monte Carlo. For more information, please visit the event website.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.