Reinsurance whose commitment is fully backed by posted collateral, often from capital-market investors, eliminating the reinsurer's credit risk.
Collateralized reinsurance is a form of reinsurance in which the capacity provider's commitment is fully backed by collateral posted in advance, generally up to the maximum limit of the cover. Unlike traditional reinsurance, where the cedant relies on the reinsurer's future financial strength, collateralized reinsurance removes credit risk, since the funds needed to pay a possible loss are already locked away and available. This capacity most often comes from capital-market investors, specialist funds or pension funds, attracted by the decorrelation of insurance risk from financial markets, and belongs to the universe of insurance-linked instruments. The sidecar is a particular variant of it, a dedicated, limited-duration vehicle created to co-invest alongside a reinsurer on a defined share of its portfolio, often in catastrophe reinsurance. It allows the reinsurer to mobilize external capacity quickly without durably burdening its balance sheet, and investors to take a targeted exposure. For the market, these structures bring valuable alternative capacity, notably when traditional reinsurance becomes scarce, and contribute to the gradual opening of risk, including cyber, to the financial markets.
To absorb a particularly heavy hurricane season without committing its whole balance sheet, a reinsurer launches a sidecar in which investment funds provide collateralized capacity, sharing premiums and losses on a defined catastrophe portfolio.
réassurance collatéralisée, collateralised reinsurance, sidecar, sidecar de réassurance