In context of reinsurance, a sidecar is an insurance investment vehicle created by the reinsurance company. By investing in sidecar, investors can participate in the risk and return of a specific group of insurance policies and the liability of investors is limited to the funds of the sidecar. This structure became popular after Hurricane Katrina as a vehicle for reinsurers/insurers to add risk-bearing capacity and for investors to participate in the potential profits from a sharp increase in reinsurance premium.

Investing Essentials

Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Reverse conversion

A technique in which brokerage firms earn interest on the stocks they hold for their customers by selling the short and investing the proceeds in money market accounts. The short positions are hedged... Read More

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