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

Charitable remainder trust

An irrevocable trust that pays income to a designated person or persons until the grantor's death, when the income is passed on to a designated charity. A charitable lead trust by contrast allows the... Read More

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