Sidecar formation is set to grow significantly in 2025, driven by strong annuity sales in the United States, according to a new report from credit ratings agency AM Best.
During this period, total reserves provided to these entities increased to more than $90 billion, a significant increase from $55 billion in 2023.
Sidecars act as reinsurance affiliates or unaffiliated entities, leveraging funds from third-party limited investors and can provide incremental, timely funding to execute larger transactions as opportunities arise.
The Best’s special report, “2025 Is a Big Year for Growth in Life/Annuity Sidecar Activity,” notes that the vast majority of reserves are forgoing liabilities to pay for indexed and fixed annuities, which have experienced significant growth as interest rates have risen over the past few years.
This premium expansion creates room for more capital to enter the reinsurance market and provides annuity issuers with the ability to manage growth and maintain adequate capital.
The reinsurance leverage of the individual annuity portfolio has doubled since 2019 due to strong premium growth managed through reinsurance. Additionally, overall surplus relief for 2025 is nearly 11%, double the level recorded the previous year.
“Historically, sidecars have been more prevalent in the property/casualty world; however, since 2021, sidecars have become even more visible in the life/annuity industry,” said Jason Hopper, associate director of industry research and analysis at AM Best. “Many property sidecars have limited lives, funding short-term risks with liquid assets, while reinsuring large fixed-index annuities into sidecars may last for decades.”
The report also found that sidecars now account for a share of a ceding company’s ceded reserves (i.e., provision credits taken plus modified reinsurance reserves) ranging from the low single digits to more than three-quarters, suggesting greater concentration of counterparties for some companies.
For U.S. statutory filing entities engaged in Sidecar-like activities, more than 75% of transfer reserves are transferred directly to four specific entities: Martello Re Ltd. (Mass Mutual/Barings/Centerbridge Partners/Brown Brothers Harriman), Chariot Re Ltd. (MetLife/General Atlantic), Prismic Life Re (Prudential/Warbug Pincus) and Skyridge Re Ltd. (Security Benefit/Eldridge).
Newly formed Martello Re and Chariot Re lead growth in 2025. AM Best also noted that the vast majority of foregone reserves were used to pay liabilities for indexed and fixed annuities.
In addition, certain reinsurance arrangements involving U.S. life/annuity insurance companies remain absent from statutory filings. This occurs when business is initially channeled through offshore intermediary reinsurers and then eventually moves to sidecars.
In terms of collateral structure, insurers using sidecars demonstrate a high reliance on funds retained in coinsurance agreements compared to broader industry standards. Although Sidecars account for only about 4% of reserve credits claimed by major insurers across the industry, they account for 10% of all withheld funds.
AM Best notes that sidecars often use withholding funds to reduce counterparty risk in ERM schemes and manage regulatory or rating agency capital.
While AM ​​Best typically charges higher risk fees for unrated partners, keeping funds on the books of primary insurers can significantly reduce these fees. This enables the insurance company to increase risk-based capitalization by forgoing liabilities while enabling affiliated management companies to earn asset management fees.
To date, reinsurance sidecar formation has generally been limited to private equity/asset management firm-backed insurers or reinsurers with investment management subsidiaries.
These vehicles continue to earn fees for contributors, providing additional revenue streams for diversification across the market.
