The formation of sidecars experienced a significant increase in 2025, driven by strong annuity sales in the United States, according to a new report by credit rating agency AM Best.
During this period, total reserves ceded to these entities rose to over $90 billion, a sharp increase from the $55 billion recorded in 2023.
Sidecars function as reinsurance affiliates or non-affiliated entities that draw on capital from third-party limited investors and can provide incremental, just-in-time capital to execute larger deals when opportunities arise.
The Best’s Special Report, “Big Year of Growth for Life/Annuity Sidecar-Like Activity in 2025,” notes that the vast majority of reserves ceded are covering liabilities for indexed and fixed annuities, which have experienced significant growth amid rising interest rates over the last few years.
This premium expansion has created space for additional capital to enter the reinsurance market and provide capacity as annuity writers aim to manage growth and maintain adequate capitalisation.
As a result of managing strong premium growth through reinsurance, the individual annuity composite has seen its reinsurance leverage double since 2019. Additionally, the overall surplus relief was nearly 11% in 2025, doubling the level recorded in the previous year.
“Sidecars have historically been more prevalent in the property/casualty segment; however, they have become more pronounced in the life/annuity industry since 2021,” said Jason Hopper, associate director, Industry Research and Analytics, AM Best. “Many P/C sidecars have finite lives funding short-term risks with liquid assets, while reinsuring a block of fixed-indexed annuities to a sidecar, for example, could go on for decades.”
The report also found that sidecars currently account for a range from low single digits up to over three-quarters of ceded reserves (i.e., reserve credit taken plus modified reinsurance reserves) by the ceding company, signalling more counterparty concentration at some companies.
For US statutory filing entities engaging in sidecar-like activity, more than 75% of these ceded 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).
Martello Re and Chariot Re, newly formed, led growth in 2025. AM Best also noted that the vast majority of reserves ceded are covering liabilities for indexed and fixed annuities.
Furthermore, certain reinsurance arrangements involving U.S. Life/Annuity insurers remain absent from statutory filings. This occurs when business is initially funnelled through an offshore intermediary reinsurer before its ultimate transfer to a sidecar.
In terms of collateral structures, insurers utilising sidecars demonstrate a disproportionately high reliance on funds withheld within coinsurance agreements relative to broader industry standards. Although sidecars represent only about 4% of the reserve credits claimed by primary insurers across the industry, they are responsible for 10% of all funds withheld.
AM Best notes that sidecars often use funds withheld to lower counterparty risk within ERM programs and manage regulatory or rating agency capital.
While AM Best usually applies higher risk charges to unrated partners, keeping funds on the primary insurer’s books significantly reduces these charges. This allows insurers to improve risk-based capitalisation by ceding liabilities while enabling affiliated managers to earn asset management fees.
To date, the formation of reinsurance sidecars has been generally confined to private equity/asset manager-backed insurers or reinsurers with investment management subsidiaries.
These vehicles continue to earn fees for the contributing owners, providing additional revenue streams for diversification across the market.
