Bermuda sidecars: Supervising reinsurance companies in innovative global markets

The paper looks at the phenomenon of reinsurance sidecars, as an example of innovation in cross-sectoral risk transfer between the insurance and the capital markets. It explores the emergence, unfolding and retreat of sidecars in Bermuda with the goal of identifying and establishing key issues shaping how supervisors make sense and act upon innovative industry practices. The paper describes key market and industry features setting the scene for the emergence of sidecars, reviews the literature on sidecars, discusses supervisory challenges sidecars present and explores avenues for addressing these challenges. The paper argues that sidecars offer a fertile ground for better understanding the relationship between industry and supervisors in a context of innovation taking place in a rapidly changing landscape, populated by global players.