While sidecars temporarily parked in Bermuda may soon ride off into the sunset as property-catastrophe rates keep falling, the basic idea remains sound and investors will likely fuel new facilities with fresh funding whenever the next capacity crisis emerges, capital markets experts contend. "It is a fundamentally solid concept that will continue," predicts Paul Schultz, president of Aon Capital Markets in Chicago.
Mr. Schultz directed his remarks at the basic framework of a sidecar–one that allows reinsurers and insurers with proven underwriting expertise in specialized lines to bring investors in alongside them to take advantage of market opportunities.
The opportunity spurring the creation of most sidecars over the last two years was property-catastrophe reinsurance, Mr. Schultz said, noting that those opportunities are waning–meaning that few, if any, sidecars are likely to form during the balance of 2007. But "the concept will survive," he said, adding that the temporary nature of the sidecar capital is beneficial for the markets in which they participate.
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