These were the first true sidecars, and were a natural outgrowth of the development of re/insurance as an asset class in the form of catastrophe bonds.
These rates have been attractive to outsiders, who can now invest in a growing volume of securitised solutions including catastrophe bonds and insurance linked securities.
To date, all direct catastrophe bond investors have been institutional investors, since all broadly distributed transactions have been distributed in that form.
Generally held by large investment funds, catastrophe bonds -- more familiarly known as cat bonds -- were created to offset the risk of natural disasters on insurance companies.
This can be done through a variety of risk transfer methods, such as traditional indemnity-based insurance, parametric index solutions, catastrophe bonds or other similar financial arrangements.
Catastrophe bonds allow insurers to pass on extreme risks, such as those related to earthquakes or hurricanes, to financial market investors, and are seen as an alternative to reinsurance.