Munich Re flags US casualty sidecar risks

MUNICH Re executives have warned of challenges for participants in US casualty sidecars amid continued concerns over loss development trends.

Stefan Golling, management board member at the reinsurance giant, said he understood some casualty sidecars employed automatic commutations after five or seven years, which could lead to a difficult conversation between the investor and sponsor, given the long-tail nature of the business.

“I wonder how the commutation negotiations will look like between the sponsors and the investors, and whether there will be easy, agreeable answers found, or whether there is substantial uncertainty coming back to either side,” Golling told reporters at the Rendez-vous de Septembre. 

At the same presentation, Munich Re management board member Thomas Blunck said some casualty sidecars were offering high investment return, such as 8% or 10%, which was a “bold risk” given the potential for investment losses.

“The reliability to pay claims hinges also on a low-risk asset side,” he said. “Asset underperformance can happen, and you are exposing those [sidecar] solutions to the systemic risk of the capital market.”

The US liability market continues to face challenging conditions, with loss ratios on the 2022-24 accident years rising sharply and the loss trend on older accident years (2014-2019) yet to flatten, according to Munich Re’s analysis.

Golling said he “would not be surprised” if there was further reserve strengthening on the 2014-19 accident years. He also doubted whether loss trends on recent accident years would begin to flatten soon, despite the primary market’s efforts to impose limits.

In addition, rate increases being put through by the primary market were falling short of the claims inflation. “Our loss trends are again already exceeding the reported nominal rate increases, so therefore our profitability outlook remains rather cautious [on US liability],” he said.

The sidecar sector has seen strong growth in the past two years, with casualty sidecars being a major contributor to that growth.

Aon reported $23bn in total capital outstanding in the P&C sidecar sector as at June 30, 2026, representing around 50% growth since year-end 2024.

Asset managers have increasingly recognised sidecars as a source of attractive returns, Aon said. For re/insurers, sidecars offer a capital-efficient way to write more business, receive commission income, and establish partnerships with high-quality asset managers.

Recent casualty sidecars include Hamilton Insurance Group’s $300m sidecar with investment firm Sixth Street, QBE Re’s $550m George Street Re vehicle and Everest Re Group’s $600m Annapurna Re sidecar with Stone Point. 

There is no suggestion these sidecars are utilising automatic commutations or high-risk investment strategies.