b'TABLE OF CONTENTSSidecars are privately negotiated transactions thatbusiness. Elevation Re by Premia was capitalized can be flexibly tailored to meet the sponsoringwith more than $265 million by third-party reinsurance companys needs. They can beinvestors and a contribution from the sponsor structured as market-facing vehicles (in which theitself. This was followed later in 2021 by R&Q, sidecar directly enters into retrocession agreementsthrough its Gibson Re sidecar vehicle, which was with third-party reinsurers, with underwriting andcapitalized with approximately $300 million by management typically being performed by theinvestors. Elevation Re has a unique and innovative sponsoring reinsurance company), and side-by-sidestructure, whereby the investors own and have vehicles (in which the sidecar enters into aformed the issuer as a Bermuda collateralized retrocession agreement with the sponsoringreinsurer to provide collateralized reinsurance reinsurance company, taking a quota share of acapacity to support R&Qs legacy deal-flow. These specified portfolio of risks of such company).transactions are examples of the flexibility of ILS Traditional sidecars typically have a risk period ofstructures to cover risks beyond traditional one year. If loss events occur during that period,property excess of loss, and demonstrates the funds are held in the trust account established forviability of the market to expand into new risks.the ceding company prior to being released to theLarge institutional investors, such as non-USsidecar investors. In order to protect the cedingpension funds, are continuing to allocate capital company from adverse loss development, mostto ILS-dedicated funds, reflecting their transactions require that a buffer be establishedappreciation that the asset class offers returns for the loss reserves, with such buffered amountuncorrelated to the broader securities markets. held in the trust account. The buffered amountThis non-correlation began to attract institutional declines over time until the reinsurance agreementinvestors in the aftermath of the 2008 financial is commuted. Trapped capital (meaning capitalcrisis, leading to significant growth in ILS fund that ultimately will not be needed to pay claimsassets under management since then. Investor but, due to buffering, is not immediately availableinterest appears to have been spurred on more to be reinvested in other transactions) continues torecently by the anticipation of another end-of-be a challenge in the market, with some sponsorscycle market downturn.electing to reduce buffer requirements inIn recognition of the growing importance to exchange for re-investment in a new annualinstitutional investors of ILS funds, The Standards transaction. However, as a result of theseBoard for Alternative Investments (SBAI), a challenges, other transactions were downsized orstandards setting body for the alternative not renewed as investors reconsider theirinvestment industry, announced a series of participation in the sidecar market. projects relating to ILS funds, the first of which was A significant transaction in 2021 was the launch ofa Toolbox Memo on valuation of ILS fund assets. Elevation Re by Premia, who became the firstIn addition to standards of general applicability to runoff player to use a collateralized reinsurancehedge funds, the Toolbox Memo focused on the sidecar vehicle to bring additional capital into itsneed to address the particular challenges posed MAYER BROWN |55'