Cat bonds to casualty: long-tail risk is rewriting ILS rules

Casualty sidecars may once have been niche, but according to Dave Courcy (pictured), head of structuring at RenaissanceRe, they’re quickly becoming one of the most dynamic new frontiers in the insurance-linked securities (ILS) market.

Speaking at Convergence 2025, Courcy said: “What we’re talking about is a relatively recent trend – 12 to 18 months old – of sponsors and investors coming together to set up long-tail sidecars. There have been 10+ of them.” It seems as though every week, he said, new announcements are made: “This is how vibrant the market is right now.”

Casualty sidecars like Fontana – RenaissanceRe’s own casualty and specialty vehicle, launched in 2022 – differ fundamentally from the traditional, short-tail catastrophe bonds that have dominated ILS. “Property cat – the wind blows, ground shakes, you know about it,” Courcy explained. “Casualty takes time. It takes time for the reserve to be known, for the reserve to develop and for these reserves to actually be paid.”

That time lag creates a very different investment dynamic. “The longer you have premiums in your hand, the longer you can invest that premium and make money off it,” he said. In other words, the ‘float’ – the period between premium collection and claims payout – becomes a core source of return.

While property cat risk offers higher volatility (and therefore demands higher underwriting margins), casualty’s “lower volatility means a more stable underwriting profile,” Courcy noted. “That matters quite a bit, especially if what you’re looking at doing is go and capture the illiquidity premium on the asset side of the balance sheet.”

The diversity of casualty exposures – from general liability and D&O to professional liability – makes the sector both complex and rewarding. “We realised quickly that we couldn’t explain this to investors line by line,” Courcy said. “We had to talk about the underwriting approach. You underwrite the underwriter.”

For investors, trust and alignment are everything. These are 10-year-plus relationships. “If motivations aren’t aligned, you don’t have a successful transaction,” he warned. Risk retention and proportional structures help, as do carefully calibrated collateral and liquidity mechanisms. “If you don’t have perfect alignment between the sponsor and investors, you don’t have a deal.”

Courcy ended with a note of cautious optimism: “These transactions are new. They have no blueprint. There’s an opportunity for sponsors and investors to come together and start creating that blueprint to make these transactions more efficient, not just from a capital perspective, but from a structural perspective.”

He smiled: “I’m quite excited about the future, and I hope you are as well.”

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