Portfolio Diversification through Insurance Securitization: A Case Study of Cat Bonds and Sidecars

Document Type : Original Article

Authors

Department of Financial Management, Ra.C., Islamic Azad University, Rasht, Iran

10.48311/mri.2026.119071.1897
Abstract
The escalating risk of catastrophic events has driven the development of innovative risk transfer instruments such as catastrophe bonds (Cat Bonds) and sidecars facilitated by insurance securitization . As alternative assets, these instruments offer significant potential for portfolio diversification and are utilized alongside traditional assets like stocks and bonds to mitigate investment portfolio risks. However, introducing and implementing these instruments in emerging markets requires a precise understanding of the contextual factors governing their design and performance. Accordingly, this study aims to identify the factors influencing the design and performance of these instruments and to empirically evaluate their role in investor portfolio diversification, employing a mixed methods approach. In the qualitative phase, a meta synthesis method and a systematic review of domestic (2001–2024) and international (2000–2025) literature were used to identify and select 27 influential factors; subsequently, research hypotheses were tested using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results indicate that these instruments can not only mitigate risk but also create new investment opportunities and play a pivotal role in portfolio diversification. Furthermore, the findings reveal that while both instruments offer substantial potential for investment opportunities, sidecars due to their requirement for more flexible legal and financial infrastructures are more feasible and accessible than Cat Bonds within the Iranian market.

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Articles in Press, Accepted Manuscript
Available Online from 23 January 2027