A re/insurer will only pay ("cede") the premiums associated with a book of business to such an entity if the investors place sufficient funds in the vehicle to ensure that it can meet claims if they arise.
Lloyd's of London "names" act as such reinsurers, placing the resources of individual and firms at risk to books of business written by professional underwriters and agents.
The earliest sidecars were created in Bermuda in the 1990s in such a fashion, and included Top Layer Re and OpCat, both of which placed capacity under the control of Renaissance Re on the part of other re/insurers (Overseas Partners, State Farm).
In the years following 9-11, the idea of raising funds from capital markets investors in addition to re/insurers to support quota-shares arose and a handful of such ventures were consummated (Olympus, DaVinci, Rockridge).
By year-end 2006, it began to appear as though supply and demand in the reinsurance and catastrophe bond markets had achieved balance at the prevailing price level.