MONACO (Reuters) - As Hurricane Ike takes aim at the Gulf of Mexico, triggering memories of 2005's devastating storms, reinsurers see temporary underwriting vehicles as the solution to their capital needs in the event of "the Big One" - a disaster costing them tens of billions of dollars.

These temporary vehicles, known as sidecars, are set up by a reinsurance company using funds from outside investors, who agree to tie up their funds for a period of two or three years.

Sidecars have drawn in over $7 billion of new capital since 2005's major storms and offer attractions to reinsurers, who share some of the risk and take some of the premiums earned, as well as providing good returns to investors.

In the past major disasters such as the World Trade Center attacks in 2001 or Hurricane Katrina in 2005 - the world's two most expensive disasters to date - triggered a flood of fresh capital into the reinsurance industry.

Over a dozen new firms were set up on the tax haven of Bermuda following those two catastrophes for example, as investors backed new ventures set up by veteran underwriters and managers to exploit the skyrocketing prices on offer.

But industry players say this model has now lost its lustre, in part because of tougher capital markets. "I'm not sure the old model that, after a big event, new companies like Flagstone would form, will be repeated in the future," David Brown, CEO of Flagstone Re, set up in the market turmoil caused by Hurricane Katrina, told Reuters.

"We now have a new model, which is that following a big event you will raise money through sidecars," said Mr. Brown.

Sidecars have been set up by underwriting firms such as Hiscox to exploit the dislocation in the catastrophe reinsurance market following a major disaster.

A sidecar has almost no staff of its own, and the reinsurer that sets it up does all of the underwriting. It is designed to shut down when the market returns to normal.

The fact that many sidecars, such as Hiscox's Panther Re venture with investor Wilbur Ross, have now closed, while the capital flowing into new entities has slowed to a relative trickle, is a sign of their success, not failure, said Mr. Brown.

As "concertina capital" vehicles, sidecars expand and contract according to demand for cover and the returns on offer. When the returns are no longer on offer, investors can pull their capital quickly.