CEA grows risk transfer program to $8.86bn, cat bonds still 24%

The California Earthquake Authority (CEA) increased its overall risk transfer and reinsurance protection through the middle of the year, lifting the program to almost $8.86 billion in size, with its catastrophe bonds making up a steady 24% of the total.

Through the four months to end of August 2023, the California Earthquake Authority (CEA) added to both its traditional reinsurance and catastrophe bond protections, signalling a continuing need to maintain a certain level of coverage, despite previously cited concerns over the cost of risk transfer today.

The California Earthquake Authority (CEA) faces increasing exposure growth at a time when it faces stresses related to risk transfer affordability, in the current hard and higher priced reinsurance market environment.

At a governing board meeting today, it will be stated that, “The challenge associated with exposure growth continues. While the number of CEA policyholders has declined slightly this year, CEA’s exposure continues to climb and its annual reinsurance spend will rise to about $580 million by year end.”

In fact, the CEA’s total insured values (TIV) had more than doubled from $313 billion at end of 2012 to $642 billion at end of 2022.

All of which had led to an expectation that reinsurance spend might fall somewhat, while other initiatives would be taken to try and reduce exposure.

There are still plans that could see the CEA managing its exposure more closely and reducing its need for reinsurance somewhat, but with exposure growing still that does not necessarily mean the size of its reinsurance tower will fall, significantly or at all, although the amount of reinsurance it buys may proportionally, to its exposure, decline a little.

But, for now, the growth of the reinsurance tower has resumed during the four months to the end of August 2023.

The CEA’s reinsurance and cat bond protection had risen to as high as $9.44 billion at the end of 2021, but then shrank through last year as it navigated the challenging and hard reinsurance market environment.

After the January 2023 reinsurance renewal, the earthquake insurer’s reinsurance tower shrank to around $8.2 billion, of which catastrophe bonds contributed $1.875 billion and traditional reinsurance roughly $6.325 billion.

At April 30th 2023, the overall risk transfer and reinsurance tower of the CEA had resumed growth to reach just over $8.51 billion, as it recovered some of the lost ground, with $6.435 billion of traditional reinsurance in-force and $2.075 billion of catastrophe bonds.

Now, as of August 31st 2023, the CEA’s risk transfer tower had grown again by 4% to reach almost $8.86 billion.

Out of that, traditional and collateralized reinsurance now accounts for $6.69 billion, while the CEA’s catastrophe bond program now contributes $2.165 billion, again as of August 31st.

The cat bond percentage of the total risk transfer tower grew slightly faster than traditional reinsurance, as the CEA took advantage of strong cat bond market execution it seems, securing $425 million of protection in June with the Sutter Re Ltd. (Series 2023-1) deal.

Of course, the CEA has just been back in the cat bond market again, securing $230 million of reinsurance protection from the Ursa Re Ltd. (Series 2023-2) just this month, so its overall cat bond protection has now risen to almost $2.4 billion.

As a result, the CEA has now risen up to third position in our catastrophe bond sponsor leaderboard.

Upcoming maturities suggest the CEA may be back in the catastrophe bond market later this year.

$775 million of CEA sponsored cat bonds are scheduled to mature on November 30th 2023, so it would be understandable to see a new issuance launched to the ILS market in the coming weeks.

The CEA also has traditional or collateralized reinsurance that expired at the end of September and more than expires at the end of November and December, so it will be interesting to see how the risk transfer tower evolves through the rest of this year and at the January 2024 renewals.

View details of almost $7 billion of catastrophe bonds sponsored by the CEA in the Artemis Deal Directory.