CEA renews $306m of reinsurance in June, lifting risk transfer to $9.15bn

The California Earthquake Authority (CEA) kept its reinsurance and risk transfer program relatively stable at renewals during June 2024, ending the month with a slight increase to just over $9.15 billion of limit.

As the California Earthquake Authority (CEA) looks to control its reinsurance buying needs with a number of initiatives underway at the residual market insurer, the overall risk transfer tower increased by less that 1%, from the just under $9.1 billion it had disclosed as of April 30th.

The CEA has said that its risk-transfer costs and the amount of risk transfer needed are one of its largest financial headwinds.

For full-year 2023, the CEA’s risk transfer expenses reached $585 million, which was up by 18% on the prior year.

In 2024, the risk transfer budget was set at just under $585 million for the year and by April 30th 37.6% or just over $220 million has been used, but after the June renewals the amount spent rose by around 48% to just over $326 million.

The CEA targets keeping its claims paying capacity at around the 1-in-360 to 1-in 365 year level and the CEA is at around that level right now, with $20.3 billion of claims paying capacity, which has risen this year as more risk transfer has been purchased to fill a gap and maintain sufficient funding.

Coverage changes and reduced policy counts have helped the CEA in managing its need to buy more reinsurance and risk transfer over the last year, but in-force exposure has still risen slightly, with inflationary effects likely one driver of that.

June only saw $306 million of new reinsurance purchased, largely replacing expiring limits and then adding $70 million in incremental limit, possibly in response to improved market conditions at the mid-year.

But, with a further $655.5 million of limit expiring through July, it seems that the next disclosure may provide a better picture of how the CEA’s reinsurance tower changed at the mid-year 2024 renewals.

The CEA still has $2.27 billion of outstanding catastrophe bond coverage, as you can see in our cat bond sponsors leaderboard where the CEA is in 3rd at this time.

Which means that, with the overall CEA reinsurance and risk transfer tower sitting at just over $9.15 billion after its June renewals, the catastrophe bond portion still provides 25% of its available limit.

The next CEA catastrophe bond maturity comes up at the end of November 2024, so it will be interesting to see if the insurer comes back to market to replace that $215 million Ursa Re II Ltd. (Series 2021-1) issuance.

With the cat bond market lacking diversifying risk investment opportunities lately and the US wind season in full swing, a new cat bond from the CEA would likely be welcomed and could receive a positive investor response.

View details of every catastrophe bond sponsored by the CEA in the Artemis Deal Directory.