The California Earthquake Authority (CEA) has increased its capacity by over $15 billion after seeing a continued trend of major increases to earthquake insurance sales that began last year, when the CEA’s policies in force grew by over seven times the 10 year average gain to 52,000.
As the CEA ensures its sufficiently capitalised to deal with the increased demand, its grown its reinsurance capacity with reinsurance and risk transfer mechanisms, including six catastrophe bond “transformer” reinsurance contracts that together total $2.07 billion, now making up half of CEA’s capacity, or $7.42 billion.
The second quarter of 2017 has brought no signs of the increased demand for earthquake cover abating, the CEA has reported receipt of 18,804 more policies in the first six months of the year, bringing total policies in force to 950,393 at the end of June 2017.
CEA CEO Glenn Pomeroy, explained that “Californians are listening to what the scientific community is telling us—that we are overdue for a large earthquake, and we need to be ready when it strikes.”
“More Californians are insuring their homes so they can recover financially following a large and damaging earthquake, which scientists say is not a matter of if, but when.”
Growing the CEA’s claim-paying capacity to over $15 billion means the firm is well-covered in the case of large-scale, devastating, natural disaster such as the 1906 San Francisco, 1989 Loma Prieta or 1994 Northridge earthquake.
“We rely on the best available science to ensure we’re on solid ground financially and through smart, innovative financing, our claim-paying funds continue to grow as CEA covers more and more residences in California,” said Pomeroy.
As the U.S.’s largest residential earthquake insurance provider, the CEA has innovatively used catastrophe bonds for its risk-transfer programme since 2011, most recently completing a transaction in May for $925 million in reinsurance from CEA-sponsored cat bonds, CEA’s largest capital market risk-transfer deal to date.
With climate scientists predicting an increase in intensity and frequency of natural disasters in coming years, and as the public becomes more aware of their own exposures to perils such as earthquake risk, the CEA’s increased demand for reinsurance to grow capacity is likely to be replicated with re/insurers across the globe.
