The California Earthquake Authority’s (CEA) reinsurance programme has reached a new high, surpassing $8 billion after the January 1st, 2018 renewals, a figure expected to grow to $10 billion by 2022.
The CEA’s reinsurance programme has quadrupled since 1997 when it provided just $2.1 billion of cover, in the following two decades it more than doubled and in the last two years since 2016 the programme saw huge growth, again nearly doubling in size.
The CEA has grown its reinsurance programme in direct proportion to exposure levels, which have increased from $131 billion at its launch in 1996, to $436 billion by the end of 2017.
The growth in reinsurance protection has been largely driven by the CEA expanding its earthquake risk coverage to now insure over 1 million homes across California, and the CEA expects uptake of its insurance policies, and thus exposure growth to continue.
The CEA expects to grow its reinsurance programme to support clients’ needs with up to $9.2 billion of reinsurance and capital markets-backed coverage in force by the end of 2018, another 15% increase in its reinsurance provisions.
However, the programme is up for assessment with the entity looking to save money on its reinsurance spending, and proposals for new legislation that could put in place post-event assessments that aim to create savings by replacing some of the reinsurance tower.
This could lead to the CEA downsizing its programme by as much as $2.5 billion over the next year or so, as funding comes into its plans from the assessments as well as a new surcharge.
Nevertheless, even if the restructuring results in a temporary drop in the CEA’s reinsurance tower, over the long-term the programme is still forecast for growth along with the expanding needs of Californians.
