The California Earthquake Authority (CEA) is hopeful it will be able to successfully renew $2.2 billion of expiring reinsurance limit at the upcoming January 1st, 2024, renewals, which is its largest syndicated placement, amid a continuation of higher rate-on-line pricing.
The CEA is one of the largest buyers of natural catastrophe reinsurance in the world, and while it’s a prolific sponsor of catastrophe bonds, traditional reinsurance (and also collateralized contracts) make up the large majority of its tower.
CEA governing board meeting materials show that as of November 1st, 2023, the CEA’s total risk transfer, across traditional reinsurance and catastrophe bonds, totals approximately $9.26 billion, which is up on late October’s figure of $8.86 billion.
Of the $9.26 billion of reinsurance and risk transfer in-force at November 1st, the CEA’s programme consisted of almost $2.4 billion of catastrophe bonds, with $6.87 billion made up of traditional and collateralized reinsurance arrangements.
However, since November 1st, the CEA has seen $775 million of its cat bonds mature, but it has placed another new catastrophe bond, the $650 million Ursa Re Ltd. (Series 2023-3), meaning it has $2.27 billion of outstanding cat bond protection, which accounts for around a quarter of its overall risk transfer.
During 2023, the CEA has been able to obtain sufficient capacity to maintain its targeted minimum claim-paying capacity of a 1-in-350-year level, and in spite of both pricing and capacity challenges in the 2023 risk transfer market, as of November 1st, the claim-paying capacity actually stood at approximately a 1-in-365-year level.
According to the document, the CEA expects to experience “the continuation of higher rate-on-line pricing than the expiring January 2023 program,” albeit perhaps at smaller increases than the preceding year.
“As recently as October 2023, the CEA experienced improved capacity conditions as compared to the same time in 2022. With these changed conditions, the CEA, unlike last year, will likely be able to maintain the expiring capacity target,” reads the document.
It also explains that the CEA does not recommend reducing or adjusting the current range of 1-in-350 years to 1-in-500 years as the claim paying capacity target for 2024.
In line with recent years, staff at the CEA will look to secure reinsurance protection at “the most advantageous pricing and contract terms,” making use of the global reinsurance market and the capital markets for “reliable, secure risk-transfer.”
