The California Earthquake Authority (CEA), the main earthquake insurance provider in the State of California, is set to put Lloyd’s of London syndicates on a level playing field for its future reinsurance renewals.
The CEA has a strict set of guidelines for acquiring risk transfer and reinsurance, which see different providers of traditional and alternative reinsurance capital assessed based on ratings, capital adequacy and other metrics, to define how large a line they can take in the CEA’s reinsurance program.
To-date syndicates at Lloyd’s of London have been assessed slightly differently to global, rated reinsurers, but now the CEA is proposing to change that and assess syndicates in exactly the same way as other companies.
The reason for the proposed change is that the CEA now feels that improvements in the way Lloyd’s handles transparency of the funds underpinning its syndicates now gives the CEA the same level of knowledge of their claims paying ability as it gets from traditional reinsurance firms.
A proposal is going to the CEA board to change this in its risk transfer guidelines, which is almost certain to be passed we’d imagine.
Once the guideline is amended to reflect this greater transparency and ability to look through Lloyd’s syndicates, the CEA will not have to make a separate financial strength judgement with associated level of reinsurance limits allowed, and will base its judgements on all reinsurers including Lloyd’s syndicates on the same criteria.
Essentially the maximum line size allowed for a reinsurer or syndicate will now be derived in the exact same manner.
This will please Lloyd’s of London and its syndicates, as well as those companies operating syndicates who may choose to use one to access the CEA reinsurance program renewals with the backing of Lloyd’s leverage and central fund.