The size of the California Earthquake Authority’s (CEA) reinsurance and risk transfer program has contracted by 7% to $8.5 billion after the entity opted against renewing $648.5 million of traditional reinsurance protection that expired at the end of July 2024.
As reported by Artemis, our insurance-linked securities (ILS) focused sister publication, this reduction in the size of the CEA’s risk transfer is based on the latest available data of protection available from August 1st, 2024.
When we last reported on the CEA’s risk transfer and reinsurance, after the June renewals when it added $306 million of new reinsurance limit, the tower extended to just over $9.15 billion, with catastrophe bonds making up 25% of its available reinsurance limit.
However, at July 31st, the CEA decided to non-renew a multi-year contract that provided $93.75 million of limit from 2021 through July 31st, 2024, and four one-year contracts, that took the total non-renewed up to $648.5 million.
So, as at August 1st, 2024, the CEA’s risk transfer program is comprised of roughly $6.234 billion of traditional reinsurance and $2.27 billion of catastrophe bonds, meaning that the cat bonds now make up almost 27% of its available risk transfer limit.
In recent years, the CEA’s exposure has fallen as a result of strategic decisions and also market conditions, in part driven by adjustments to earthquake insurance policies, and the fact written premium is forecast to come in below initial expectations for 2024.
Of course, the cost of reinsurance has also increased during the hard market cycle, leading the CEA to need to increase its budget, which feeds into its exposure management and lowered the overall need for risk transfer.
Commenting on reinsurance market conditions, the CEA said: “The risk transfer market continues to pose challenges due to external market forces outside of CEA’s control such as inflation and global catastrophic property losses. Pricing for available risk transfer capacity is improving, while capacity in the market is increasing and this trend may mitigate pricing pressure.”
