The California Earthquake Authority (CEA) has seen a roughly $600 million dip in its total capacity from the end of 2021, as the entity’s risk transfer program declines in size to just shy of $9.3 billion amid a firming reinsurance market.
Total capacity, as of the end of May 2022, stood at $19 billion, which is down from the $19.6 billion at December 31st, 2021.
Roughly $400 million of the decrease relates to the firm’s risk transfer arrangements, with the CEA’s available capital and capital from revenue bonds both shrinking by around $100 million each.
As of May 31st, 2022, the CEA’s risk transfer program featured a little more than $7.32 billion of traditional reinsurance, which is down from the roughly $7.35 billion of reinsurance protection as of December 31st, 2021.
Additionally, the CEA had $1.725 billion of in-force catastrophe bond coverage at May 31st, 2022, compared with $2.09 billion at the end of December. In June, the company did sponsor a $245 million Ursa Re II Ltd. cat bond, taking the in-force cat bond part of the risk transfer program to $1.97 billion.
Add the cat bond component to the traditional reinsurance cover secured, some of which could be via the insurance-linked securities (ILS) market, and the CEA’s overall reinsurance and transformer risk transfer tower stands at just under $9.3 billion in size as of May 31st, 2022, which is smaller than what it was at the end of last year.
Three additional layers of reinsurance within the CEA’s risk transfer program are set to mature at the end of July, so it’s likely the company is out in the market arranging renewals for at least some of this, which combined amount to $480 million of reinsurance limit.
