California Earthquake Authority returns for $175m Ursa Re cat bond

The California Earthquake Authority (CEA) is back in the catastrophe bond market, seeking $175 million or more in reinsurance protection with an Ursa Re Ltd. (Series 2023-1) transaction.

It’s the first cat bond of 2023 for the California Earthquake Authority (CEA) which last sponsored a catastrophe bond in late 2022, when it secured $305 million of reinsurance through an Ursa Re II Ltd. (Series 2022-2) deal.

This year, the California Earthquake Authority (CEA) has reverted back to using its Ursa Re Ltd. special purpose insurer in Bermuda for this new cat bond, which it has not utilised since 2019, having used Sutter Re and Ursa Re II for its cat bonds since then.

For 2023, global reinsurance firm Swiss Re will be acting as ceding reinsurer, to pass on the capital markets backed cover from this cat bond issuance to the CEA, which is the ceding insurer for the deal.

As a result, Ursa Re Ltd. is aiming to issue two tranches of Series 2023-1 notes, that will be sold to investors and the proceeds used to collateralize a retrocessional reinsurance agreement with Swiss Re, while Swiss Re will in turn reinsure the CEA.

That’s a different approach to other recent CEA cat bonds, where the company has directly faced its SPI and entered into a reinsurance agreement with it.

The notes will provide the CEA with annual aggregate reinsurance against California earthquakes over a just more than two years and seven month term, with maturity expected at the end of November 2025, we’re told.

A $100 million or greater tranche of Class AA notes will be issued by Ursa Re Ltd., that will provide reinsurance across a billion dollar layer of the CEA’s reinsurance tower, above a retention of $8.475 billion we understand.

The Class AA notes will have an initial attachment probability of 1.13%, an initial expected loss of 1.05% and are being offered with spread price guidance in a range from 6% to 6.5%, sources told us.

A $75 million or greater tranche of Class C notes will provide their reinsurance across a $500 million layer of the CEA’s tower above a retention of $4.407 billion.

The Class C notes that Ursa Re will issue come with an initial attachment probability of 2.43%, an initial expected loss of 2.3% and are being offered with spread price guidance in a range from 8.75% to 9.25%, it’s said.

It’s going to be interesting to watch how this new cat bond executes for the CEA, given the insurer has significant reinsurance needs and has in the past secured large amounts from the capital markets.

As we reported earlier this month, the CEA’s reinsurance and risk transfer program shrank to just under $8.1 billion by January 31st 2023.

The California Earthquake Authority (CEA) has been dealing with stresses related to risk transfer affordability in the current hard market and higher priced environment, which has resulted in its program shrinking.

As a result, it needs more reinsurance, when it is affordable, so it will be interesting to watch how the insurer views pricing in the catastrophe bond market and whether it opts to maximise the opportunity by upsizing this new deal.

You can read all about this new Ursa Re Ltd. (Series 2023-1) catastrophe bond from the California Earthquake Authority (CEA) and every other cat bond ever issued in the extensive Artemis Deal Directory.