CEA revises cat bond issuance guidelines, says April reinsurance renewal a success

The Governing Board of the California Earthquake Authority (CEA) approved a revision to its guidelines for engaging in catastrophe bond risk transfer to the capital markets this week, while also noting a successful reinsurance renewal at April 1st, saying it secured favourable pricing and limit.

The California Earthquake Authority (CEA) is a significant buyer of reinsurance limit still, even after its risk transfer tower has shrunk over the last year.

The CEA’s risk transfer tower had included just over $9.15 billion of limit as recently as following the June 2024 reinsurance renewal season, but has been steadily shrinking ever since.

As we reported earlier this week, at February 28th 2025 the overall tower stood at just over $7.72 billion.

Of that, catastrophe bonds provide $2.455 billion of multi-year reinsurance protection to the tower, so made up approximately 32% of the total as of that time.

Accessing the catastrophe bond market for reinsurance has been part of the CEA’s risk transfer strategy for many years and since 2011 the earthquake insurer has been a particularly consistent sponsor of cat bond issues.

But the CEA evolves its strategy and has now taken one step this week, to further streamline its use of the capital markets for reinsurance in a closed session of the latest Governing Board meeting.

Governor Designee Michele Perrault explained after the session reopened, “In consultation with legal counsel in closed session, the board approved a revision to the guidelines for securing risk transfer, traditional reisurance and alternative risk transfer.

“This revision removes a requirement that CEA, when transferring risk into the capital markets, procure an insurance policy to indemnify a reinsurer or service providers for claims related to their performance of duty.

“The board made this change in recognition of the maturity of the catastrophe bond market, as well as the increased sophistication of all of the involved parties, including CEA, its service providers and its legal team of in-house and outside counsel.”

It’s perhaps a signal that the CEA feels the cat bond market is mature enough that service providers should be able to participate in such a way that they take responsibility for their own delivery guarantees. Whatever the motive, it’s one additional way the CEA can reduce friction in its interactions with the capital markets for catastrophe bond issuances going forwards.

In our article earlier this week, we also explained that the CEA had a significant reinsurance renewal coming up for April 1st.

The CEA had almost $1.2 billion of traditional or collateralized reinsurance limit that was scheduled to mature on March 31st and we understood had been in the market for a renewal of some or all of that limit.

No figures have been disclosed, but CEA executives appeared highly satisfied with the outcome of its April reinsurance renewal.

Tom Hanzel, Chief Financial Officer of the CEA, noted when discussing the insurer’s finances, the reduction in reinsurance expenses, as the CEA’s reinsurance tower had become smaller over the last year.

But he also noted that the exposure base has stabilised somewhat, which might imply we’ve seen the last of the significant non-renewals that have occurred over the last year.

Hanzel also highlighted that the amount of reinsurance limit being purchased had reduced significantly, also saying that while the CEA’s risk transfer tower limit has come down, there have also been changes to its claims paying capacity overall.

Hanzel said that the CEA staff believes the sweet-spot in terms of claims paying capacity may be at the 380 to 400 year return-period. Recall that it targets maintaining claims paying capacity at least at the 350-year level.

Hanzel said, “We want to buy the correct amount of reinsurance, not over or under, at each period of time.”

Moving on to comment on the April 1 reinsurance renewal, Hanzel said that the CEA’s staff have, “Just finished up our April 1st, or finalising our April 1st renewal, and it was very successful, really well done. I think it was in our favour and our policyholders favour, in the amount of limit and the pricing we were able to secure.

“So that’s the first large reinsurance on a syndicated basis that we’ve done this year, and it went really well.”

Hanzel also said, in reference to the sponsorship of the $400 million Ursa Re Ltd. (Series 2025-1) catastrophe bond earlier this year, “We did the cat bond in February, which went equally well. So we feel strong about where we stand with the risk transfer market coming into 2025.”

It will be interesting to see whether the CEA renewed the full expiring limit of reinsurance at April 1st, or whether its risk transfer tower shrank any further. The commentary on stabilisation of exposure and the favourable renewal outcome might suggest more stability will have been seen in the reinsurance towers’ limit as well.

The CEA has $2.455 billion of outstanding catastrophe bond coverage still in-force at this time, continuing to occupy 3rd position in our cat bond sponsors leaderboard.

View details of every catastrophe bond sponsored by the CEA in the Artemis Deal Directory.