CEA risk transfer tower stable at $9.1bn after near $1.2bn April renewal

The California Earthquake Authority (CEA) has maintained its reinsurance and catastrophe bond tower at $9.1 billion in size through the start of 2024, with its most recent renewals for April 1st seeing the insurer securing almost $1.2 billion in protection.

When we last covered the CEA, we reported that the group had reached December 31st 2023 with $9.1 billion of protection in-force from its reinsurance and cat bonds.

That was based on end of year data and the CEA had a significant reinsurance renewal at January 1st as well, but we’ve now learned that the earthquake insurer has come through that and April renewals and maintained the same level of catastrophe risk transfer protection.

Renewing such a large risk transfer program is not without its challenges and the CEA has said before that its risk-transfer costs and the amount of risk transfer needed are its largest financial headwinds.

For full-year 2023, the CEA’s risk transfer expenses reached $585 million, which was up 18% on the previous year, as the effects of the hard reinsurance market took hold.

Managing that means needing more rate coming in on the inward earthquake insurance side of the CEA’s business, but the Authority is also very tactical in its reinsurance and catastrophe bond buying as well, as it looks to manage market cycles.

Back in March, the CEA’s leadership team heard that the risk transfer market was “modestly improving”, which helped it increase its overall reinsurance and cat bond tower to around $9.1 billion for the start of 2024.

The CEA’s approved risk transfer budget is also set at just under $585 million for 2024, of which by April 30th 37.6% or just over $220 million has been used.

At the key 1/1 reinsurance renewal this year, some $2.2 billion of the CEA’s reinsurance contracts in-force were due to expire and it appears were more than renewed, with over $2.57 billion of reinsurance secured at January 2024.

After April 1st, which is one of the CEA’s larger reinsurance renewal periods, the size of the risk transfer tower has not changed, with still $9.1 billion of reinsurance and cat bonds in-force at that time.

At the recent April renewal, the CEA secured just under $1.16 billion in new reinsurance, helping to maintain its risk transfer program at the same stature it had reached at the end of 2023.

Which means the CEA has renewed $3.73 billion of reinsurance in 2024 so far.

The CEA has not sponsored a new catastrophe bond since last December, so as of today, the CEA still has $2.27 billion of outstanding catastrophe bond coverage, as you can see in our cat bond sponsors leaderboard where the CEA is in 5th position currently.

But catastrophe bonds remain a very significant contributor to the CEA’s risk transfer arrangements, while the insurer also utilises other ILS market solutions in fronted reinsurance form, we understand.

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

The CEA’s reinsurance tower had shrunk to around $8.2 billion after the January 2023 renewal, and still remains smaller than the $9.44 billion high it reached at the end of 2021.

The CEA now has another $85.5 million of reinsurance that expired at the end of May 2024 and a further almost $800 million of reinsurance cover expiring before the end of July this year.

So we expect the CEA will be busy in the market at this time, renewing and replacing much of this expiring protection and it will be interesting to see if the tower grows when the next data becomes available to us.

Finally, the CEA’s next catastrophe bond maturity is scheduled for the end of November this year, so it will be interesting to see if the insurer comes back to market to replace that $215 million Ursa Re II Ltd. (Series 2021-1) issuance.

With the cat bond market keen for diversifying risks at this time, given the US wind heavy issuance we’ve seen, a new cat bond from the CEA might be welcomed and could receive a positive investor response.

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