CEA’s $7.72 billion risk transfer down 15% since end of 2023

By Michael Loney

March 27 - (The Insurer) - The California Earthquake Authority has decreased its risk transfer program by 15% since the end of 2023, despite a slight increase in limit in February this year from its latest catastrophe bond placement.

The CEA’s risk transfer program totalled $7.72 billion as of the end of February, with $5.27 billion from traditional reinsurance and $2.46 billion from transformer reinsurance. This means 68.2% of the cover was from traditional reinsurers and 31.8% was from cat bonds.

This was up from the $7.45 billion at the end of January, when traditional reinsurance was higher at $5.39 billion but transformer reinsurance was lower at $2.06 billion.

The CEA in February placed its latest Ursa Re cat bond, which provides $400 million of protection.

As of the end of November last year, the CEA’s total risk transfer was $7.99 billion, which was down from $8.50 billion at the end of September and $9.15 billion at the end of June.

The risk transfer program at the end of 2023 had sat at $9.06 billion, with $6.79 billion from traditional reinsurance and $2.27 billion from transformer reinsurance.

Traditional reinsurance represented 75% of the program at the end of 2023 while cat bond coverage represented 25%, with the CEA increasing the percentage of its cover from the insurance-linked securities market since then.

CEA CFO Tom Hanzel said during a December 4 governing board meeting that the authority is reducing its spend on risk transfer primarily from buying less limit and the expected softening of the reinsurance market.

Hanzel said both policies in force and exposure are continuing to decline.

Reinsurance and risk transfer director Tracy Palombo during the meeting said the 2024 risk transfer program maintained sufficient capacity to meet the board-approved strategy of a minimum 1-in-350-year return level but not greater than a 1-in-500-year return level.

Palombo stated that for 2025 the CEA staff proposed to maintain that claim-paying target range. She also noted that the risk transfer limit of $8.50 billion at the end of September 2024 was down $1.3 billion from two years previously.