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The California Earthquake Authority (CEA) elected to not renew some $648.5 million of traditional reinsurance that expired at July 31st 2024, resulting in its reinsurance and risk transfer program shrinking by 7% to $8.5 billion.
That’s based on the latest available data for the CEA’s risk transfer tower, which as of August 1st saw catastrophe bonds making up an even larger percentage of the whole, thanks to the non-renewal of this reinsurance.
At August 1st, the CEA’s risk transfer program consisted of roughly $6.234 billion of traditional reinsurance and $2.27 billion of catastrophe bonds.
When we last reported, on the CEA’s tower as of June 30th, the catastrophe bond portion made up 25% of its available risk transfer limit.
But, after these non-renewals of reinsurance, the cat bond component of the CEA’s earthquake risk transfer protection made up almost 27% of the protection available from August 1st 2024.
The CEA has seen its overall exposure decline in recent years, due to strategic decisions and market conditions. Part of this has also been driven by adjustments to earthquake insurance policies provided to insureds. Written premium is projected to fall below the original forecasts in 2024, another factor in the strategic decisions being taken on risk transfer.
This has somewhat reduced the need for risk transfer and reinsurance, driving the non-renewals at the end of July this year.
Reinsurance spend has risen in the hard market, which has led to the need for budgetary increases at the CEA. Another consideration in how it manages exposure and has reduced the need for risk transfer somewhat.
However, the CEA has also noted improvements in reinsurance market conditions, saying, “The risk transfer market continues to pose challenges due to external market forces outside of CEA’s control such as inflation and global catastrophic property losses. Pricing for available risk transfer capacity is improving, while capacity in the market is increasing and this trend may mitigate pricing pressure.”
Non-renewed at July 31st was a multi-year contract that provided $93.75 million of limit from 2021 through July 31st 2024, as well as four one-year contracts, that took the total non-renewed to $648.5 million.
We’re also aware that there has been some commentary of further non-renewals of reinsurance by the CEA at October, but it’s not clear at this time whether this commentary was really referring to the earlier expiration of these July contracts. We’ll now more when additional CEA risk transfer disclosures are made later in the year.
It makes cat bonds an even more important component of the CEA’s risk transfer and reinsurance arrangements.
But, as we’ve reported before, the CEA has a $215 million Ursa Re II Ltd. (Series 2021-1) catastrophe bond issuance that matures at the end of November. So it will be interesting to see whether that is renewed, or not this year.
View details of every catastrophe bond sponsored by the CEA in the Artemis Deal Directory.
CEA risk transfer shrinks 7% to $8.5bn, as ~$650m of reinsurance not renewed was published by: www.Artemis.bm
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