CEA plans for January catastrophe bond of up to $300m

by Artemis on December 12, 2011

The California Earthquake Authority (CEA) have published some more details of their plans for a return to the catastrophe bond market, presumably through their Embarcadero Re Ltd. Bermuda based SPV. The CEA were particularly pleased with their $150m cat bond that they issued in August which they felt cost them less than traditional reinsurance and offered the diverisfication of risk capital sources that they needed.

Since August they have been planning to return to the cat bond market early in 2012 to secure further multi-year, collateralized cat bond cover. Now it’s apparent from their recent board meeting documents that they are planning to secure up to $300m in cat bond cover early in January if the plan is approved.

The January cat bond will again be fully collateralized through their transformer SPV and will provide annual aggregate cover which will complement their existing Embarcadero Re transaction and their traditional reinsurance program. The desired cover would run for three years, feature annual resets for the probability of attachment, attachment and exhaustion points and a drop-down feature which would come into play where losses mounted but the cat bond was not yet fully exhausted.

If successful they could have as much as $450m in cat bond cover from the two deals. It will be interesting to see what size of cat bond the CEA finally issues as that should give another good indication of how price-competitive the capital markets are when compared to their traditional sources of reinsurance.

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