The California Earthquake Authority (CEA), the not-for-profit residential earthquake insurance provider in the state, has reached a new milestone as it now insures more than 1 million homes across California, growth that has been assisted by the use of traditional reinsurance and risk transfer from the capital markets.
The CEA has witnessed what it termed “unprecedented sales of CEA earthquake insurance policies in 2016 and 2017” helping it to surpass 1 million earthquake insurance policies in-force.
“We’ve been tracking our policy count closely as we’ve been approaching this milestone,” commented CEA Chief Executive Officer Glenn Pomeroy. “We are proud to announce that more than 1 million California households have placed their confidence in CEA. That’s over a million homeowners, renters––and their families––who now can count on our great financial strength to help them recover from costly, potentially catastrophic earthquake damage.”
The CEA’s average annual policy count had been growing at around 6,700 policies between 2005 and 2015, but in 2016 it added over 52,000 policies in one year and so far in 2017 it has added 75,000 policies, bringing its total policy count to 1,006,927, the highest figure in the CEA’s history.
“There are many reasons for this dramatic increase in CEA policy purchases,” Pomeroy explained. “In 2016 we rolled out more coverage choices, more deductible options and more affordable rates, and many homeowners are pleasantly surprised to discover how flexible and affordable earthquake insurance has become. We also believe that Californians are listening carefully to what scientists are now telling us about earthquake risk––and then buying a CEA policy, to help with what otherwise could be a big financial loss from a damaging earthquake.”
The recent severe catastrophe loss events across the United States are also thought to have helped to stimulate greater interest in insuring homes among California residents, and the CEA added 25,964 policies in September and 21,511 policies in October this year.
That suggests homeowners are increasingly aware that going without insurance protection for a major catastrophic peril such as earthquake risk is unwise, which could help to drive further policy uptake in future months.
The CEA also uses significant amounts of reinsurance capital, both traditional and from the capital markets, to help it to manage its exposures and optimise the cost-of-risk it bears. This assists the insurer in making insurance available as cost-effectively as possible for Californians.
Pomeroy told Artemis, “As CEA grows, so must our financial ability to be there for policyholders after an earthquake. The risk-transfer market—both the traditional and capital markets—has provided CEA with the needed financial backing necessary for CEA to respond to consumers’ demand for our policy.”
In 2017 the CEA had over $7.5 billion of reinsurance and catastrophe bond risk transfer in-force, including adding $1.325 billion of catastrophe bond protection this year alone, thanks to the $925 million Ursa Re Ltd. (Series 2017-1) and the recently completed $400 million Ursa Re Ltd. (Series 2017-2) transaction.
For 2018 the CEA will look to secure a similar level of reinsurance protection, from a mix of traditional and alternative capital markets sources.
The insurer will look to keep its claims-paying capacity at no less than a 1-in-400-year level and no greater than a 1-in-550-year level as it renews reinsurance and risk transfer through 2018.
The organisation recently said that it anticipates seeing pricing for its risk transfer program, of reinsurance and transformer catastrophe bonds, at the “lower end of the pricing scale” in 2018.
The continued availability of efficient and cost-effective reinsurance capital, as well as having access to the capital markets established through regular catastrophe bond issues through its transformer vehicles, will ensure that the CEA can keep its insurance policies priced at levels that help an increasing number of homeowners to become better protected against the earthquake risk they face.
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