The growing participation of the capital markets and ILS investors in the transfer of natural disaster risks is positive for the California Earthquake Authority and its customers according to its CEO Glenn Pomeroy, as evidenced by its latest cat bond Ursa Re Ltd. (Series 2014-1).
The California Earthquake Authority (CEA) is a not-for-profit, publicly managed-privately funded, provider of homeowner and renters residential earthquake insurance in California.
As perhaps the most earthquake exposed region of the U.S., California homeowners benefit from more affordable insurance thanks to the CEA’s organisational approach and in the last few years its increasing use of private risk transfer through traditional and collateralized reinsurance coverage as well as catastrophe bonds issued through its transformer vehicles.
The latest transformer vehicle to be launched by the CEA, Ursa Re Ltd., completed its first catastrophe bond issuance on Monday of this week. At completion, the Ursa Re Series 2014-1 cat bond deal secured the CEA $400m of fully-collateralized California earthquake reinsurance protection on an annual aggregate and indemnity trigger basis.
With the completed issuance of Ursa Re 2014-1 the CEA now has $850m of catastrophe bond sourced collateralized reinsurance capacity to call on, should a major earthquake event strike California. The $400m from Ursa Re is added to the $150m Embarcadero Re Ltd. (Series 2012-1), which matures in February 2015, as well as the $300m Embarcadero Re Ltd. (Series 2012-2) which matures in August of next year.
The maturation of the two remaining Embarcadero cat bond’s next year makes it increasingly likely that we will see the CEA return to the insurance-linked securities (ILS) market early next year to replace some of the maturing protection, especially as issuance conditions continue to be so conducive for sponsors.
The CEA appreciates the continued and growing support that ILS and capital market investors have shown its transformer program of catastrophe bonds, which have helped it to lower costs and increase protection in its reinsurance program.
Glenn Pomeroy, Chief Executive Officer of the CEA, told Artemis; “We are very pleased with the successful completion of the Ursa Re transaction.”
Pomeroy explained that the growth of ILS ultimately benefits the CEA’s policyholders in California, commenting; “The continued rise of capital-markets participation in natural-disaster risk has increased both capacity and competition, and CEA policyholders are benefiting as a result.”
The use of transformers and catastrophe bonds, as complements to the organisations overall reinsurance program, has become part of the CEA’s annual renewal in recent years. Having now sponsored catastrophe bonds in 2011, 2012 and 2014, we expect to see this trend continue and the ILS and capital market’s are certain to continue to support the CEA’s risk transfer needs.
The $400m of Series 2014-1 catastrophe bond notes issued by Ursa Re Ltd. were admitted for listing on the Bermuda Stock Exchange on completion of the deal.