Swiss Re Insurance-Linked Fund Management

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CEA looks for $150m+ of quake reinsurance with Ursa Re II 2021 cat bond

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The California Earthquake Authority (CEA) is back in the catastrophe bond market with its first transaction of 2021, seeking at least $150 million of fully collateralized earthquake reinsurance protection through this Ursa Re II Ltd. (Series 2021-1)  issuance.

california-earthquake-authority-logoThe California Earthquake Authority (CEA) is one of the larger sponsors of catastrophe bonds, collateralised reinsurance and insurance-linked securities (ILS), which are all key sources of protection within its reinsurance program arrangements.

The CEA’s reinsurance and catastrophe bond risk transfer program reached a new high at almost $9.6 billion in size in October 2020, but then shrank slightly after some maturing cat bond protection to $9.15 billion as of December 2020.

As we explained at the time in December, a new catastrophe bond was likely, as the CEA renewed a significant amount of its reinsurance protection in January, so a visit to the capital markets was also likely.

Now, that visit to the capital markets has begun, with what will be the ninth cat bond to be sponsored under an Ursa Re name by the CEA and the fourteenth catastrophe bond with the California Earthquake Authority listed as the direct sponsor in our Deal Directory.

For this issuance, the CEA is using its Bermuda-based special purpose insurer named Ursa Re II Ltd.

Ursa Re II Ltd. will issue a single Series 2021-1 Class F tranche of notes, with a target issuance size of at least $150 million we understand.

The single tranche of notes will be sold to third-party ILS investors and funds, with the proceeds used to collateralize an underlying earthquake retrocessional reinsurance agreement between Ursa Re II Ltd. and ceding reinsurer Swiss Re, which in turn enters into a reinsurance agreement with the CEA.

The notes will provide the CEA with at least $150 million of California earthquake reinsurance protection across a roughly three-year nine month term, with the cover delivered on an annual aggregate and indemnity trigger basis.

The unusual term appears to be designed to bring this latest CEA cat bond into line with some of its other sources of protection maturity dates.

We understand that the $150 million of Class F notes from this Ursa Re II 2021-1 cat bond issuance, will have an initial expected loss of 3.74% and are being marketed to ILS investors with price guidance in a range from 6.75% to 7.25%.

The reinsurance protection from these cat bond notes will sit across a $500 million layer of the CEA’s program, attaching at $2.1 billion of losses to begin, we’re told.

We’ll keep you updated as this new Ursa Re II Ltd. (Series 2021-1)  catastrophe bond issuance from the California Earthquake Authority (CEA) comes to market.

You can read all about this new transaction and every other catastrophe bond issued in the Artemis Deal Directory.

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