CEA reinsurance program grows, cat bonds now 25%. Targets $2.2bn Jan renewal

The California Earthquake Authority (CEA) increased the size of its overall risk transfer and reinsurance program up to November 1st, hitting that date with $9.26 billion in-force, as part of which the CEA’s catastrophe bonds had increased their share.

Of the $9.26 billion of reinsurance and risk transfer in-force at November 1st 2023, the CEA’s tower consisted of almost $2.4 billion of catastrophe bonds, with the remaining $6.87 billion made up of traditional and collateralized reinsurance contracts.

At that time, cat bonds made up roughly 26% of the reinsurance program for the CEA, an increase from the 24% they contributed to the tower when we last reported on it at the end of August 2023.

Since November 1st, the CEA has seen $775 million of its catastrophe bonds mature at the end of last month, but after that the CEA has placed another new catastrophe bond, the $650 million  Ursa Re Ltd. (Series 2023-3)  which has just settled today.

As a result, the CEA currently has $2.27 billion of outstanding catastrophe bond coverage, as you can see in our cat bond sponsors leaderboard where the CEA positions 4th currently.

That keeps cat bonds as 25% of the CEA’s overall reinsurance and risk transfer arrangements at this time.

The CEA’s reinsurance tower had shrunk to around $8.2 billion after the January 2023 renewal, significantly down on the $9.44 billion high it reached at the end of 2021.

Since then it has bee steadily growing back and the new $9.26 billion at November 1st, which has fallen to approximately $9.14 billion including the new cat bond that settles today, appears to be heading back towards its previous high again.

Standing in the way of that are renewals, of course, as well as maturing catastrophe bonds.

At the key January 2024 reinsurance renewals, which is the CEA’s largest syndicated placement of the year, some $2.2 billion of the reinsurance contracts in-force are due to expire.

However, the CEA appears reasonably confident that market conditions are much better now, than a year ago.

At the January renewals, the CEA’s staff expect to see a continuation of a market environment where higher rate-on-line pricing than the expiring January 2023 program, will be experienced.

However, the increases in rate-on-line pricing are expected to be less than seen a year earlier, with a more stable market environment in general.

Looking back to its last traditional reinsurance renewal in October 2023, the CEA found that market capacity conditions had improved year-on-year.

“With these changed conditions, the CEA, unlike last year, will likely be able to maintain the expiring capacity target,” the CEA’s staff will explain to its Board today.

Staff will approach the January 2024 reinsurance renewals with their usual strategy, of buying sufficient risk transfer to get them into their targeted return-period range, of being protected to at least the 1-in-350 year level.

Throughout 2024, it is expected the CEA will continue to layer multi-year cat bond and reinsurance into its tower, as much as it can, to stagger maturities and maintain a strong contribution from capital markets investors.

On the catastrophe bond side, the CEA does not have any cat bonds scheduled to mature now until November 2024, so with an expectation more may be added before then, there is every chance that cat bonds could grow to become an even larger share of its reinsurance tower inn 2024.

View details of every catastrophe bond sponsored by the CEA in the Artemis Deal Directory.