The California Earthquake Authority, the not-for-profit residential earthquake insurance provider, is returning to the capital markets for another slice of reinsurance protection with a new Ursa Re Ltd. (Series 2018-1) catastrophe bond that targets up to $250 million of coverage.
This is the CEA’s sixth Ursa Re Ltd. catastrophe bond issuance, with these transactions now playing an increasingly important piece of the insurers growing reinsurance protection.
The CEA has currently has $2.075 billion of catastrophe bond risk capital outstanding (according to Artemis’ data), making the Authority one of the largest users of the capital markets for its reinsurance protection, in a securitised and 144A form.
With the expectation being that the CEA will continue to expand its reinsurance program, the capital markets and ILS investors stand to benefit from the insurers use of cat bonds and other collateralized structures to transfer California earthquake risks to the capital markets.
Sources said that this new Ursa Re 2018-1 cat bond transaction sees the CEA looking to secure between $200 million and $250 million of reinsurance protection, which would replace the Ursa Re 2015-1 cat bond that is scheduled to mature in September.
Special purpose insurer (SPI) Ursa Re Ltd. is going to issue a single Class D tranche of up to $250 million of cat bond notes which will then be sold to investors and the proceeds used to collateralize underlying reinsurance agreements for the insurer.
The single tranche of Class D notes will provide annual aggregate reinsurance protection to sponsor the CEA and feature an indemnity trigger, while the protection will run to September 2021.
The Class D notes that are being marketed to catastrophe bond investors in a $200 million to $250 million Class D layer, will provide the CEA with protection for losses across a $500 million layer of risk from $2.521 billion of losses upwards, we understand.
The Class D notes have an initial attachment probability of 3.11% and an expected loss of 2.87% and are being offered to investors with price guidance in a range from 4.9% to 5.4%, we understand.
Given where the new Ursa Re 2018-1 cat bond will attach it does appear to be a rough replacement for the expiring 2015 transaction, albeit with a higher attachment probability given the continued growth in the CEA insurance portfolio.
In terms of pricing, this looks relatively aligned with other recent California earthquake cat bond deals if it prices near the mid-point of marketed spread guidance.
We’ll keep you updated as this Ursa Re Ltd. (Series 2018-1) cat bond transaction comes to market and you can read about this and every other catastrophe bond since the market began in the Artemis Deal Directory.