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CEA secures upsized $200m Ursa Re 2023-1 cat bond at 10% avg price discount


The California Earthquake Authority (CEA) has now secured and priced its new Ursa Re Ltd. (Series 2023-1) catastrophe bond to provide it an upsized $200 million of reinsurance, while on average the spreads settled around 10% below the initial mid-point of guidance.

california-earthquake-auth-cea-logoThe California Earthquake Authority (CEA) returned to the catastrophe bond market in late March, with its first issuance of 2023.

Bermuda based Ursa Re Ltd., the CEA’s special purpose vehicle, will issue two tranches of Series 2023-1 notes, that will be sold to investors and the proceeds used to collateralize a retrocessional earthquake reinsurance agreement with Swiss Re, while Swiss Re will in turn provide the earthquake reinsurance to the CEA.

The two tranches of notes will provide the CEA with a now confirmed as $200 million multi-year source of annual aggregate reinsurance against California earthquakes.

The coverage will run over a just more than two years and seven month term, with maturity expected at the end of November 2025.

At launch to investors, the two tranches of notes were targeted to provide $175 million of earthquake reinsurance from the capital markets for the CEA.

As we later reported, the target size was increased to $200 million of reinsurance, while the price guidance was reduced.

The Class AA tranche of notes were originally pitched at $100 million in size, but have now been priced to provide $125 million of cover. At that size we understand they’ll cover 12.5% of the relevant layer of the reinsurance tower.

The Class AA notes have an initial expected loss of 1.05% and were first offered to investors with spread price guidance in a range from 6% to 6.5%, but that guidance was lowered to between 5.5% to 6%, and we now understand this tranche has been priced at 5.5%, so the lowest-end of reduced guidance, a roughly 12% decline in price while marketing.

The riskier Class C notes have remained at their initial $75 million in size, we understand, as the CEA opted not to upsize these notes. At that size we understand they’ll cover 15% of the relevant layer of the reinsurance tower.

The Class C notes have an initial expected loss of 2.3% and were first offered with spread price guidance in a range from 8.75% to 9.25%, that was then lowered to 8.25% to 8.75%, and have now been priced at the lowest-end of reduced guidance again, of 8.25% for a roughly 8% decline while marketing.

This becomes the seventeenth cat bond directly sponsored by the CEA that we have listed in our Deal Directory and while not the largest, it will be an important component of the CEA’s reinsurance tower, as the insurer deals with stresses related to risk transfer affordability in the current hard market and higher priced environment.

This has resulted in the CEA’s reinsurance program shrinking, to $8.1 billion as we recently reported, so the insurer will be keen to rebuild that in the most efficient manner going forwards, with cat bonds likely to play a continued important role.

You can read all about this new Ursa Re Ltd. (Series 2023-1) catastrophe bond from the California Earthquake Authority (CEA) and every other cat bond ever issued in the extensive Artemis Deal Directory.

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