The California Earthquake Authority (CEA) is back in the catastrophe bond market for the first time in more than a year, seeking $275 million or more of collateralized California earthquake reinsurance protection through an Ursa Re II Ltd. (Series 2022-1) issuance.
The California Earthquake Authority (CEA) is among the most prolific sponsors of catastrophe bonds, collateralised reinsurance and insurance-linked securities (ILS) in recent years, which are all key sources of protection within its reinsurance program arrangements.
While there have been some changes in the way the CEA approaches its claims paying capacity, reinsurance remains a core source of capital and protection for the insurer and its risk transfer program was $9.44 billion in size at the end of 2021, with $2.09 billion coming from catastrophe bonds.
For its first cat bond issuance in more than one-year, the CEA is looking to secure $275 million or more of multi-year and fully-collateralized California earthquake reinsurance protection.
Ursa Re II Ltd., a Bermuda based SPI, will issue two tranches of Series 2022-1 notes, each to be sold to investors and the proceeds used to collateralize reinsurance agreements between the vehicle and the CEA.
The notes will all provide the CEA with indemnity and annual aggregate based reinsurance against California earthquake events, across a roughly three-year term.
A $150 million tranche of Class A notes will cover a percentage of a $500 million layer of the CEA’s reinsurance, attaching above just over $7 billion, giving them an initial expected loss of 1.33%, we’re told.
The Class A notes are being offered to cat bond investors with price guidance in a range from 4.25% to 4.75%.
A currently $125 million tranche of Class B notes will cover a percentage of another $500 million layer of the CEA’s reinsurance, attaching close to $2.85 billion (so riskier), giving them an initial expected loss of 3.28%, we’re told.
The Class B notes are being offered to cat bond investors with price guidance in a range from 6.75% to 7.5%, we understand.
Both tranches have plenty of room to upsize, should pricing be conducive and as ever the CEA will be balancing the costs of reinsurance in different forms, so should the cat bonds prove attractive to it they could be upsized.
$375 million of the CEA’s Sutter Re catastrophe bonds are scheduled for maturity in the coming weeks, so we could at least see these replaced.
It’s good to see the CEA back in the cat bond market and a US quake diversifier may be looked on favourably at this time, given the US wind heavy cat bond pipeline at this time of the year.