As the California Earthquake Authority (CEA) risk transfer needs have been adjusting and its reinsurance tower shrinking, catastrophe bonds now make up almost 32% of the total as of February 28th 2025.
The CEA’s risk transfer tower had sat at just over $9.15 billion of limit as recently as following the June 2024 reinsurance renewal season, but has been steadily shrinking ever since.The CEA’s risk transfer tower, made up of traditional and collateralized reinsurance as well as cat bonds had totalled $7.99 billion as of Nov 1st 2024.
When we last reported on it, earlier this month based on January 31st information, the California Earthquake Authority’s (CEA) risk transfer tower provided total private market protection of roughly $7.85 billion, of which catastrophe bonds were approximately 31%.
Now, a further disclosure from the CEA shows another small reduction in its traditional or collateralized reinsurance cover , with the overall tower $125 million smaller as of February 28th 2025, at just over $7.72 billion.
Thanks to its recent sponsorship of the $400 million Ursa Re Ltd. (Series 2025-1) catastrophe bond, the CEA still benefits from $2.455 billion of multi-year reinsurance protection provided by cat bond funds and investors.
The traditional and collateralized reinsurance component of the tower remains much larger at almost $5.27 billion as of February 28th 2025.
But catastrophe bonds continue to demonstrate their vital importance for the CEA, now being almost 32% of the total tower as of that date.
Cat bonds were just 25% of the tower as recently as June 30th 2024, which then increased to 28% at November 1st, stayed flat around the 28% mark at January 31st 2025, then 31% after the inclusion of the recent $400 million new cat bond issuance, and now 32% after the latest slight shrinking of reinsurance.
It’s going to be interesting to see how the CEA’s risk transfer tower adjusts after its April 1st reinsurance renewal date.
The CEA has almost $1.2 billion of traditional or collateralized reinsurance limit maturing on March 31st and has been in the market for a renewal of some or all of that, we understand.
The reason for certain non-renewals in the reinsurance tower over recent months is the fact that the CEA’s probable maximum loss at the 1-in-350 year loss event level has been declining at a faster pace that its reinsurance contracts have been coming up for renewal, while it has also been building internal capital as well.
The CEA has $2.455 billion of outstanding catastrophe bond coverage still in-force at this time, continuing to occupy 3rd position in our cat bond sponsors leaderboard.
View details of every catastrophe bond sponsored by the CEA in the Artemis Deal Directory.
As we also reported earlier this year, the California Earthquake Authority (CEA) has been exploring the need for either a pre-funded subsequent or second-event funding tower (with risk transfer and reinsurance perhaps a part of it), or the infrastructure for one, that would support its functions after a significant earthquake loss that depletes its claims paying ability, with a focus on ensuring financial stability for the long-term.
