The California Earthquake Authority (CEA) entered the January reinsurance renewals with almost one billion dollars more in risk transfer than a year earlier, as the group reached December 31st 2023 with $9.1 billion of protection in-force.A year earlier, the CEA’s reinsurance tower had shrunk after the January 2023 renewal, significantly down on the $9.44 billion high it reached at the end of 2021.Through 2023, the CEA’s reinsurance and risk transfer tower was then relatively stable, .The latest available disclosure of the CEA’s risk transfer arrangements shows $9.1 billion of in-force coverage at December 31st 2023, which comprises almost $6.8 billion of traditional reinsurance (some of which may be collateralized) and $2.27 billion of in-force catastrophe bonds.

As of today, the CEA still has this The CEA’s last catastrophe bond issuance was in December 2023, a $650 million    transaction that went a long way towards replacing some $775 million that matured in late November..The CEA now does not face another cat bond maturity until November this year, giving plenty of time for the earthquake insurance specialist to tap the cat bond market for more reinsurance and grow the overall transformer contribution to its risk transfer arrangements.

But, we still await visibility of the CEA’s progress at the key 1/1 reinsurance renewal, where some $2.2 billion of its reinsurance contracts in-force were due to expire.Recall that, as we recently reported, rating agency .Which suggests the quake insurer had likely more than replaced its expiring coverage, to lift the return-period coverage slightly.

With the insurers direct written premiums rising to $844 million driven by inflation, the need for more protection has been a factor over recent years.But at the same time the CEA has made coverage modifications, that are expected to reduce the need for reinsurance somewhat, although this may be cancelled out by the growth in exposure.The CEA’s ultimate claims paying capacity has reached $20 billion by the end of 2023, with this $9.1 billion provided by reinsurance and cat bonds and that figure has grown 3.9% on a compound annual rate since the CEA’s inception in 1996.

Risk transfer, so reinsurance and catastrophe bonds, is the biggest single contributor to claims paying capacity, at 45%.However, with the hard reinsurance market and more costly catastrophe bond pricing as well, the CEA’s risk transfer spend rose 15% year-on-year to the end of October 2023, to $479 million.The CEA is now spending more than 58.7 cents of every premium dollar on reinsurance, which has risen by around 4.5 percentage points from 54.2 percent a year ago and pressures how the business is managed and what this cost means for policyholder rates.

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