California Quake System Tees Up Further Risk Transfer

Chris Westfall
Chris Westfall

The California Earthquake Authority (CEA) is moving ahead with plans to transfer more of its catastrophe risk into the private market following a board meeting last week where staff argued “additional risk transfer diversification” was needed.

Citing 2015 risk transfer expenses of $210 million, a staff board presentation said that a larger chunk of its $11.8 billion in claims paying capacity may be able to be packaged into catastrophe bonds or other private market solutions.

Glenn Pomeroy, CEO of the state-backed earthquake insurance facility, however cautioned in an emailed response to questions that no detailed plans on additional cat bond issuance or other structures have been determined.

“The CEA executive report delivered to the CEA Governing Board on February 19, 2105, built on a longstanding and continuing effort by the CEA to responsibly (a) diversify its sources of risk-transfer and (b) decrease associated risk-transfer expense—the CEA believes this is a sound way to make CEA products more valuable and affordable,” Pomeroy said. “No particular percentage for a risk-transfer expense-reduction is contemplated at this time.”

According to the presentation, the CEA’s total current exposure $338 billion. In 2015 the CEA paid reinsurers $3.7 billion in premium with $250,000 in reinsurance claims paid back to the earthquake authority. CEA policyholders paid $9 billion in premiums over the same period, documents show.

The presentation added that 40 percent of CEA-policyholder premium has been spent on reinsurance.

The CEA has issued three catastrophe bonds under its Bermuda-based Embarcadero Re Ltd. program for a total of $600 million.

Pomeroy declined to say when or how any new transformer structures will be launched.

“ The CEA will make public announcements concerning acquired risk-transfer products and levels as and when they are made,” he said.


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