The board of the California Earthquake Authority voted to move forward with a transformer reinsurance agreement that would eventually lead to new, $150 million three year catastrophe bond.
According to minutes of the April 28 meeting, the CEA board unanimously gave the green light to its staff to continue its work on the structure that would create fully collateralized transformer agreement backed by a single catastrophe bond.
In a transformer structure, a ceding company provides a traditional reinsurance contract to the client (CEA) and then sells the risk into the capital markets.
The CEA minutes did not provide the name of the ceding company. In the past, the CEA has used Swiss Re for its Redwood Capital structure. That issue expired last year
According to the minutes, the proposed transformer reinsurance layer would be $4.6 billion with a $200 aggregate limit, with no reinstatement limit. The structure would also include a reset provision for deductible and premium on the second and third year.
“The proposed transformer reinsurance transaction would be in a relatively small amount — $150 million — but this type of transaction has the potential to grow as much as one billion dollars in risk transfer capacity over a five year period,” the minutes state.
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