CEA Primed for $300 Million More in Catastrophe Bonds

This story was update with an additional comment from a CEA spokeswoman.

Staff at the
California Earthquake Authority (CEA) received approval to issue up to $300 million in additional catastrophe bond capacity — without waiting for board approval — when market conditions become “receptive” to a deal.

Staff requested and were granted the ability to issue new bonds at the April 26 meeting, according to CEA minutes that have been released on its Web site.

A spokeswoman for the authority confirmed the board approved the request.

“The CEA will look for opportunities to conduct one or more transformer reinsurance transactions between now and January 1, 2013, up to a total of $300 million, if the terms and conditions are within the criteria and consistent with the stipulations described in the Board memorandum,” the spokeswoman said in an email statement.

According to the minutes, in order to issue the bonds the staff must meet five conditions:

  • The issuance needs to be completed before January 1, 2013, or earlier;
    • any one bond — or combination of bonds — can’t exceed a $300 million limit;
    • the issue would need to have a “reasonable” risk adjusted cost compared to traditional reinsurance;
    • the staff would need to inform the board of the deal at the “earliest possible time”;
    • and finally, any bond would need to be certified as “reasonably likely” to achieve a multi-year, collateralized reinsurance contract that with “indirect” access to the capital markets that would be 100% funded by a reinsurer.

The staff asked for the ability to move ahead with catastrophe bond deals without board OK in order “meet tight time limits and deadlines inherent in highly time-sensitive capital-markets transactions,” the minutes say.

Hinting that a new bond may be in the works, the CEA’s issuer default rating was affirmed by Fitch Ratings on Wednesday.

The CEA issued two catastrophe bonds over the past year for a total of $300 million under the Bermuda-listed Embarcadero Reinsurance, Ltd. Embarcadero was created by the CEA as way offer “repeatable transactions” in the catastrophe bond market within a transformer structure.

Deutsche Bank Securities was bookrunner in the deal while AIR Worldwide acted as modeling agent.

Embarcadero currently represents 10 percent of the CEA’s $3 billion risk transfer program, according to the CEA.


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