Nationwide Insurance will stop writing direct earthquake insurance in California next year and has applied to the California Earthquake Authority (CEA) to become a participating insurer.
The company will cease writing earthquake insurance directly in October of 2011 and is seeking to offer residential earthquake coverage to through the CEA.
The company currently has nearly 300,000 residential property insurance customers in the Sunshine State, according to CEA filings.
Before Nationwide can make the switch, however, it will be required to provide a capital contribution and a capital “surcharge.”
The surcharge is required since Nationwide’s book of business is “more likely” to produce losses than CEA’s existing policies. It is only the second time that a insurer applying to the CEA has be required to pay the surcharge since the rule was enacted in 2008, according to filings.
During the application process catastrophe modeling firm Eqecat was hired conduct a “earthquake-insurance risk profile” of Nationwide’s book of business. The filings do not specify the amount of the surcharge, but they say Nationwide will be required to pay “up to five annual risk-capital surcharges,” prior to offering quake coverage through the CEA.
“We are interested in joining [CEA] because it would allow Nationwide Insurance to join an entity that soundly manages the risk of earthquake in California,” says a Nationwide spokeswoman. “Nationwide Insurance is doing its very best to make sure we can be here for our customers when they need us most, while being realistic about the unique challenges of homeowner insurance market.”
