Overview of the California Earthquake Authority’s Reinsurance Adjustments
The California Earthquake Authority (CEA) has further downsized its risk transfer tower as of the January 1st, 2025 reinsurance renewals. The renewal of its traditional reinsurance contracts resulted in a decrease, with less volume placed compared to those contracts expiring at the end of the previous year.
Previously, in November 2024, the CEA’s reinsurance and risk transfer tower had already diminished by 6% to $7.993 billion, prompted by a strategic decision to not renew certain contracts. This decision aimed to align the capacity with its minimum 1-in-350 year level, amid a decline in policy count and exposure.
Earlier in 2024, the tower had reduced by 7% to $8.5 billion, and after the June renewals, it was at just over $9.15 billion. This pattern of steady contraction has continued.
Current Risk Transfer and Reinsurance Capacities
As of January 31st, 2025, the CEA managed to secure just over $2.15 billion in traditional reinsurance limit at the 1.1 2025 renewals. This is in contrast to the $2.48 billion in contracts scheduled for expiration after December 31st, 2024, further reducing the risk transfer section of the CEA’s claim-paying capacity.
Including existing contracts that remain active, the traditional reinsurance component now totals just above $5.39 billion as of the end of January 2025. Additionally, the CEA’s transformer program of catastrophe bonds accounts for $2.055 billion in risk transfer.
Notably, the CEA has sponsored a new $400 million Ursa Re Ltd. (Series 2025-1) catastrophe bond transaction, elevating this portion of the risk transfer tower to $2.455 billion.
Future Expectations and Strategic Decisions
As of January 31st, 2025, the total private market reinsurance and risk transfer coverage is approximately $7.85 billion, with catastrophe bonds comprising about 31% of this figure. Looking ahead, with $1.2 billion of the CEA’s traditional reinsurance limit set to mature on March 31st, 2025, it remains to be seen whether the CEA will choose to further reduce its risk transfer tower during the April 1st renewals.
