The California Earthquake Authority (CEA) has made strides in enhancing its disaster insurance framework through adjustments to its risk transfer and reinsurance program.
The program includes the introduction of new catastrophe bond supplies and careful rebalancing of asset allocations. These measures have been designed to mitigate traditional fourth quarter pricing volatility, leading to a more stable pricing environment.
This approach, in turn, has boosted the CEA’s capacity to pay claims. As of November 1, 2023, the CEA reported $9.26 billion in reinsurance and risk transfer capabilities, including $2.4 billion in catastrophe bonds and $6.87 billion in traditional and collateralized reinsurance contracts.
The CEA entered the January 2024 renewal period facing its largest syndicated reinsurance placement of the year. Despite the $2.2 billion in reinsurance contracts due to expire, the authority navigated these renewals and expanded its limits.
The CEA’s initiative has been recognized by AM Best, which revised its long-term issuer credit rating to stable, reflecting the authority’s effective stabilization of its risk transfer program.
In its analysis, AM Best explained that in response to rising exposure growth in recent years, the CEA had introduced several changes to coverage options. These changes took effect on August 1, 2023, for new customers, and were effective from November 1, 2023, for existing customers. The adjustments are expected to slow the CEA’s rate of exposure growth moving forward.
Additionally, the governing board of the CEA approved a Rate and Form Filing of 6.9% on December 7, 2023, which the California Department of Insurance accepted for review on December 22, 2023. Subject to approval, the planned implementation date for this Rate and Form Filing is January 1, 2025.
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