The California Earthquake Authority (CEA) will focus in expanding its “transformer” reinsurance and catastrophe bond program by focusing on multi-year agreements, according to documents from last week’s board meeting.
Separately, the CEA revised its ratings tables for acceptable providers.
Focusing on reinsurance and catastrophe coverage over several renewal seasons — as well as hitting the minimum claim-paying capacity of a 1-in-450-year — will be the walking orders of CEA staff as they shop for reinsurance coverage in the new year.
“In 2014, the CEA continued to diversify its risk-transfer program by executing several multi-year reinsurance contracts, which together provide the CEA with uninterrupted long-term financing at lower prices,” according to a staff memo from the December 17, 2014 board meeting. “Multi-year contracts reduce the risk of a single year’s market conditions’ preventing the CEA from obtaining risk-transfer capacity at suitable pricing, on favorable terms.”
In 2014, the California’s earthquake insurance backstop entered into 13 new risk-transfer contracts, five of which were multi-year. “CEA’s risk-transfer program has provided staff the ability to increase the risk-transfer limit while reducing risk-transfer expense,” the note added.
In another move that will likely impact CEA’s reinsurers, the board approved a change to the fund’s rating tables that are used “calibrate” a reinsurer’s participation level to its ratings and policyholder surplus.
“The Guidelines’ ratings tables should be revised to more accurately reflect rating-systems comparisons among Moody’s, A.M. Best, and Standard & Poor’s,” the staff memo states. “This change will have a positive effect on CEA reinsurers.”