CEA’s risk transfer tower contracts to $7.85bn after Jan reinsurance renewal

The California Earthquake Authority’s (CEA) risk transfer tower decreased further in size through the January 1st, 2025, reinsurance renewals, as renewed traditional reinsurance contracts were placed at a lower volume than those that expired at the end of the year.

Last year, we reported that the CEA’s reinsurance and risk transfer tower had contracted by 6% to $7.993 billion as of November 1st, 2024, driven by a decision to non-renew contracts to limit the amount of capacity in excess of its minimum 1-in-350 year level as policy count and exposure continued to fall.

This followed a 7% contraction to $8.5 billion earlier in the year, while the tower extended to just over $9.15 billion after the June 2024 renewals, so has been steadily shrinking in size since.

The latest data from the CEA, as of January 31st, 2025, shows that the entity secured just over $2.15 billion of traditional reinsurance limit at 1.1 2025, which is less than the $2.48 billion in single and multi-year contracts scheduled to expire after December 31st, 2024, leading to further contraction of the risk transfer portion of the CEA’s claim-paying capacity.

Together with existing contracts that remain in-force, the traditional reinsurance component of the risk transfer tower amounts to just over $5.39 billion as of the end of January 2025.

The document also reveals $2.055 billion in risk transfer via the CEA’s transformer program of catastrophe bonds, but it’s important to note that the CEA has since sponsored a new $400 million Ursa Re Ltd. (Series 2025-1) cat bond transaction, taking this portion of the risk transfer tower to $2.455 billion.

So, as of January 31st, 2025, the CEA has total private market reinsurance and risk transfer coverage of around $7.85 billion, of which catastrophe bonds make up some 31%.

On March 31st, 2025, $1.2 billion of the CEA’s traditional reinsurance limit is scheduled to mature, so it will be interesting to see if the entity opts to further reduce the size of its risk transfer tower at the April 1st renewals.

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