California Earthquake Authority’s Risk Transfer Adjustments in 2025
The California Earthquake Authority (CEA) has undergone a further reduction in its risk transfer tower as of the January 1st, 2025 reinsurance renewals. This comes as the renewed traditional reinsurance contracts were finalized at a lower volume compared to those that expired at the end of the previous year.
Previously, it was reported that the CEA’s reinsurance and risk transfer tower had contracted by 6% to $7.993 billion by November 1st, 2024. This reduction was a strategic move to not renew contracts that exceeded the necessary 1-in-350 year level, primarily because policy count and exposure were on a declining trend.
Earlier in the year, a 7% contraction to $8.5 billion was observed, with the tower extending to slightly over $9.15 billion following the June 2024 renewals. Therefore, a consistent shrinking pattern has been noted.
As of the latest data from January 31st, 2025, the CEA managed to secure just over $2.15 billion of traditional reinsurance limit for 2025, which marks a decrease from the $2.48 billion in single and multi-year contracts scheduled to expire by the end of 2024. This has led to further contraction of the risk transfer portion of the CEA’s claim-paying capacity.
Including contracts still in force, the traditional reinsurance component now stands at a little over $5.39 billion as of the end of January 2025. Additionally, the document highlights $2.055 billion in risk transfer through the CEA’s transformer program of catastrophe bonds.
It’s noteworthy that the CEA has recently sponsored a new $400 million Ursa Re Ltd. (Series 2025-1) cat bond transaction, raising this portion of the risk transfer tower to $2.455 billion.
By January 31st, 2025, the CEA’s total private market reinsurance and risk transfer coverage amounted to approximately $7.85 billion, with catastrophe bonds constituting 31% of this total.
Looking ahead, on March 31st, 2025, $1.2 billion of the CEA’s traditional reinsurance limit is set to mature. Observers will be keen to see if the entity chooses to further decrease the size of its risk transfer tower during the April 1st renewals.
