The California Earthquake Authority (CEA) has once again returned to the catastrophe bond market, seeking $400 million or more in seismic-guaranteed reinsurance from the capital markets from a Ursa Re Ltd. (Series 2023-3) emission.
This is the fourth catastrophe bond issuance in 2023 by the California Earthquake Authority (CEA) and shows that the insurer of last resort continues to place the insurance-linked securities (ILS) market at the heart of its reinsurance program.
With some $775 million in CEA-sponsored catastrophe bonds set to mature at the end of November 2023, it’s good to see the insurer returning for more protection and with a deal that could rise if it finds pricing conducive to doing so.
Already this year, CEA has obtained $430 million in reinsurance through two Ursa Re catastrophe bond issuances and an additional $425 million through an agreement with Sutter Re. Including this new Ursa Re 2023 cat bond – 3, we now have 20 catastrophe bonds listed in our transaction directory that were directly sponsored by the California Earthquake Authority (CEA)..
The CEA uses its special purpose insurer (SPI) Ursa Re Ltd. in Bermuda for its latest catalytic bond deal, seeking $400 million or more in reinsurance through the issuance of two tranches of Series 2023-3 notes, according to our sources.
While sometimes the insurer uses a global reinsurance company to deal with the capital markets, with this Ursa Re 2023-2 ca bond, the CEA is in this case the direct ceding insurer.
The notes will provide CEA with targeted California earthquake reinsurance protection of $400 million or more, on an aggregate indemnity and annual basis, over a three-year term through the end of November 2026, according to We.
A $225 million tranche of Class AA notes will cover a share of losses in excess of $8.893 billion for CEA, giving them an initial pegging probability of 1.12%, an initial expected loss of 1.05% and this tranche is offered to investors with price indications in a range of 5% to 5.5%, we are told.
A $175 million tranche of Class D notes will cover a portion of losses exceeding $3.894 billion for CEA. This is therefore a riskier layer, having an initial entry probability of 2.83%, an initial expected loss of 2.68% and this tranche is offered to investors with price indications between 8% and 8.75%, it is said.
It is good to see CEA continuing to place the catastrophe bond market at the heart of its reinsurance deals and it will be interesting to see how this deal plays out, in terms of size and price, as it has a wide margin of growth if the CEA finds it interesting to do so.
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