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Over the last year the California Earthquake Authority (CEA) has benefited from strong execution in the catastrophe bond market to lower both its reinsurance attachment point and costs associated with risk transfer.
With now three catastrophe bonds sponsored so far in 2025, the California Earthquake Authority (CEA) has steadily increased the capital markets share of its overall reinsurance tower arrangements.
While price execution in the cat bond market, thanks to what are now dramatically reduced spreads over its cat bonds issued through the last year, have assisted. Notably, it is also cat bonds that have helped the earthquake insurer shave $400 million of the attachment point for its reinsurance protection.
When we last reported on the CEA’s reinsurance tower, the traditional and collateralized or fronted reinsurance limit component had declined to $5.22 billion as of July 31st 2025.
Now, the latest data available shows a further decline in this traditional reinsurance component, with it falling to just over $5.06 billion as of September 30th 2025.
At the same time, the catastrophe bond market component had reached $2.61 billion as of the same date, with this having increased thanks to a June cat bond issuance, the $400 million Ursa Re II Ltd. (Series 2025-1).
As we reported this week, the CEA has now secured a further $770 million in cat bond coverage from its latest Ursa Re II Ltd. (Series 2025-2) deal, which settles in the next week.
For the CEA, the capital markets and catastrophe bond investors have delivered significant value in risk transfer terms over the last year.
Roughly a year ago, the CEA had just over $5.72 billion of traditional reinsurance in-force and $2.27 billion of cat bond protection outstanding.
Since then, the traditional reinsurance component has shrunk, through to September 30th 2025, while the cat bond component has grown.
While risk transfer purchases overall have shrunk there is now discussion over whether some of the industry and member assessments that would furnish parts of the upper-layers of the CEA’s funding tower could be replaced, either with reinsurance or more catastrophe bonds.
Given how efficient cat bonds could be at those top-layers of the CEA’s tower, above where it has bought private market coverage previously, it will be interesting to watch how its arrangements evolve going forwards.
The overall risk transfer tower does stand slightly smaller still though, as the CEA manages its protection to meet its needs for limit, but given the three cat bonds sponsored in 2025 it suggests the insurer is finding conditions in the capital markets to have been more conducive for securing protection through 2025 so far.
Notably, the catastrophe bond market has helped the CEA lower its overall attachment point for reinsurance in the last year.
The June issuance, the $400 million Ursa Re II 2025-1 cat bond, has an attachment point at $1.7 billion of losses to the CEA.
In its latest board documents, the CEA noted that its reinsurance attachment level reduced from $2.1 billion to $1.7 billion in its last quarter of record, which has protected an additional $400 million of capital for the earthquake insurer.
At the same time, in 2025 the CEA reported a $70 million reduction in its risk transfer expenses as well, which is in part due to reduced limits being purchased, but also due to softer reinsurance market conditions.
The reduction in attachment points, as the CEA opted to buy coverage from the capital markets in cat bond form lower-down, did offset this somewhat, but it’s clear the insurer is finding great value in expanding its cat bond coverage right now.
This is particularly evident in the new catastrophe bond that priced this week, the $770 million Ursa Re II Ltd. (Series 2025-2) deal.
As we were first to report in our coverage on that pricing earlier this week, both tranches of notes offered have priced with spread multiples-at-market that are the lowest in the CEA’s history of sponsoring cat bonds.
Notably, there is an October 2023 issued tranche of one of the CEA’s cat bonds with a comparable initial expected loss to one of the tranches of this 2025-2 deal that priced this week and the spread multiple of the newly issued tranche is some 46% lower.
Spread multiples for the CEA’s cat bond issuances have been coming in over the last year and a half for the insurer, which has no doubt helped to drive some of the risk transfer savings. This latest cat bond, which is additional to the September 30th figures reported, will only continue that trend.
Looking ahead, for the CEA’s reinsurance tower, as we said the insurer has $505 million of its $2.61 billion of cat bonds scheduled to mature at the end of this month.
Which means, once this new $770 million issuance is settled and that maturity has occurred, the CEA will go into 2026 with $2.875 billion of catastrophe bond backed reinsurance limit available to it.
At the same time, on the traditional and collateralized or fronted reinsurance side, of the CEA’s just over $5.06 billion of cover at September 30th 2025, some $646.5 million was up for renewal as of October 1st this year, but we do not know at this stage how much protection the CEA bought from reinsurance market’s at that date.
For the CEA, the January 2026 reinsurance renewal will be a particularly big one for the insurer, as it has approaching $2.54 billion of its traditional reinsurance limit that expires on December 31st.
Meaning the CEA’s overall risk transfer, reinsurance and catastrophe bond tower could change significantly over the coming months and there is also a chance the earthquake insurer looks to the capital markets again.
Given the very strong price execution and the fact catastrophe bond investors have helped the CEA reduce its attachment points as well as delivering on the greatly reduced risk interest spreads required, there is every chance the CEA returns if it feels it can achieve a better outcome and multi-year collateralized cover by sponsoring additional cat bonds over the next couple of months.
When the new $770 million Ursa Re II deal settles on November 25th it will increase the CEA’s cat bond backed coverage to one of the highest levels it has ever stood at, of $3.38 billion, which will propel the CEA to the top of our cat bond leaderboard for a short time.
But then $505 million of cat bonds will mature at the end of this month bringing it back down to $2.875 billion of cat bonds in-force as of December 1st 2025, leaving the CEA back in fifth place again.
View details of every catastrophe bond sponsored by the CEA in the Artemis Deal Directory.
Cat bond market helps CEA reduce its reinsurance attachment point and costs was published by: www.Artemis.bm
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