CEA unveils largest cat bond of 2020 in landmark Swiss Re deal

The California Earthquake Authority (CEA) has returned to the catastrophe bond market with the largest issuance of 2020 - a $775 million insurance-linked securities (ILS) deal structured and placed by Swiss Re Capital Markets.

The cat bond is issued by special purpose insurer Ursa Re II, to be used for protecting over one million policyholders in California against earthquakes.

Currently only 13 percent of Californians are protected by earthquake insurance, according to the reinsurer. The transaction will help to boost California’s resilience and preparedness for the next large earthquake event.

The transaction marks the largest catastrophe bond issuance of 2020 and the largest transformer structure in the history of the ILS market.

CEA entered into two reinsurance agreements with Swiss Re, which transferred the risk via two retrocession agreements to Ursa Re II to receive protection on an annual aggregate, indemnity basis, against residential home earthquake damage in California.

Swiss Re Capital Markets underwrote the transaction through two classes of principal-at-risk variable rate notes issued by Ursa Re II. Both classes of notes have three loss occurrence periods starting October 17, 2020 and ending November 30, 2023.

“Swiss Re’s mission as a company is to make the world more resilient. We're delighted to partner with CEA which has been helping to protect Californians from the financial consequences of earthquakes for almost 25 years," said Jonathan Isherwood, Swiss Re’s CEO reinsurance Americas and regional president.

“Only around 13% of Californians who purchase residential insurance also have earthquake protection," he added. "This transaction supports CEA’s ability to extend financial protection to a greater number of California residents who are highly exposed to earthquakes."

Jean-Louis Monnier, head of retro & ILS structuring at Swiss Re Capital Markets, said: “Swiss Re is pleased to provide continued support to CEA. Despite uncertainty around COVID-19, the transaction was well received by investors, ultimately allowing the issuance size to more than triple from the initial guidance."

"This was the largest catastrophe bond issuance in 2020 thus far and its success clearly displays the health of the ILS market and investors’ commitment to providing efficient collateralized capacity where most required."

Swiss Re Capital Markets acted as the sole structuring agent and sole bookrunner.