Earthquake fund faces $1.4b April renewal after 23% shortfall at 1.1

America's largest reinsurance buyer, the California Earthquake Authority (CEA), is facing a $1.39 billion renewal target April 1 just to hold its status quo, having fallen some 22.5% below target already at the January renewals, data from the agency indicated.

The reinsurance limit on January-renewing treaties in force fell 22.5% year on year after the January 2023 foray, data from the agency showed. The CEA signed for a limit at $2.68 billion at the latest 1.1, versus $3.48 billion maturing at end-2022.

The CEA did a solid portion of its January 2023 renewal in multi-year contracts, making up for having written almost exclusively single-year deals the year prior. Even amid the overall reduction in limit, the percentage of January treaty limits written into multi-year contracts rose 3 percentage points to 32.7%.

The total risk transfer programme is now at $8.09 billion, including $6.22 billion in traditional reinsurance treaty. The total programme had just capped the $9 billion mark in November, the agency had previously indicated.

The reduction from end-November to early January had also included a net reduction in outstanding cat bond issuance. In mid-December the group's Bermuda based reinsurance unit Ursa Re announced $305 million in two tranches of cat bonds dated December 2025. That attempted to replace 2019 issuance that matured December 10, 2022, but fell shy of the $400 million maturing sum.

For the April renewals, the CEA faces $1.39 billion in treaties expiring end-March, the data showed. The overwhelming majority of those treaties are single-year deals.

CEA has a smattering of deals for $240 million in June-July deadlines, $823 million for August 1 and some $350 million for October 1.

Total claims paying capacity at end-January is slightly ahead of projection, with $19.0 billion ahead of an $18.6 billion projection issued as of the board's mid-January sitting.

Company officials had been warning in late 2022 that they would struggle to replace the full sums coming due at 1.1 and the ensuing April 1 deadline after having missed the mark already at October.

Company officials have said they can respond with a mix of near-term revenue bond issuance, possible select rate hikes, member assessments and policy limits that might knock down PMLs.

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