Calif. Quake Authority Reinsurance Rate Improves

NU Online News Service, May 3, 11:29 a.m.EDT?The California Earthquake Authority said it had negotiated $1.5billion of reinsurance coverage and will benefit from a blendedrate-on-line of 5.84 percent, more than fifty percent lower than1997 when CEA commenced operating. [@@]

The Sacramento, Calif.-based CEA's rate-on-line at startup was12.5 percent. CEA said its board has revised its 2005 financialstructure and that reinsurers are commited to collateralize thefirst $300 million of the CEA's 2005 reinsurance program.

CEA Chief Executive Officer Elaine Bush said, "The reinsurers'agreement to collateralize a portion of the reinsurance program isunique and provides more security at a lower cost to CEApolicyholders."

Tim Richison, CEA chief financial officer and director ofinsurance operations, said the arrangement is a "win-win for theCEA and for the reinsurance community. We will continue to worktogether to achieve fair pricing and terms on CEA's book ofbusiness."

The agreement calls for the reinsurer to set up a trust accountwith a U.S. bank acting as trustee. Before January 1, 2005 thereinsurer will deposit in the account U.S. treasury securities witha remaining maturity of no more than 3 years and with a marketvalue of at least 105 percent of the reinsurer's share of thecollateralized reinsurance contract limit.

"By in effect putting cash in the bank, the reinsurancecommunity will provide added security for CEA policyholders," Mr.Richison said. "This action is a strong signal from reinsurers thatthey are strongly committed to meeting their obligations followinga catastrophic event."

Mr. Richison noted that other organizations had attempted topurchase collateralized reinsurance but those attempts hadfailed.

More data on the agreement is available online at http://www.earthquakeauthority.com/4-29-2004-GB-Attachments/GB4-29-2004AI-9.pdf