Calif. Quake Authority Reinsurance Rate Improves

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 $1.5 billion of reinsurance coverage and will benefit from a blended rate-on-line of 5.84 percent, more than fifty percent lower than 1997 when CEA commenced operating. [@@]

The Sacramento, Calif.-based CEA's rate-on-line at startup was 12.5 percent. CEA said its board has revised its 2005 financial structure and that reinsurers are commited to collateralize the first $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 is unique and provides more security at a lower cost to CEA policyholders."

Tim Richison, CEA chief financial officer and director of insurance operations, said the arrangement is a "win-win for the CEA and for the reinsurance community. We will continue to work together to achieve fair pricing and terms on CEA's book of business."

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

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

Mr. Richison noted that other organizations had attempted to purchase collateralized reinsurance but those attempts had failed.

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