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8 December 2022Insurance

Top US reinsurance buyer can’t fully place $3.5bn 1.1 programme

The single largest reinsurance buyer in the US won't likely be able to replace the full $3.5 billion programme maturing at 1.1 and could come up short in its April renewal of $1.4 billion as well.

The California Earthquake Authority (CEA) will fall short of its newly adopted target for minimum claim-paying capacity of a 1-in-350-year level after having ended October this year with a 1-in-385-year level.

CEA’s 1.1 2023 renewal placement “seems likely to face challenges to replace the expiring limit given current market conditions” even though rate on line will be “significantly higher” than in the expiring programme, CAE reinsurance buyers said in a report to their management.

“Unless market conditions turn quickly, which seems unlikely to happen, the next largest syndicated CEA programme, the April 1, 2023 renewal of $1.4 billion of expiring capacity, is likely to have similar results,” authors wrote.

Some reinsurers may offer capacity at unpalatable prices forcing “very large” premium rate hikes on policyholders; others “may not have sufficient capacity to provide to the CEA regardless of price.”

Precise estimates of the eventual shortfalls “cannot currently be known.”

That could make it three shortfalls in a row on major deadlines. The CEA was already unable to secure enough a full renewal of expiring coverages at an October 1 deadline, despite a jump in price.

“Certain private reinsurance layers coming up for expiration cannot be renewed at all, or will be renewed only at lower capacity and increased rates on line,” report authors added.

The CEA, which admits it “depends heavily” on reinsurance, considers itself the largest buyer of natural catastrophe reinsurance in the United States and the second-largest in the world.

The reinsurance market in the 2020's has been "less advantageous" than previously and "this trend has not only continued by has been significantly amplified in 2022." Inflation, a higher interest rate environment and a tragic natural catastrophe record globally have hurt, the CEA said.

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19 January 2023   The nat cat insurer remains on negative outlook as reinsurance gap could further dent strength.
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17 January 2023   Claims paying capacity fell ca. $900m since end-Nov, including cut in outstanding cat bonds.

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