The California Earthquake Authority (CEA) has completed what it called a “first-of-its-kind transaction,” taking reinsurance out of the equation and opening “a more direct path” to transfer financial risks posed by earthquakes, the authority said.
Embarcadero Re, a Bermuda-based special purpose reinsurance vehicle, will provide Sacramento-based CEA with collateralized reinsurance protection against earthquake risk.
In a deal led by Deutsche Bank Securities, Embarcadero sold $150 million in three-year catastrophe bonds to investors at a floating rate of 6.6 percentage points above one-year U.S. Treasury money-market funds, and investor demand for the catastrophe bonds significantly exceeded the $150 million issuance, the authority said.
The $150 million in deal proceeds was placed in a collateral trust account, from which the CEA can draw to fund its actual insured losses and loss-related expenses covered by the reinsurance contract.
The three-year deal allows CEA to obtain reinsurance from the capital markets rather than solely from reinsurers.
According to CEA,
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