Swiss Re Capital Markets structures and places USD 775 million catastrophe bond for California Earthquake Authority

26 October 2020 —
Reinsurer Swiss Re announced Swiss Re Capital Markets structured and placed the issuance of USD 775 million of insurance-linked securities (ILS) by Ursa Re II Ltd, to be used for the protection of the California Earthquake Authority (CEA).

CEA protects more than one million policyholders in California against earthquakes and this transaction, the largest catastrophe bond issuance of 2020 and the largest transformer structure in the history of the ILS market, helps underpin its claims paying ability.

Policyholders of CEA include homeowners, mobilehome owners, condo-unit owners and renters, and this transaction demonstrates CEA's status as one of the most prolific users of the capital markets, now with over USD 2.5 billion in outstanding bonds.

"Swiss Re's mission as a company is to make the world more resilient. We're delighted to partner with CEA which has been helping to protect Californians from the financial consequences of earthquakes for almost 25 years," said Jonathan Isherwood, Swiss Re's CEO Reinsurance Americas and Regional President.

"Only around 13% of Californians who purchase residential insurance also have earthquake protection. It's not a matter of if, but when, the next one strikes. This transaction supports CEA's ability to extend financial protection to a greater number of California residents who are highly exposed to earthquakes."

CEA entered into two reinsurance agreements with Swiss Re, who, as a transformer, ultimately transferred the risk via two retrocession agreements to Ursa Re II Ltd to receive protection on an annual aggregate, indemnity basis, against residential home earthquake damage in California.

Swiss Re Capital Markets underwrote the transaction through two classes of principal-at-risk variable rate notes issued by Ursa Re II Ltd, a Bermuda exempted company licensed and registered as a special purpose insurer under the Bermuda Insurance Act 1978 and related regulations, each as amended.

Ursa Re II Ltd collateralised its liabilities under the retrocession agreements via the issuance of USD 425 million Class AA Notes and USD 350 million Class D Notes to investors. Both classes of notes have three loss occurrence periods starting 17 October 2020 and ending 30 November 2023.

"Swiss Re is pleased to provide continued support to CEA. Despite uncertainty around COVID-19, the transaction was well received by investors, ultimately allowing the issuance size to more than triple from the initial guidance," said Jean-Louis Monnier, Head of Retro & ILS Structuring at Swiss Re Capital Markets. "This was the largest catastrophe bond issuance in 2020 thus far and its success clearly displays the health of the ILS market and investors' commitment to providing efficient collateralized capacity where most required."