Swiss Re completes $775m ILS transaction with the California Earthquake Authority


Swiss Re Capital Markets has structured and placed $775 million of insurance-linked securities (ILS) by Ursa Re II, to be used for the protection of the California Earthquake Authority (CEA).

Swiss Re Capital Markets underwrote the transaction through two classes of principal-at-risk variable rate notes issued by Ursa Re II, a Bermuda-based special purpose insurer. It was the largest catastrophe bond issuance of 2020 and the largest transformer structure in the history of the ILS market.

The deal saw CEA enter into two reinsurance agreements with Swiss Re, which, as a transformer, ultimately transferred the risk via two retrocession agreements to Ursa Re II, to give protection on an annual aggregate, indemnity basis, against residential home earthquake damage in California.

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

CEA, which now has over $2.5 billion in outstanding bonds, protects more than one million policyholders in California against earthquakes. This trade helps underpin its claims paying ability. Its policyholders include homeowners, mobile home owners, condo-unit owners and renters

Jonathan Isherwood, Swiss Re’s chief executive for reinsurance Americas and regional president, said: “Only around 13 percent 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.“

Jean-Louis Monnier, head of retro and ILS structuring at Swiss Re Capital Markets, added: "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.“

Swiss Re Capital Markets, Ursa Re II, California Earthquake Authority, Jonathan Isherwood, Jean-Louis Monnier

Bermuda Re