California Rep. Bill Would Lower Earthquake Insurance Costs

California’s U.S. Rep. John Campbell (R) recently introduced legislation similar to a bill introduced by U.S. Sen. Dianne Feinstein (D) earlier this year that would strengthen the nation’s natural disaster recovery system through the Earthquake Insurance Affordability Act (EIAA).

The California Earthquake Authority is a big supporter of the bills because it says the EIAA would make earthquake coverage more affordable.

According to Glenn Pomeroy, CEO of the California Earthquake Authority, the non-profit CEA would be able to dramatically reduce its expenses-with the savings directly benefiting policyholders — under the EIAA.

The CEA uses reinsurance to back up its insurance policies, but reinsurance is expensive. With EIAA, the CEA would be able to replace some of its costly reinsurance with a limited amount of private-market debt backed by a federal guarantee.

In California, less than 10 percent of all homes are covered for earthquake damage. Across the nation more than 75 million people live in earthquake-prone regions.

CEA recently 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 California authority said.