CEA APPROVES RATE APPLICATION AND REINSURANCE PROGRAM

July 23, 2007

The California Earthquake Authority (CEA) announced successful placement and approval of its reinsurance program for 2008 and submission of an application for a 3.5 percent base program rate increase.

At its June Governing Board meeting, the CEA, unanimously approved reinsurance contracts with 43 reinsurers for the CEA’s program that will provide $2.268 billion in reinsurance coverage for 2008. This reinsurance is part of the claim-paying capacity recommended to allow the CEA to pay, at a minimum, all claims from a one-in-600-year earthquake or series of earthquakes, and a financial structure that continues to provide a 99.833 percentage probability of paying all claims that might arise from any earthquake, or series of earthquakes, that might occur through November 2008, the Authority said. Because the ability to assess participating insurers for the first assessment layer is disappearing in December 2008, the CEA decided not to pursue multi-year reinsurance contracts.

The Governing Board also approved submission of an application to the California Insurance Commissioner for an overall 3.5 percent rate increase to the base program. If approved, new rates will take effect Jan. 1, 2008.

The change replaces a previous approved “dwelling” rate change scheduled to become effective July 1, 2008, as part of a three-year rate plan implemented July 1, 2006.