California’s U.S. Rep. John Campbell (R-48), who today introduced H.R.3125 – companion legislation to S.637 introduced by U.S. Sen. Dianne Feinstein earlier this year. Both bills would strengthen the nation’s natural disaster recovery system by enacting the Earthquake Insurance Affordability Act (EIAA).
The California Earthquake Authority is a big supporter of the bills.
“I thank Rep. Campbell for coming together with Sen. Feinstein to tackle this vital challenge,” Glenn Pomeroy, CEO of the California Earthquake Authority, said in a statement. “EIAA will allow the nonprofit CEA to dramatically reduce its expenses—and the savings will directly benefit policyholders. More families in earthquake-prone regions need to be covered by earthquake insurance, but today the coverage is simply too expensive. With EIAA, more homes will be insured by coverage they can afford. And the bottom line is this: a family in an insured home won’t need to rely on the federal government to rebuild after the next big earthquake.”
In California, less than 10 percent of all homes are covered for earthquake damage, and across the nation more than 75 million people live in earthquake-prone regions, and earthquake insurance is limited in those other vulnerable areas as well, according to the CEA.
The CEA uses reinsurance to back up its insurance policies, but reinsurance is expensive. With EIAA the CEA will be able to replace some of its costly reinsurance with a limited amount of private-market debt backed by a federal guarantee, the CEA stated.
Last week CEA announced it 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.