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California Earthquake Authority's $925 million cat bond is one of largest ever

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The California Earthquake Authority has issued one of the largest catastrophe bonds ever as it secured $925 million in residential earthquake indemnity coverage through two rounds of notes issued through Ursa Re Ltd., a Bermuda special purpose vehicle.

The indemnity-triggered, annual aggregate basis bonds, $425 million Class B Notes and $500 million Class E Notes, cover a three-year period beginning May 17, 2017, and were underwritten by Swiss Re Capital Markets.

The deal ranks as one of the five largest ever in the catastrophe bond market, according to Judy Klugman, co-head of insurance-linked securities at Swiss Re Capital Markets. The largest ever transaction was the 2014 $1.5 billion Everglades Re Ltd. from Citizens Property Insurance Corp., (Florida Citizens), a bond providing coverage for Florida windstorms that was upsized more than once due to strong demand. In 2013, The Metropolitan Transportation Authority (MTA) of New York secured $200 million of cover against storm surges similar to those experienced during Superstorm Sandy through MetroCat Re Ltd.

"The transaction was well received by investors, as demonstrated by, among other factors, the final issuance size," Ms. Klugman said in a statement.

A recent report from Willis Towers Watson Securities said there was a total of $1.7 billion of property/casualty catastrophe bond capacity issued through five transactions during the first quarter of 2017, compared with the $2 billion in capacity issued through nine deals during the comparable period a year ago.

The insurance-linked securities market had $5.9 billion of issuance in 2016 according to Swiss Re, which also notes that the first half of 2017 will see the largest-ever amount of maturities for a half-year as some $6.4 billion in bonds mature.

“CEA is very pleased with the investor response to our Ursa 2017 transaction. We have always had good investor interest, and in this case, oversubscription of the original deal allowed us to expand the transaction size, which enabled us to achieve a lower overall cost to CEA — by spreading the fixed costs over a larger transaction amount — while meeting the investor demand,” Tim Richison, California Earthquake Authority chief financial officer, told Business Insurance via email. “This type of risk transfer, especially with the three-year term, fits very well within CEA’s overall risk-transfer program.”