SACRAMENTO, Calif.—The California Earthquake Authority said it has sold the first earthquake-only catastrophe bond issued without using reinsurers, and it plans to return to the market every four to six months for as long as investors show interest.

The CEA, a publicly managed but privately funded organization that writes 70% of all residential earthquake policies sold in California, said it had entered into a reinsurance contract with Embarcadero Reinsurance Ltd. The Bermuda-based special-purpose reinsurance vehicle, which was established for such CEA arrangements, then sold $150 million in three-year catastrophe bonds to investors.

The money, which the CEA said “is the first earthquake-only catastrophe bond issued without involvement of traditional reinsurers,” has been placed in an account that the CEA can draw from for its actual losses covered by the reinsurance contract.

“This deal is a game-changer,” CEA CEO Glenn Pomeroy said in a statement. While traditional reinsurance remains valuable, “the CEA must diversify and expand its claim-paying resources.”

Cheaper than reinsurance

“This deal establishes a multiyear, repeatable method of risk transfer that’s less costly than traditional reinsurance,” Tim Richison, CEA’s chief financial officer, said in a statement.

Investor demand for the catastrophe bonds significantly exceeded the $150 million issuance, CEA said of the deal led by Deutsche Bank Securities.

The CEA also said it is working on rate and form changes that would allow it to decrease the statewide average earthquake premium by 12% while providing more coverage options.

The CEA was created by the California Legislature in 1996 after most insurers stopped writing earthquake coverage after the 1994 Northridge earthquake.

Reinsurance provides $3.1 billion of the CEA’s $9.4 billion claim-paying capability, it said in the statement.

About $2 billion in catastrophe bond capacity has left the market so far this year with only four second-quarter deals, but cat bond activity looks to pick up for the rest of 2011, a unit of Willis Group Holdings P.L.C. said in July. Last week, Munich Reinsurance Co. obtained $150 million in catastrophe bond protection from European windstorms, the first non-U.S. hurricane-exposed cat bond issued since October 2010.