Fitch Classifies New Revenue Bonds A- to California Seismic Authority

Fitch has given a credit rating of “A-” for a $500 million revenue bond issue by the California Seismic Authority.

According to the rating agency, CEA ratings reflect a risk transfer strategy that will set minimum and maximum aggregate claims payout levels to one in 350 years and periods of one loss return in 500 years.

“Proceeds from the new revenue bond issuance will increase the revenue bond layer of CEA’s total claims payment capacity by approximately $500 million,” Fitch said in a statement. “CEA had approximately $19.2 billion in sources of funds to repay claims as of June 30, 2022. This included approximately $5.7 billion in available capital, revenue bond proceeds, reinsurance and other risk transfer, and potential post-earthquake assessments for insurers Participation and Additional Fee Layer for CEA Policyholder”.

A catastrophic earthquake large enough to exhaust claims payment resources and require CEA access to capital markets or other sources to pay claims is the main risk.

The rating agency’s risk assessment of CEA claims payment resources is appropriate.

Fitch also said the authority’s financial resilience is “much stronger than similarly rated private insurance companies” that cover catastrophe risk, raising the final rating a whole class above the claims-paying resource risk assessment to “A-“.

California disaster topics natural disasters earthquake profit loss

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