Press Release|Insurance

KBRA Affirms Rating for California Earthquake Authority's Series 2022A Revenue Bonds

10 Sep 2026   |   New York

Contacts

KBRA affirms the A+ long-term credit rating for the California Earthquake Authority's (CEA) Series 2022A Revenue Bonds. The Outlook is Stable.

Key Credit Considerations

The rating reflects CEA’s robust claims-paying capacity (CPC), strong debt service coverage, conservative investment portfolio and liquidity profile, consistent capital accumulation, and leading market position in California residential earthquake insurance. CPC totaled approximately $19.9 billion at June 30, 2026, up about $0.5 billion year over year despite the statutory reduction in the Second Industry Assessment Layer (IAL), equivalent to a 1-in-390-year modeled event and within the Governing Board’s 1-in-350 to 1-in-500 target range. Following the scheduled July 1, 2026 principal maturity of $110 million, only $120 million of Series 2022A revenue bonds remains outstanding, while pledged policyholder premiums provided approximately 6.4x coverage of 2025 debt service. CEA also benefits from a high quality, short duration investment portfolio, tax-exempt status that supports capital retention, and specialized expertise in earthquake modeling, risk transfer, and claims preparedness. CEA remains the leading residential earthquake insurer in California, with approximately 61% market share at year-end 2025.

Balancing these strengths are CEA’s significant geographic, product, and peril concentration, modest statewide earthquake insurance take-up, and reliance on Participating Insurers for distribution. The credit profile also remains exposed to continued policy count pressure as Participating Insurers have reduced new homeowners writings, material catastrophe model uncertainty, and reliance on global reinsurance and capital markets for a significant portion of CPC. While risk transfer market conditions improved in 2026, CEA remains exposed to changes in capacity and pricing. In addition, CEA’s claims, vendor, and operating arrangements remain untested at major event scale. A significant event could materially reduce CPC available for subsequent events, and the current statutory framework does not provide a clearly defined mechanism to recapitalize CEA and support continued operations following a capital impairing event.

Rating Sensitivities

Sustained improvement in CPC relative to modeled probable maximum losses (PMLs) over the long term, a more favorable CPC composition with greater permanent Available Capital and less reliance on external risk transfer, or favorable legislative or regulatory changes that strengthen CEA’s post-event capital framework could result in positive rating action.

Conversely, CPC sustained below the Governing Board’s 1-in-350-year minimum, reduced reinsurance or capital markets capacity or deterioration in counterparty credit quality, material deterioration in CPC following a major event without timely replenishment, adverse statutory or regulatory changes that weaken CEA’s operating framework, a liquidity event that delays claim payments, or a breach of bond covenants could result in negative rating action.

To access ratings and relevant documents, click here.

Click here to view the report.

Methodology

Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

Doc ID: 1016897