KBRA Affirms Rating for California Earthquake Authority's Series 2022A Revenue Bonds
10 Sep 2026 | New York
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.
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