KBRA Affirms Rating for California Earthquake Authority's Series 2022A Revenue Bonds
12 Sep 2025 | 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 the California Earthquake Authority’s (CEA) strong financial profile, dominant market position, and robust claims-paying capacity (CPC). Debt service coverage remained very strong at approximately 6.0x at year-end 2024, with similar levels expected in 2025, supported by statutory requirements for actuarially sound pricing. CPC totaled $19.4 billion at June 30, 2025, comprising $6.3 billion of available capital, $7.8 billion of risk transfer, $2.6 billion of bond proceeds, and $2.7 billion of statutory post-event resources. This level equates to coverage of a 1-in-395-year modeled event and exceeds losses from major historical earthquakes. CEA maintains a leading 62% share of California’s residential earthquake market with insured values above $640 billion, and while policy counts declined to approximately 985,000 by mid-2025, premium levels are expected to stabilize with back-to-back rate increases approved for 2025 and 2026. Liquidity is supported by a $9.2 billion high-quality investment portfolio concentrated in U.S. Treasuries, while tax-exempt status, steady underwriting performance, and stable investment income have facilitated consistent growth in CEA’s net position.
Balancing these strengths, CEA remains concentrated in a single peril and geography, with modest take-up rates of ~12%. Loss outcomes remain subject to model uncertainty and limited seismic history, and the scalability of operational arrangements following a major event is unproven. Reliance on global risk-transfer markets continues to expose CEA to capacity and pricing cycles, though recent market softening has been favorable.
Rating Sensitivities
Sustained CPC growth relative to PMLs, a more favorable CPC composition with Available Capital and Revenue Bonds becoming the predominant source of claims funding , or favorable regulatory or legislative developments could result in positive rating action.
Conversely, material changes in risk management strategies, including reduced CPC relative to management’s minimum coverage threshold of a 1-350-year PML, a decline in reinsurance capacity or counterparty credit quality, significant deterioration of CPC following a major event or series of events without timely replenishment, adverse legislative or regulatory changes , a liquidity event resulting in delayed claim payments, or breach of financial bond covenants could result in negative rating action.
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