AM Best Revises Issuer Credit Rating Outlook to Stable for California Earthquake Authority

OLDWICK, N.J., February 15, 2024—AM Best has revised the outlook to stable from negative for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of California Earthquake Authority (CEA) (Sacramento, CA). The outlook of the FSR is stable.

The Credit Ratings (ratings) reflect CEA’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

The Long-Term ICR outlook of stable reflects improvement in CEA’s balance sheet strength due to increased risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR). The increase in risk-adjusted capitalization was driven by improvement in CEA’s claims-paying capacity to a modeled 1-in-365- year return period as of Jan. 1, 2024, from a modeled 1-in-360-year return period as of Jan. 1, 2023, at the time of AM Best’s previous annual rating review. This improvement was attributable to stabilization of CEA’s risk transfer program, as well as tempering of exposure growth.

In response to increased exposure growth in recent years, CEA implemented a number of coverage option changes effective Aug. 1, 2023, for new customers and effective Nov. 1, 2023, for current customers, which are expected to reduce the CEA’s exposure growth rate going forward. These included a reduction in Coverage C (Personal Property) to a maximum of $25,000; the elimination of 5% and 10% deductible options for policies with greater than $1 million of Coverage A (Structure) and pre-1980 non-retrofitted homes; and the elimination of masonry veneer and breakables as optional endorsements.

Furthermore, the CEA’s Governing Board approved a Rate and Form Filing of 6.9% on Dec. 7, 2023, which was accepted by the California Department of Insurance for review on Dec. 22, 2023. Pending approval, the target implementation date for this Rate and Form Filing is Jan. 1, 2025.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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