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Fitch Ratings has affirmed the “A” rating on California Earthquake Authority’s outstanding fixed-rate revenue bonds, which mature on July 1, 2016, citing the organization’s ability to cover losses for at least a one-in-500-year earthquake.

Fitch has also affirmed CEA’s issuer default rating at “A.” The rating outlook is stable.

CEA had $9.5 billion in sources of funds to pay claims at June 30. Included was $3.9 billion in available capital, as well as the proceeds from the revenue bonds, reinsurance and post-earthquake industry assessments, Fitch stated.

CEA’s principal risk is a catastrophic earthquake large enough to exhaust its claims-paying resources and requiring it to access the capital markets or other sources in order to pay claims, according to Fitch.

The total claims-paying resources are estimated to cover losses for a one-in-529-year earthquake, or a probability of resource exhaustion of 0.19 percent.

Even in the case of catastrophic losses incurred by CEA, Fitch believes there are potential public policy or industry initiatives that would contribute to the organization’s ability to recapitalize following a large earthquake that exhausted its claims-paying resources. The CEA’s capital formation rate, of almost 15 percent compound annual growth rate over 10 years and ability to access capital markets to issue additional revenue bonds–or in the event of a large earthquake, to issue post-event bonds or bonds payable from surcharges on CEA policyholders–also contribute to its financial flexibility.

Topics California Catastrophe Natural Disasters