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• PCS Turkey Symposium• Istanbul 27 May 2015• Dan Dyce CPCU RPA

Why does California have a CEA?

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$0

$1,000

$2,000

$3,000

$4,000

0

1000

2000

3000

4000

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Lo

ss

es

in

Mil

lio

ns

Losses

Premium

Years

1984 Mandatory

Offer

Aftermath: • Most companies wished to cease

writing EQ insurance

• Since mandate required companies to offer EQ insurance most companies ceased writing new homeowners policies

1996: CEA created to fix broken homeowners insurance market

After Northridge, California had aBroken Homeowners Insurance

Market

4Property of the California Earthquake Authority (CEA)

Privately Financed

5Property of the California Earthquake Authority (CEA)

Historical Sources of CEA Funding

Policyholder premium: $9.0B

Participating Insurer Capital Contribution: $777 M

Policyholder Premium tax: $210 M

1996-20146Property of the California Earthquake Authority (CEA)

865,000 Policyholders

$11.8B in claim paying capacity

Strong financial ratings

Able to pay all covered claims if Northridge x2 occurred today

However: 90% of California homes are uninsured for earthquake damage

Financial Strength

Capital $4.7B

Risk-Transfer $4.5B

Revenue Bonds $662M

2nd IAL $1.65B

New IAL $312M

Total: $11.8B

As of 1/1/2015

CEA Claim-Paying Capacity

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A Costly Reliance on Reinsurance

Capital $4.7B

Risk-Transfer $4.5B

Revenue Bonds $662M

2nd IAL $1.65B

New IAL $312M

Total: $11.8B

As of 1/1/2015

CEA Claim-Paying Capacity

1996 – 2014: 40% of CEA-Policyholder Premium has been spent on reinsurance

Earthquake insurance premium: Paid by CEA policyholders to CEA…....... $9.0 Billion

Reinsurance premium: Paid by CEA to reinsurers……….…....…... $3.7 Billion

Reinsurance claims:Paid by reinsurers to CEA……........…………$250,000

2015 risk transfer expense……….$210 Million

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CEA Policy Count: 1998-2014

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014600,000

650,000

700,000

750,000

800,000

850,000

900,000

950,000

1,000,000

912,173

881,719

829,951819,502

768,808

724,722 727,675

751,767

754,672

775,464

779,362

800,930811,317

820,932

841,503

841,836

865,084

CEA policy count has grown by 19% over the last 10 years

As of 12/31/2014

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

200

400

600

800

1000

1200

1400

1600

Holding Premiums Down

*Rates based statewide weighted average Homeowners Average Coverage A Value

No rate reductions/Reconstruction costs up 137%Rate reductions/Reconstruction costs up 137%

$1402

$743

$576

11% Rate Decrease

No rate reductionsReconstruction cost increase

Rate reductions have held the line on premium

increases

Average CEA Premium

Rate reductions Reconstruction cost increase

12.5% Rate

Decrease

Reconstruction costs have risen 137% since 1996

23% Rate Decrease

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Participating Insurers Role

• Before an earthquake– Underwrite policy– Issue policy– Collect premiums and remit to CEA

• After an earthquake– Policyholder reports claim to carrier– Adjust claims - quick, consistent & fair– Disburse claims payments– CEA reimburses them 100% + handling fee

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No Underwriting

• If a Participating Insurer will take the risk, the CEA will take the risk.

• Only underwriting criteria is:– No unrepaired previous structural earthquake

damage– CEA writes 1 to 4 unit residential structures

Available Coverage

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Coverage

Structure

Deductible

Personal Property

Loss of Use

Emergency Repair

Mitigation Discount

1-1-2016

Full amount

5,10,15,20,25%

Up to $200,000

Up to $100,000

No deductible on first $1,500

Up to 20%

USA Federal Aid is Limited

After a presidential catastrophe declaration…• FEMA– Up to $30,000

• SBA– Low interest loans

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California Residential Mitigation Programwww.californiaresidentialmitigationprogram.com

• CRMP is a JPA created by the CEA and the Governor’s office of emergency services

• Grants up $3,000 to seismically retrofit a home

CEA Claims Process

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CEA Claims Paid History

• Date M Location # of paid claims $$ paid• 11/16/1999 7.0 Palm Springs 25 $ 149,724.28• 09/03/2000 5.2 Napa 15 $ 303,161.78• 09/9/2001 4.2 West Hollywood 10 $ 73,078.09• 12/22/2003 6.4 San Simeon 84 $2,934,967.76• 07/29/2008 5.4 Chino Hills 8 $ 159,056.27• 04/04/2010 7.2 Baja Mexico 17 $ 88,362.58• 03/28/2014 5.1 La Habra 82 $ 373,014.11• 08/24/2014 6.0 Napa 167 $ 1,154,894.86

CEA/PI Claims Liaison

Claims Liaison• Each PI has appointed one experienced Property

Claim Manager as their CEA Claims Liaison. Each Claim Liaison has a back up.

• Primary contact point for all CEA claim processing interaction between the CEA and the PI.

• Allows the CEA to hold a person with authority at each PI quickly accountable for claims handling.

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Annual CEA Claim Liaison Training

• CEA Claim Liaisons must attend the annual full-day CEA claims manager conference where duties and claim handling expectations are communicated and reinforced.

• PI claim management teams attend as well.

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Participating Insurer Agreement

SECTION 6.3 The Participating Insurer shall handle all Authority Services with a level of diligence substantially equivalent to that which it applies to its own services as a voluntary insurer…

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CEA Claim Manual

The CEA has a comprehensive CEA Claim Manual that our PIs are required to follow.

www.earthquakeauthority.com.

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CUREE Inspection Guidelines

The CEA requires PIs to be familiar with and use the CUREE General Guidelines for the Assessment and Repair of Earthquake Damage in Residential Woodframe Buildings.

– Occupant questionnaire– General inspection checklist– Attic inspection checklist– Crawlspace inspection checklist

• Funded by CEA but independentlycreated and peer reviewed.

www.curee.org

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CEA Earthquake Response

All CEA executives receive a cell phone earthquake notification

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First Step is the USGS Website

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CISN.org

As soon as you hear about an EQ, Click here to look at ShakeMaps.

CISN.ORG

USGS

www.cisn.org

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Early Estimate of Impact

The CEA runs an extract of all the affected policyholders so we can get an immediate sense of impact and start our

media and claims management response.

CEA EARLE System – 24 / 7 Internet access

MMI 5MMI 6

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Napa EarthquakeAugust 24, 2014

6.0 magnitude

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Napa Earthquake: August 24, 2014

On August 24th at 3:20 a.m. a magnitude 6.0 earthquake struck the community of American Canyon/Napa Valley.

Though later called a “moderate” earthquake, it was the largest earthquake in Northern California in 25 years.

The CEA mobilized immediately.

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Napa Earthquake: CEA Responds

OPERATIONS immediately posted an event code and began determining impact to CEA policy holders.

COMMUNICATIONS issued a press release Sunday morning and launched a media strategy.

FINANCE began assessing potential losses and total exposure.

IT/LEGAL/ACTUARIAL/RESEARCH supported all activities.

CEO and CMO arrived Napa at 10:00 a.m. on Sunday morning to survey the damage and respond to “on-the-scene” media requests.

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Monday

Relief agencies reached out to the public.

CEA Participating Insurers set up command center and deployed adjusters.

Napa Earthquake: The Recovery Begins

Sunday

Governor declared State of Emergency.

Red Cross relief center established.

PG&E worked to restore power.

City and residents began clean-up.

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Napa Earthquake: Most Residential Damage Uninsured

• Take-up rate in Napa region very low:

• Statewide average: 11%• Napa: 6%

• 504 CEA claims reported:• 96% closed to-date• $2.1 million paid

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Napa Earthquake: One Key Takeaway

Perception of “high deductible” is a big barrier

Existing CEA Choice Product would have provided valuable protection to many house in impacted area

Consumers need more information about available coverage choices

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Not If - But When

Recent moderate earthquakes have tested our claims process and provided valuable learning opportunities.

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The CEA and it’s Participating Insurers are working together to be ready for when the next damaging earthquake strikes California.

Property of the California Earthquake Authority (CEA)