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

Why does California have a CEA? 3 Losses in Millions 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 4 Property of the California Earthquake Authority (CEA)

5

Policyholder premium: $9.0B Participating Insurer Capital Contribution: $777 M Policyholder Premium tax: $210 M Property 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 Capital $4.7B Risk-Transfer $4.5B Revenue Bonds $662M 2 nd IAL $1.65B New IAL $312M Total: $11.8B As of 1/1/2015 CEA Claim-Paying Capacity 7 Property of the California Earthquake Authority (CEA)

Capital $4.7B Risk-Transfer $4.5B Revenue Bonds $662M 2 nd 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, risk transfer expense……….$210 Million 8 Property of the California Earthquake Authority (CEA)

CEA policy count has grown by 19% over the last 10 years As of 12/31/ Property of the California Earthquake Authority (CEA)

*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 reductions Reconstruction 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 % Rate Decrease 10 Property of the California Earthquake Authority (CEA)

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 11

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 12

13 Coverage Structure Deductible Personal Property Loss of Use Emergency Repair Mitigation Discount 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

15

California Residential Mitigation Program 16 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

17 Property of the California Earthquake Authority (CEA)

CEA Claims Paid History DateMLocation # of paid claims $$ paid 11/16/ Palm Springs 25 $ 149, /03/ Napa15 $ 303, /9/ West Hollywood 10 $ 73, /22/ San Simeon 84 $2,934, /29/ Chino Hills 8 $ 159, /04/ Baja Mexico 17 $ 88, /28/ La Habra82$ 373, /24/ Napa167 $ 1,154,

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. 19 Property of the California Earthquake Authority (CEA)

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. 20 Property of the California Earthquake Authority (CEA)

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… 21 Property of the California Earthquake Authority (CEA)

The CEA has a comprehensive CEA Claim Manual that our PIs are required to follow Property of the California Earthquake Authority (CEA)

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 independently created and peer reviewed Property of the California Earthquake Authority (CEA)

All CEA executives receive a cell phone earthquake notification 24 Property of the California Earthquake Authority (CEA)

25 Property of the California Earthquake Authority (CEA)

26 CISN.org As soon as you hear about an EQ, Click here to look at ShakeMaps. CISN.ORG USGS

27

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 5 MMI 6 28 Property of the California Earthquake Authority (CEA)

Napa Earthquake August 24, magnitude 29 Property of the California Earthquake Authority (CEA)

On August 24 th 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. 30 Property of the California Earthquake Authority (CEA)

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. 31 Property of the California Earthquake Authority (CEA)

Monday Relief agencies reached out to the public. CEA Participating Insurers set up command center and deployed adjusters. Sunday Governor declared State of Emergency. Red Cross relief center established. PG&E worked to restore power. City and residents began clean-up. 32 Property of the California Earthquake Authority (CEA)

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 33 Property of the California Earthquake Authority (CEA)

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 34 Property of the California Earthquake Authority (CEA)

Recent moderate earthquakes have tested our claims process and provided valuable learning opportunities. 35 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)