Mariah Re Ltd. to be first catastrophe bond to cover just severe thunderstorm

by Artemis on October 25, 2010

A new catastrophe bond is being marketed under the Mariah Re Ltd. special purpose vehicle. This Cayman Islands based SPV has been set up to issue $100m of catastrophe bond notes for cedent American Family Mutual Insurance Co. and its affiliates.

Marking a new stage in the development of the catastrophe bond market Mariah Re is set to become the first catastrophe bond transaction to solely cover severe thunderstorm risks. There have been plenty of transactions which have included some thunderstorm risks as a portion of the deal but never before has a cat bond just focused on a peril such as thunderstorm. It’s hoped that this could herald a new phase in the cat bond markets growth when smaller single peril deals become easier to issue (think flooding, hail, wildfire, tornado etc). There is a lot of potential for insurance-linked securities in smaller issuance’s to provide risk transfer for these types of perils and also a lot of investor demand for this type of diversification.

Mariah Re Ltd. is a three year deal designed to provide American Family Mutual Insurance Co. and its affiliates with industry loss indexed protection from severe thunderstorms across the U.S. A covered event is any severe thunderstorm with an event index equal to or greater than $10m. The deal is expected to close on November 15th.

The initial attachment point for the first risk period is to be $825m with a maximum event index for a single event of $300m (meaning it could be triggered by as few as three major events). The attachment point will be recalculated at annual reset points. The insured industry loss amount is based on insured personal and auto property losses as reported by Property Claims Services.

Collateral for the transaction will be invested in highly rated U.S. Treasury money market funds. The deal can be extended for loss reporting purposes by up to 18 months for losses to fully develop.

Aon Benfield Securities is acting as sole bookrunner for this transaction while Deutsche Bank are looking after collateral arrangements. AIR Worldwide are calculation and reset agent.

Standard & Poor’s have assigned a preliminary rating of ‘B’ to the Series 2010-1 notes of Mariah Re Ltd.

It will be interesting to see how this deal is accepted by investors. While it is a great chance to diversify investment portfolios there may also be some nervousness due to the frequency of severe thunderstorms in the U.S. Looking at historical losses the chances of this deal being triggered are no higher than a windstorm focused cat bond but it may be considered risky by some.

As ever, this deal has been added to our catastrophe bond deal directory and the details there will be updates as more become available.

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