Mariah Re Ltd. (Series 2010-1)

This Cayman Islands based SPV issued $100m of catastrophe bond notes for cedent American Family Mutual Insurance Co. and its affiliates. Mariah Re is the first catastrophe bond transaction to solely cover severe thunderstorm risks (with the real peril covered being tornadoes that result from thunderstorms).

Mariah Re Ltd. is a three year deal providing American Family Mutual Insurance Co. and its affiliates with industry loss indexed protection from severe thunderstorms across the U.S. Covered events are any severe thunderstorm with an event index equal to or greater than $10m.

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.

Update: Mariah Re Ltd. Series 2010-1 was triggered by the record breaking tornado season in the U.S. during 2011. The total covered loss estimate rose to $836.6m at the 31st October 2011, meaning that investors in this Mariah Re deal were facing at least an $11.6m loss of principal. Loss estimates are still likely to rise further meaning further principal losses were likely.

The Mariah Re Ltd. Series 2010-2 transaction which provided a lower layer of cover was a total loss.

Update 2: On the 28th November 2011 it was reported that payout factors for one of the covered loss events, Catastrophe Series 42, were changed as it was discovered that it impacted the Kansas metropolitan areas (so changed the payout factor to metro from non-metro).

This resulted in a jump of around $118m in the loss from this particular covered event, bringing total covered losses under the terms of Mariah Re Series 2010-1 to $954.6m.

So as the attachment point was $825m and the exhaustion point was $925m for this cat bond, this means that covered losses now exceed the exhaustion point by $29.6m and so the investors in this deal have lost 100% of their principal.

Update July 2013: The Mariah Re Ltd. cat bond payout is being disputed and the case has gone to litigation. The law suit claims that the reporting on events, upgrading catastrophes from non-metro to metro classification, was unorthodox and so a legal claim has been filed. More details.