Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Appeal filed in Mariah Re catastrophe bond litigation


Mariah Re Ltd. has filed an appeal against the recent ruling which found that the terms governing the definition of and process for defining qualifying events under the catastrophe bond were unambiguous and that the payout should stand.

An appeal has now been filed, on the 30th October it appears, with the 2nd Circuit of the U.S. Court of Appeals, hoping to have the recent ruling in favour of the cat bond payout standing removed.

This litigation had originally been filed against American Family Mutual Insurance, the sponsor of the Mariah Re catastrophe bonds (Mariah Re Ltd. (Series 2010-1) and Mariah Re Ltd. (Series 2010-2)) and beneficiary of the reinsurance protection, as well as risk modeller AIR Worldwide and Insurance Services Office, Inc. (ISO).

The litigation revolved around the classification of severe thunderstorm events under the terms of the cat bond. Two qualifying catastrophe events in particular had their classification changed, from non-metro to metro events, denoting that they affected the most built-up parts of a city. This caused the amount of qualifying losses to jump significantly taking the aggregate losses towards the exhaustion levels for the cat bond and increasing the loss.

Mariah Re Ltd., effectively the special purpose reinsurance vehicle the cat bond was issued by, filed a case claiming that the non-metro to metro change (for the 2010-1 series of notes we believe) was not part of the calculation process they were aware of for the Mariah cat bonds and that as a result the increased payout should not have been made.

The judge ruled that the case had no standing, saying that Mariah Re had tried to convert its loss into a game around the contract wording. The judge said the documentation was unambiguous and that after investigation he found no basis for the relief sought by Mariah Re’s liquidator and the claim, which wanted to claw back the $100m of losses.

So now an appeal has been filed, as we suggested was possible, once again bringing the Mariah Re cat bonds to our attention again. It seems doubtful that an appeal would be successful unless new evidence could be presented. With a court having ruled against the claims before it seems likely that they will do so again, unless something new can be found to back Mariah Re and its liquidators case.

U.S. reinsurance litigation will often go to appeal after a first ruling has been made, no matter who it is in favour of. In this case it seems unlikely that the appeal will change anything, unless there are additional facts which have yet to come to light and be brought before the court. We will update you as and when anything further emerges on the Mariah Re catastrophe bond case.

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