Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Details on the Mariah Re catastrophe bonds mark to market losses


As we wrote yesterday, the Mariah Re catastrophe bonds were the main losers in the secondary market during the month of September as mark to market losses increased due to the realisation that there would be a loss of investor principal for the Series 2010-2 notes and covered losses were still rising for the Series 2010-1 notes. Now we have a little more up to date information from Swiss based investment manager Plenum Investments who have seen the losses increase in the last week.

The tornado exposed Mariah Re cat bonds experienced  a significant mark to market loss in the last week according to Plenum. The more risky tranche of Series 2010-2 notes, which is already facing at least a $65m loss, is now valued at as little as 2 cents on the dollar. The less risky Series 2010-1 tranche of notes is not yet safe though as there are loss updates to come on a number of tornado events and Plenum says this tranche  is now valued at 20 cents on the dollar. Plenum says this downward movement in prices has amounted to almost a 70% decrease in the last week.

This is really no surprise as the news of the increasing losses was only announced a week ago on the 4th October. On Monday of this week we reported that the Swiss Re cat bond price return index had seen a dip due to some of these mark to market losses, we think it’s likely that the index could have dipped further when it prices again on Friday. These mark to market losses are evidence of the cat bond market behaving as expected.

Plenum expect the Mariah Re 2010-1 notes to recover their losses strongly if they survive without being triggered at the next covered loss update.

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