Glacier Re catastrophe bond saga continues as Nelson Re Ltd. extended again


The fate of the Nelson Re Ltd. catastrophe bond is still up in the air as arbitration seems as yet to be unresolved over whether the Class G tranche of cat bond notes issued by Nelson Re back in 2008 will face a loss or not, ultimately due to hurricane Ike losses. The Nelson Re notes have been extended a number of times now as the disagreement between sponsor Glacier Re and others including the administrator of the SPV over whether any payment is due under the terms of the notes and the underlying reinsurance contracts continues.

The dispute went to arbitration back in January as no resolution could be found and further validation of the underlying policies was required to uncover whether a loss payment was actually due or not. Then at the end of February the deal was extended until the 6th of June so that the arbitration had time to play out.

Now Glacier Re have elected to extend the reinsurance agreement and the Class G notes for another three months until the 6th September 2012, according to this filing with the Cayman Islands Stock Exchange.

Nelson Re is a prime example of why catastrophe bond deal terms and documentation needs to be absolutely bullet-proof with all eventualities considered and documented so that disputes such as these are not possible. Had the deal terms or cat bond offering document specified exactly which policies were included in the portfolio of risk that was transferred then it seems that this dispute would have been unsupported by the courts.

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