Swiss Re Insurance-Linked Fund Management

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Mariah Re cat bond losses mount, 2010-1 tranche triggered, 2010-2 likely a total loss


Ratings agency Standard & Poor’s (S&P) has issued an update to the loss estimates from severe thunderstorms and tornadoes which impacted the Mariah Re catastrophe bond transactions. As and when loss estimates are updated by Property Claims Services (PCS) for each catastrophe event, S&P have been updating the market on the potential impact to Mariah Re investors from the growing losses.

The update from S&P only relates to the Mariah Re Ltd. Series 2010-1 $100m tranche of cat bond notes which they rated at the time of issuance however the same loss figures are used to trigger the $100m Series 2010-2 tranche which Mariah Re issued without seeking a rating and provide a lower tranche of cover.

S&P report that covered loss estimates have indeed grown, with two catastrophe series seeing increases in the PCS loss estimates. The two covered events loss estimates have grown by a combined $46.4m at the latest update from PCS. This brings the total covered loss figure up to $836.6m at the 31st October.

The last time we updated you on the Mariah Re 2010-1 cat bond an event notice had been served by the sponsor American Family Mutual Insurance as they believed the deal had been triggered by the developing losses. As a result S&P downgraded the tranche to ‘CC’ and said the notes would be downgraded further once the fate of the deal was fully understood and the calculation agent had returned their verdict on the deal. This calculation process is still ongoing, as it takes time for the calculation to be processed and reported and as the loss estimates are still developing. However, given that the attachment point for this tranche is $825m which has now been breached the latest estimates suggest this tranche has been triggered. With loss estimates set to grow further it looks likely investors could face more than the $11.6m loss that the current estimates suggest has happened.

On the Mariah Re 2010-2 transaction, when we last updated you it looked like investors would be facing around $65m in losses from this tranche. The attachment point for this tranche is $725m, so now that the loss estimate has grown to $836.6m it suggests that this tranche is fully exhausted with investors facing a total loss of the $100m principal.

S&P says that PCS could continue to update losses for some of the other covered catastrophe series tornado events which qualified under the terms of the Mariah Re cat bond deals. So while current losses to cat bond investors look likely to be at least $111.6m from the tornadoes in the U.S., that number seems destined to grow further as the increasing losses eat further into the 2010-1 tranche of notes.

We’ll update you as and when further information comes to light on the fate of the Mariah Re catastrophe bonds. We’re expecting to see a dip in the Swiss Re cat bond index when we report on it next Monday.

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