Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Mariah Re Ltd.’s Series 2010-1 severe thunderstorm catastrophe bond notes kept on watch


The impact of the record-breaking U.S. severe thunderstorm and tornado season on exposed catastrophe bond Mariah Re Ltd. Series 2010-1 is a little clearer after ratings agency Standard & Poor’s published an update on the amount of losses that have qualified under the terms of the aggregate cat bond. Losses have been mounting over the tornado season and S&P downgraded Mariah Re’s notes in June.

At the time of the downgrading in June, S&P said that they would assess whether Mariah Re required any further ratings actions depending on the occurrence and magnitude of losses from any further covered events which qualified as aggregate losses. Mariah Re was as a result left with a CreditWatch status of developing.

Now they have received reports of further covered losses through to the end of the month of July and can report the total aggregate losses up to that point. The total amount of covered losses under the terms of Mariah Re Ltd. including events up to and including PCS Catastrophe Event Series Number 57 is $697.46m.

S&P say that this is consistent with the expected run rate of losses when they initially rated the notes when the deal launched. The initial attachment point for Mariah Re is at $825m of losses from qualifying severe thunderstorm and tornado events. This means that Mariah Re can incur a further $127.54m of covered losses before there is any reduction in principal and a loss to investors.

S&P say that they are still awaiting a loss total for PCS Catastrophe Event Series Number 58 and for updates to some of the previously reported events. They expect to have this data by the end of September and will update on the status of aggregate losses for Mariah Re Ltd. at that time. As a result they will keep Mariah Re’s rating on a CreditWatch developing status until at least that date.

Such is the nature of annual aggregate catastrophe bond transactions that loss development can be slow, over a period of many months which can leave investors feeling nervous as to the eventual outcome. The U.S. tornado season is at its most severe until July, so it is less likely that any major tornado events will happen through the next few months, however event number 58 has the potential to contribute some losses and some uncertainty remains over events to be updated with new loss estimates. As a result investors in the Mariah Re cat bond are unlikely to feel much comfort until those events are fully accounted for.

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