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Mariah Re Ltd. Series 2010-1 catastrophe bond downgraded on growing covered losses


Ratings agency Standard & Poor’s have published an update regarding the fate of the Mariah Re Ltd. Series 2010-1 severe thunderstorm catastrophe bond which provides American Family Mutual Insurance with a source of collateralized reinsurance cover. The cat bond has been at risk due to the extreme nature of the tornado season in the U.S. this year and qualifying covered losses have been mounting, putting more pressure on investors in the transaction.

Now the notes issued under Mariah Re Ltd. Series 2010-1 have been downgraded as S&P have received further updates from PCS as they update the loss estimates of each qualifying Catastrophe Series event. The last update on this transaction was on the 6th September, when S&P commented that they would update the loss amounts by the end of September and would assess and amend the rating as required.

Since the 6th September losses have been reported for one new covered event, Catastrophe Series 58, and loss amounts have been updated for Catastrophe Series 38, 45, 46, 53, and 55. The result is a qualifying accumulated covered loss total of $790.15m for Mariah Re 2010-1 to date.

The initial attachment level for Mariah Re Series 2010-1 is $825m, leaving just $34.85m of covered losses to be incurred before investors in this Mariah Re transaction are liable for some loss of principal.

There has been one other event, Catastrophe Series 60, which at $9.84m just failed to qualify as a covered loss as it didn’t meet the qualifying minimum of $10m. S&P says that Catastrophe Series 42, 45, 46, 48, 53, 54, 55, and 58 have all not been signed off as final estimates, which means that they could increase further at the next update. They expect to receive additional updates from PCS by the end of October for these events at which time S&P will update the covered loss amounts.

As a result of the worsening outlook for Mariah Re 2010-1, S&P have downgraded the notes to ‘CCC(sf)’ from ‘CCC+(sf)’ and have revised their CreditWatch status to negative from developing.

With just under $35m of room left in the amount of covered losses before Mariah Re Ltd. 2010-1 is triggered it seems likely that investors will see some level of loss associated with this catastrophe bond. However, given the extremely severe nature of the tornado season in the U.S. this year some would say that this is further evidence of the value of cat bonds as a source of reinsurance cover and that investors are likely to have fully understood and appreciated this risk.

Read our subsequent update on the Mariah Re Ltd. Series 2010-2 cat bond.

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