Mariah Re Ltd. Series 2010-2 investor principal losses likely increased

We wrote earlier today about the increase in covered losses faced by the Mariah Re 2010-1 series of catastrophe bond notes after Standard & Poor’s updated the covered loss totals and downgraded the bond. Readers who’ve been keeping track of the fate of Mariah Re will be aware that there is a second transaction with the same name which is already facing losses after the severe U.S. tornado season this year.

The second issuance under the Mariah Re shelf program, Mariah Re Ltd. Series 2010-2, was issued by sponsor American Family Mutual Insurance to provide themselves with another layer of cover against severe thunderstorms and tornadoes. The Mariah Re 2010-2 cat bond transaction has a lower attachment point than the earlier Mariah Re 2010-1 deal.

We wrote on the 7th September that the Mariah Re 2010-2 cat bond had been triggered and now it seems that whatever losses were going to be passed onto investors at that time will now have increased.

S&P today reported that covered losses, which have qualified under the terms of Mariah Re 2010-1, have now risen to $790.15m to date, but that total is likely to rise as a number of reported events still do not have finalised loss estimates.

The attachment point for Mariah Re 2010-1 is $825m, so investors in that deal are safe (for now). However the attachment point for Mariah Re 2010-2 was set at $725m, well below the covered loss total that has been reported for Mariah Re 2010-1.

Now, Mariah Re 2010-2 was a privately placed and unrated transaction, so we do not have the visibility into the actual structure of the transaction and the covered risks. At the time of issue it was widely reported that Mariah Re 2010-2 simply provided an extra $100m of cover to AmFam through an identical structure and a lower attachment point. If that indeed is the case then investors in Mariah Re 2010-2 could actually be on the hook for losses totaling as much as $65.15m.

Another ILS publication reported principal losses of $35m, but it seems likely that the eventual loss to investors in this deal will be more than that. Unfortunately we can’t confirm that principal loss total as we don’t have access to full details of the attachment trigger, but after discussions with some investors we can confirm that they are certainly expecting losses to have grown following this latest update from S&P.