Clive O’Connell, partner, Goldberg Segalla, reflects on the lessons learned from the recent Mariah Re litigation in this month’s ILS blog.
The recent Mariah Re litigation has some important lessons for those who are engaged in the insurance-linked securities (ILS) market. While the case itself was ultimately dismissed and its facts are relatively unique, the saga of Mariah Re contains some lessons which are of universal application.
1. In any ILS contract, the wording and design of the trigger mechanism is of vital importance. The whole economic basis of the deal is contained in the trigger mechanism and it is crucial that that mechanism can operate as smoothly as possible.
Subjective triggers are difficult unless that subjective element of that trigger is in the hands of someone who has no interest in or knowledge of the deal. Or if the trigger is in effect the objective aggregation of a number of subjective elements. Even then, it is essential that the trigger cannot be manipulated. We have seen in recent scandals concerning the LIBOR index and foreign exchange markets that manipulation can occur, even in these institutionalised measures.
ILS, Clive O'Connell, Goldberg Segalla, Mariah Re