Global professional services firm Aon has announced the completion of a historic parametric insurance programme with the Government of Puerto Rico.
The programme is designed to help the island reduce its insurance obligation to the US Federal Emergency Management Agency (FEMA).
This parametric insurance coverage represents the largest government-sponsored parametric transaction for the island. The programme is also the first parametric insurance protection mechanism used to reduce FEMA’s obtain and maintain (O&M) requirement.
The onshore and offshore parametric programme will help drive Puerto Rico’s response to catastrophe events – such as hurricanes and earthquakes – enabling rapid liquidity to assist during recovery and reconstruction efforts. It provides Puerto Rico with access to diversified sources of capital and is an important step in closing the protection gap.
The parametric cover does not require proof of loss to generate a payout; instead, payouts are triggered when a major hurricane or earthquake impacts Puerto Rico, breaching a predefined threshold.
Paul Schultz, Chairman and CEO of Aon Securities, said: “We proactively worked with the Government of Puerto Rico to identify capital solutions for closing the protection gap, and collaborated with colleagues across the firm in an Aon United manner to deliver an innovative solution in a dynamic marketplace. Aon Securities led a team that included subject matter experts across geography, product teams and analytics to deliver the optimised parametric solution for the Government.”
In addition to structuring and placing the transaction, Aon provided advisory and consulting services to the Government of Puerto Rico, working in conjunction with a range of public agencies including Authoridad de Asesoría Financiera y Agencia Fiscal de Puerto Rico – Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF), FEMA, the Financial Oversight and Management Board for Puerto Rico (FOMB), the Office of the Puerto Rico Insurance Commissioner, and COR3, among others.
“This is an important cover, which will help the Government of Puerto Rico to navigate volatility and build resilience against natural disasters,” said Katie Sabo, Managing Director and State and Local Leader for Aon’s Public Sector Partnership. “It was a true testament to Aon’s deep public sector expertise, combined with our extensive knowledge in designing parametric solutions for such hazards that are tailored specifically to the needs of our state and local clients, which help them make better decisions.”