Global insurance and reinsurance broker Aon has completed a hurricane and earthquake parametric insurance program for the Government of Puerto Rico, designed to lower the region’s insurance obligation to the U.S. Federal Emergency Management Agency (FEMA).
This “historic” parametric program provides the island with diversified hurricane and earthquakes protection, and is the single largest government-sponsored parametric transaction for Puerto Rico.
Reducing the region’s insurance obligation to FEMA is a key feature of the arrangement, and this is actually the first parametric insurance mechanism used to lower FEMA’s Obtain & Maintain (O&M) requirement, according to Aon.
Under FEMA’s O&M requirement, coverage must at least equal the amount of the eligible damage to the facility receiving assistance. If an applicant does not obtain and maintain insurance, FEMA will not provide assistance for that facility in future disasters.
The program is for both onshore and offshore risks and is expected to help the island’s response to catastrophe events by providing rapid liquidity to assist in recovery and reconstruction efforts.
“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 optimized parametric solution for the Government,” said Paul Schultz, chairman and Chief Executive Officer (CEO) of Aon Securities.
Aon structured and placed the parametric transaction, and also provided advisory and consulting services to the Government of Puerto Rico, working alongside numerous public agencies including AAFAF, FEMA, the Federal Oversight and Management Board for Puerto Rico (FOMB), the Office of the Puerto Rico Insurance Commissioner, COR3, and 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.”