The objective of this initiative is to help the island reduce its insurance obligation to the U.S. Federal Emergency Management Agency (FEMA) by providing diversified insurance protection against hurricane and earthquake perils.
The programme, which represents the largest government-sponsored parametric transaction for Puerto Rico, not only strengthens the island’s response to catastrophic events but also marks the first use of a parametric insurance protection mechanism to reduce FEMA’s Obtain & Maintain (O&M) requirement.
By implementing an onshore and offshore parametric program, Puerto Rico gains access to quick liquidity to support its recovery and reconstruction efforts.
The collaboration between Aon and the Government of Puerto Rico demonstrates a proactive approach to address the protection gap and find capital solutions.
Led by Paul Schultz, Chairman and CEO of Aon Securities, a cross-functional team consisting of subject matter experts, professionals from diverse geographical locations, product teams, and analytics specialists worked together to design and deliver an optimized parametric solution tailored to the government’s needs.
Unlike traditional insurance coverage, the parametric program does not require proof of loss to initiate a payout. Instead, payouts are automatically triggered when a major hurricane or earthquake exceeds a predefined threshold, allowing for faster access to critical funds.
In addition to structuring and placing the transaction, Aon provided advisory and consulting services to the Government of Puerto Rico in collaboration with various public agencies such as AAFAF, FEMA, the Federal Oversight and Management Board for Puerto Rico (FOMB), the Office of the Puerto Rico Insurance Commissioner, and COR3.
Katie Sabo, Managing Director and State and Local Leader for Aon’s Public Sector Partnership, said the significance of the parametric cover in enhancing Puerto Rico’s resilience against natural disasters.
She praised Aon’s extensive expertise in the public sector and their profound knowledge in designing customized parametric solutions tailored to the specific requirements of state and local clients, enabling them to make well-informed decisions.
