The Authorities of Puerto Rico’s Autoridad de Asesoría Financiera y Agencia Fiscal (Fiscal Company and Monetary Advisory Authority) has secured $282 million of parametric catastrophe insurance coverage cowl, with the latest $85 million Puerto Rico Parametric Re Ltd. (Series 2024-1) disaster bond seen as a key part that opens the door to the capital markets.
Puerto Rico has been forward-thinking in its strategy to insurance coverage, having had a parametric catastrophe insurance coverage association in-force for numerous years.
In 2023, the parametric cowl was historically insured and amounted to $220 million in protection.
This yr, with the assistance of its first disaster bond, Puerto Rico has elevated its safety to $282 million below the parametric catastrophe insurance coverage association, with $85 million being from its first disaster bond.
Together with reserves put aside for catastrophe restoration, it means Puerto Rico now has a $1.3 billion monetary buffer in opposition to pure disaster losses for 2024 and past, with the multi-year nature of its first Puerto Rico Parametric Re cat bond set to learn the territory.
Luis J. Umpierre, Deputy Govt Director & CFO of the Autoridad de Asesoría Financiera y Agencia Fiscal (AAFAF) led the transaction for the Authorities of Puerto Rico and commented on the addition of a parametric disaster bond to its catastrophe insurance coverage preparations.
Umpierre commented, “As a part of our continued efforts to enhance Puerto Rico’s resiliency and supply the mandatory instruments to answer pure disasters, we have been capable of shut this $282 million parametric insurance coverage protection for the island.
“The rise in protection was achieved by implementing an revolutionary hybrid financing strategy by maximizing Capability by the combination of a standard reinsurance coverage with a Disaster Bond financed by the capital markets.
“Now we have additionally opened the door for the primary time to faucet into the capital markets as a further different to acquire insurance coverage protection with a disaster bond.
“Because of Secretary Omar J. Marrero for the chance to guide these efforts for the advantage of Puerto Rico.”
Omar J. Marrero, Puerto Rico thirty first Secretary of State / Lt. Governor, additionally said, “One other milestone achieved! Kudos to all the Autoridad de Asesoría Financiera y Agencia Fiscal crew for guaranteeing Puerto Rico is financially ready for pure disasters. Particular due to our Deputy Govt Director, Luis J. Umpierre, CPA for main this vital transaction.
“Not like up to now, the Authorities of Puerto Rico has now constructed a wet day fund of $1.3 billion and dealing capital reserves exceeding $1 billion.
“Alongside our improved stability sheet, this parametric insurance coverage stands as a pillar of fiscal resiliency and as one other instrument to handle liquidity wants within the occasion of the subsequent huge catastrophe.”
The Puerto Rico Parametric Re Ltd. (Series 2024-1) disaster bond will present the territory with an $85 million part of its responsive catastrophe insurance coverage preparations, structured with a parametric set off and insuring Puerto Rico’s Authorities on a per-occurrence foundation, masking named storms and earthquakes impacts.
The notes issued below the cat bond will defend Puerto Rico with an nearly three-year supply of parametric catastrophe insurance coverage safety, working to the tip of Might 2027.
The cat bond cowl cascades right down to the Authorities, by way of an insurance coverage settlement with Starr Indemnity & Legal responsibility Firm, a subsidiary of Starr Worldwide, who covers Puerto Rico’s Division of Treasury (Departamento de Hacienda).
International reinsurance agency Hannover Re sat between Starr Indemnity and the cat bond issuer, Puerto Rico Parametric Re Ltd.
Aon Securities structured the disaster bond and acted as its bookrunner to distribute the notes to the investor base.
We’ve been saying in our reporting on this Puerto Rico Parametric Re disaster bond (which began in May) that this can be a notably notable transaction, being the primary cat bond to immediately profit the federal government of a territory of the US.
It’s additionally successfully a sovereign disaster bond that’s being issued within the non-public market, to offer parametric catastrophe insurance coverage to the federal government of a rustic, with no intermediation or facilitation from any multilateral organisation, making it a fair rarer instance.
This Puerto Rico Parametric Re Ltd. cat bond demonstrates how a authorities in a catastrophe-exposed area of the world can effectively safe complementary danger financing from the capital markets, with a payout construction that’s contingent on a pre-defined catastrophe occurring.
Lastly, this groundbreaking first disaster bond for Puerto Rico additionally demonstrates a mannequin by which different US territories, States and municipalities (or the nation as a complete) can safe monetary help for catastrophe restoration, by tapping non-public capital markets urge for food for pure disaster danger.
It’s good to see Authorities officers of Puerto Rico selling the usage of the cat bond, as a instrument that has helped the territory increase its parametric catastrophe insurance coverage in 2024.
You possibly can learn all about this Puerto Rico Parametric Re Ltd. (Series 2024-1) disaster bond and particulars of a couple of thousand different cat bond transactions within the Artemis Deal Directory.
