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 current $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 a lot of 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 beneath 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 Government 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 required instruments to reply to 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 modern hybrid financing strategy by maximizing Capability by way of the combo of a conventional reinsurance coverage with a Disaster Bond financed by the capital markets.
“We now have additionally opened the door for the primary time to faucet into the capital markets as an extra various to acquire insurance coverage protection with a disaster bond.
“Due to Secretary Omar J. Marrero for the chance to steer these efforts for the good thing about Puerto Rico.”
Omar J. Marrero, Puerto Rico thirty first Secretary of State / Lt. Governor, additionally acknowledged, “One other milestone achieved! Kudos to your complete Autoridad de Asesoría Financiera y Agencia Fiscal crew for making certain Puerto Rico is financially ready for pure disasters. Particular because of our Deputy Government Director, Luis J. Umpierre, CPA for main this vital transaction.
“Not like previously, 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 software to deal with liquidity wants within the occasion of the following massive 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, protecting named storms and earthquakes impacts.
The notes issued beneath the cat bond will defend Puerto Rico with an nearly three-year supply of parametric catastrophe insurance coverage safety, operating 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 significantly notable transaction, being the primary cat bond to instantly profit the federal government of a territory of the US.
It’s additionally successfully a sovereign disaster bond that’s being issued within the personal market, to supply parametric catastrophe insurance coverage to the federal government of a rustic, with no intermediation or facilitation from any multilateral organisation, making it a good 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 threat 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 an entire) can safe monetary assist for catastrophe restoration, by tapping personal capital markets urge for food for pure disaster threat.
It’s good to see Authorities officers of Puerto Rico selling using the cat bond, as a software that has helped the territory broaden its parametric catastrophe insurance coverage in 2024.
You’ll be able to learn all about this Puerto Rico Parametric Re Ltd. (Series 2024-1) disaster bond and particulars of multiple thousand different cat bond transactions within the Artemis Deal Directory.
