Exclusive: Aon retains Puerto Rico government's parametric program after competitive tender

By Henry Gale and Chris Munro

Aug 19 - (The Insurer) - The government of Puerto Rico has again appointed Aon to provide it with catastrophe insurance to meet requirements from the Federal Emergency Management Agency (FEMA) following a competitive tender process for the program.

Aon had previously been tasked with placing the cat program, but parametric and reinsurance market sources said Puerto Rico's Fiscal Agency and Financial Advisory Authority (AAFAF) in May issued a request for qualifications and request for proposals (RFQ/RFP) for the placement.

And while those sources said other brokers had been considered, ultimately Aon has retained the account.

The coverage is intended to reduce Puerto Rico’s “obtain and maintain” (O&M) requirement to FEMA. FEMA requires that territorial governments be covered by sufficient insurance to be eligible for assistance after a natural catastrophe.

When Aon placed $220 million of parametric hurricane and earthquake coverage for the island in 2023, it said the transaction was the first use of parametric risk transfer to reduce the O&M requirement.

Parametric Insurer reported in June 2024 that Aon had structured and placed an expanded $282 million program for Puerto Rico at its renewal. This included a 12-month $197.7 million parametric reinsurance contract and a three-year $85 million catastrophe bond, both covering hurricane and earthquake risks.

The reinsurance contract, due to expire on May 31, 2025, was not renewed, parametric market sources told Parametric Insurer. On May 29, AAFAF published the RFQ/RFP seeking firms to develop and place catastrophe insurance to meet the O&M requirement. The sources said there had been a competitive process for this RFQ/RFP.

While previous policies covered hurricane and earthquake risks only, the RFQ/RFP called on bidders to consider including flood coverage too.

AN URGENT PLACEMENT

In June last year, when AAFAF announced its renewed program, it noted that $197.7 million of its coverage would expire on May 31. “To ensure compliance with FEMA requirements, the government must continue to renew this type of coverage,” it said.

That it did not renew the coverage implies that Puerto Rico’s eligibility for FEMA assistance could be negatively affected, if a hurricane or earthquake were to cause significant losses before it has a new insurance program in place.

The ongoing Atlantic hurricane season therefore gives this placement a particular urgency, conveyed by AAFAF in the July 7 addendum to its RFQ/RFP. “Insurance coverage must begin and be active as soon as possible,” it said.

Hurricane Erin passed north of Puerto Rico as a Category 3 hurricane on Sunday, causing some flooding and downed trees in the territory.

Aon declined to comment. AAFAF did not immediately respond to a request for comment.