Strengthening the disaster resilience of a state-owned utility company

The island of Puerto Rico is subject to numerous threats from natural hazards, especially hurricanes and earthquakes. In 2017, Hurricanes Irma and Maria hit Puerto Rico, causing massive losses and leaving residents without electricity. In 2020, another earthquake left parts of the island without electricity again. Our client, a state-owned enterprise responsible for the electricity power generation and distribution in Puerto Rico, suffered considerable economic losses.

The Government of Puerto Rico is required to purchase insurance protection as a prerequisite for receiving disaster assistance from the U.S. Federal Emergency Management Authority (FEMA).

Swiss Re developed a parametric ‘cat-in-a-box’ structure with hazard triggers designed to support multiple perils (i.e., magnitude, location and depth for earthquakes, and wind speed and location for tropical cyclones).

This parametric insurance solution was intended to complement the existing traditional indemnity insurance policies in place and to provide additional protection against economic losses and coverage of previously excluded assets (i.e., transmission and distribution lines) in the event of an earthquake or a tropical cyclone. In other words, the parametric component provides immediate liquidity after an event, whilst the indemnity programme enables reconstruction of impacted assets.