Liberty Latin America expects $44m parametric payout for hurricane Beryl

Communications specialist Liberty Latin America is expecting a $44 million payout from parametric weather derivatives after the passage of hurricane Beryl triggered these instruments for the company.

Liberty Latin America is one of the largest communications and entertainment service providers in the region, with operations across Puerto Rico, the Caribbean and other parts of Latin America.

In July 2024, the company was affected by damage to its infrastructure and customer homes in Jamaica, as well as other parts of the Caribbean where the company is active.

As a result, the company anticipates adverse subscriber and financial impacts through the rest of the year because of the major hurricane.

Because of the storm, Liberty Latin America estimates a hit to revenue and adjusted OIBDA of between $10 million and $20 million for the remainder of 2024.

This negative impact is expected to be primarily felt during the third quarter, dependent on factors including when power is fully restored to the areas impacted by hurricane Beryl.

In addition, the communications firm said that it expects to incur property and equipment costs of around $10 million to $20 million, to replace infrastructure and equipment that has been damaged beyond repair, or to enhance its network resiliency after the storm.

But positively, Liberty Latin America is anticipating a $44 million payout from weather derivatives contracts that provided hurricane protection and were structured with a parametric trigger based on wind speed.

Hurricane Beryl triggered these parametric weather derivatives for the communications firm and Liberty Latin America expects to receive net third-party proceeds of around $44 million, that will be reflected as a derivative gain in its accounting.

It’s another good example of the benefits of parametric insurance, or other forms of risk transfer structured with parametric triggers.

The payouts will be rapid and help Liberty Latin America to repair its communications infrastructure and return services more quickly to its customers, without the need for any lengthy claims assessment.

For a provider of communications and media services to households, assessing the damage property by property could take a significant amount of time, so having a parametric source of capital available, that is purely contingent on a major event occurring, makes a lot of sense for this kind of operator.

Of course, it also makes setting the triggers appropriately really key, to ensure the coverage responds under the severity of scenarios where the payout liquidity is most needed, as in this case.