Fidest – Agenzia giornalistica/press agency

Quotidiano di informazione – Anno 33 n° 348

KBRA Publishes CMBS Research: “The Earthquake Insurance Divide”

Posted by fidest press agency su mercoledì, 3 gennaio 2018

londonLondon. Kroll Bond Rating Agency (KBRA) recently released a research report entitled “The Earthquake Insurance Divide.” In the aftermath of last year’s hurricane season, the topic of earthquake risk appeared to be on the minds of a number of California based CMBS investors. The concerns focused on the potential impact of a seismic event, whether large or small, on assets that may not be adequately insured, if at all.
CMBS, as well as other forms of commercial real estate (CRE) lending, typically require earthquake insurance if a property is located in seismic zone 3 or 4 and the asset’s probable maximum loss (PML) exceeds 20% of the replacement cost of the improvements. While insurance is generally required for these properties, others close to this threshold could still suffer moderate-to-significant damage in an earthquake, but fall under the insurance threshold.In our report, we identified approximately $30.6 billion (1,728 loans) of outstanding private label California conduit collateral securitized between 2010 and Year-to-Date November 2017. We then examined the PML characteristics of the population and provided various observations concerning the volume of loans that may be at higher risk of loss. In addition, we also included PML exposure maps exhibiting collateral that is below the threshold.
What we found was that the proportion of assets with PMLs that were between 18% and 20% is meaningful (10%) when viewed in the aggregate. If we were to expand the range to loans with PMLs from 15% to less than 18%, it would represent a quarter (25%) of the study population.Although the CRE finance industry has drawn a line in the sand with the greater than 20% threshold, transactions with a sizeable proportion of PMLs that are close to 20% may warrant a closer look by the marketplace, as they can pose additional risk to CMBS trusts. Uninsured assets with higher amounts of damage may be more susceptible to borrower defaults and potentially lead to transaction losses.

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