Insurance Market Recovering After Wild Ride in '06

The insurance market has seen some "significant stabilization" in 2007, following a wild 2006, according to Jeremy Burr.

Speaking at the MBA's Commercial Real Estate Asset Administration Conference here, at a panel session on insurance risk mitigation, Mr. Burr, a vice president with Insurance Office of America, reported that the insurance industry is now entering into a softer market.

In contrast, 2006 was a "wild" year, which can be attributed to the insurable losses of 2004 and 2005, which caused pricing for insurance to go up and coverage to decline.

Most asset holders have gone through one renewal, and state funds are now being used, with the Gulf Coast being especially active in this regard, Mr. Burr said. As well, the Florida government has made reinsurance available to the private marketplace.

"These options are competing with the private marketplace," he added.

Reinsurers in the private marketplace are relaxing, and places such as Miami and Biloxi, Miss., have additional coverage available that was not available last year.

Almost 80% of the big catastrophe players have changed their policies on the minimum earned premium (the minimum insurance premium charged on policies canceled before the end of the policy term) according to Mr. Burr, hiking up the minimum from 25% to 30% of the full premium amount to as much as 80% of the full premium.

Paul Stare, director of insurance services for commercial lending, PPM Finance, noted that at least one borrower he has worked with is paying three to five times what they paid in 2003 for insurance. Also, coverage is considerable lower.

The company is going from non-recourse loans to making sure the borrower has some skin in the game.

From a lender's standpoint, insurance should not be the sole tool available to protect the asset.

Lenders should look for other mechanisms to protect the collateral and they have to be flexible and resourceful.

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