Terror, Windstorm Coverage Highlight Risks.

Insurance issues have been at the forefront for some time now, starting off with terrorism-related insurance in 2001, and windstorm insurance has come to the fore more recently. The industry is looking toward the extension of the Terrorism Risk Insurance Act, which is slated to expire this year, or for a more permanent solution to the issue. Servicers are also looking to address windstorm insurance issues.

At the Mortgage Bankers Association's recent commercial real estate finance convention in San Diego, some industry participants addressed the challenges of obtaining windstorm insurance and ways to deal with the situation.

Kenneth A. Travers, a senior vice president with ABS Corporate Solutions, gave an outlook of what to expect for the 2007 hurricane season. Based on a forecast from William Gray of Colorado State University, Mr. Travers said as many as 14 named storms could hit the United States this season, including up to seven hurricanes and three major hurricanes. The probability that they will hit the U.S. coastline is 64%, and it's a 40% probability that they will land on the East Coast.

These are higher-than-average probabilities compared to an average year.

Damian Wach, director, real estate investment banking, Eurohypo AG, noted that lenders have for the most part not changed their "proverbial line in the sand" approach, which has been typically how much would it cost to replace a building in the event of a total loss. He is seeing more and more lenders allowing borrowers to self-insure.

At least one state, Florida, has an insurance program that allows the state to be the insurer of last resort. This is geared to the residential side and is now spilling over into smaller commercial properties. And two of the major credit rating agencies - Fitch and Moody's - have looked at the possibility of using a probable maximum loss solution.

Wendy Melton, vice president, DB Berkshire Mortgage, observed that the availability of ...