How do you stress-test insurance in a coastal underwriting model?

Question

Premiums on a Gulf Coast deal we're looking at have nearly doubled in three years. How are you modeling future insurance so the deal doesn't blow up at year-three refi?

Daniel Cho · Accepted Answer

Treat insurance like a structural cost, not a cyclical one. We underwrite +12-15% annually for at least the first three years and assume no reversion. Then we pressure-test the year-three DSCR at that elevated number against the refi rate the curve implies.

If the deal only works on insurance reverting, it doesn't work. The repricing is structural — capacity has left these markets and isn't coming back at the old price.

Marcus Feldman · Answer

Add an operational angle to Daniel's macro view: get a real broker quote pre-LOI, not the seller's trailing number, and document any preventative maintenance you can. Carriers will price a roof program and water monitoring. We've shaved 15-20% off quotes by showing the operating data.

How do you stress-test insurance in a coastal underwriting model?

Expert answers (2)