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In 2004 and 2005, natural disasters caused a stunning $89.0 billion in privately insured catastrophic losses. The recent spate of natural disasters has caused insurance companies to reexamine their business models for insuring natural disasters. This process has resulted in insurers and reinsurers pulling out of or reducing their portfolio allocations in certain disaster prone areas of the country. This resulting insurance capacity loss has caused property insurance rates to spike from 100 percent to over 600 percent in certain coastal areas with heavy hurricane exposure and has put a tremendous strain on state operated insurance pools that serve as the insurer of last resort in these areas. The distressed insurance market for natural disaster insurance has led to an insurance availability and/or affordability crisis in some states. This crisis has not only impacted the insurance industry; it has also impacted many of the stakeholders in the commercial real estate finance industry: borrowers, lenders, servicers, and rating agencies.

"With all that is happening within the insurance market as it relates to catastrophic insurance, this White Paper provides clarity on the current state of the market as well as on what we may face in the future from a commercial real estate finance perspective," said Kieran Quinn, MBA's Vice Chairman. "This broad view is a key component to industry discussions about formulating solutions and resolving the availability and affordability of insurance for our members."

Some of the key findings of the White Paper include:

• Insurance and Reinsurance Industries Remain Profitable - Despite underwriting losses associated with the hurricane activity of the past two years, both the insurance and reinsurance industries were profitable.
  
• Catastrophic Risk is Not Going Away - Catastrophic risk from hurricanes, earthquakes, floods, winter storms, and wildfires provides a baseline of low to moderate catastrophic event risk for virtually every population center in the United States. Areas with the greatest catastrophic risk are locations in the most hurricane- and earthquake-prone areas.
  
• Potential Hurricane Damage Will Continue to Grow - An important influence on the loss severity of the most recent hurricanes has been the high concentration of real estate in hurricane-prone areas. This has been driven by long-term population migration trends to coastal areas whose hurricane loss severity has been forecasted to double every ten years.
  
• Catastrophic Insurance Pricing to Remain High - Catastrophic insurance pricing may never return to pre-Katrina levels due to the increased loss expectations from hurricanes and rating agency scrutiny over an insurance company's overall exposure to catastrophic events.
  
• Available and Affordable Property Insurance is Essential to the Real Estate Finance Industry - Both residential and commercial mortgages require "all risk" insurance coverage to be in place during the life of the mortgage. Consequently, disruptions in the availability or affordability of property insurance seriously undermines the real estate finance industry by shifting catastrophic property damage risk from the insurance industry to the real estate finance industry which has not priced such risk into its product offering.

To view a full copy of this White Paper click here .

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The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 370,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,400 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA's Web site:  www.mortgagebankers.org.