Analyst: Calif. Fires Should Not Result in Large Insurer Losses
West News • October 23, 2007
The 11 wildfires burning in Southern California should not result in large individual insurance company losses, according to a recent report by Goldman Sachs Analyst Thomas Cholnoky. Instead, he ...
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Subject: RE: Question
Posted On: October 25, 2007, 7:36 am CDT
Posted By: X
Comment:
Actually there is a point in what Little Frog is saying though. There is a term thrown around by some knowledgable folks in the industry about "insuring dirt".
As the lending bubble continued to inflate, purchases tended to have lower and lower downpayments. The banks sometimes push to have, at a minimum, the value of the loan insured so that they are sure not to be out money in the event of a serious loss.
This in itself would lead to higher average replacement costs being insured. If this were combined by having California land prices that are more inflated than replacement costs, then this would lead to higher Insurance-To-Value percentages. I do not know for a fact that California replacement costs (true costs - not estimates) have been outpaced by land price inflation, but I suspect that is the case.
Note that this would impact more recent purchases far more than older purchases.
Now having said that, I think the $500K per house is still way off for the three reasons I stated originally. And, we cannot forget demand surge in the presence of 125% and even 150% extended replacement cost (not to mention guaranteed). Hopefully, the housing slump has put a little slack in the construction market which might mitigate demand surge.
Does anybody think TRUE replacement costs per square foot have kept pace with the price of housing since say 1998? Again I guess no, but I am not in construction or claims.
West News 
Subject: RE: Question
As the lending bubble continued to inflate, purchases tended to have lower and lower downpayments. The banks sometimes push to have, at a minimum, the value of the loan insured so that they are sure not to be out money in the event of a serious loss.
This in itself would lead to higher average replacement costs being insured. If this were combined by having California land prices that are more inflated than replacement costs, then this would lead to higher Insurance-To-Value percentages. I do not know for a fact that California replacement costs (true costs - not estimates) have been outpaced by land price inflation, but I suspect that is the case.
Note that this would impact more recent purchases far more than older purchases.
Now having said that, I think the $500K per house is still way off for the three reasons I stated originally. And, we cannot forget demand surge in the presence of 125% and even 150% extended replacement cost (not to mention guaranteed). Hopefully, the housing slump has put a little slack in the construction market which might mitigate demand surge.
Does anybody think TRUE replacement costs per square foot have kept pace with the price of housing since say 1998? Again I guess no, but I am not in construction or claims.