As featured in “PERE Credit”
Samantha Rowan, PERE Credit, 9 August, 2024
PERE Credit recently featured a comprehensive Borrower Profile on RREAF about the rising cost of insurance. They reached out to RREAF Holdings’ Chief Financial Officer, Mitch Provosty, for comments and insight in this latest story. See what Mitch had to say about mitigating the risk associated with the rising cost of insurance below.
RREAF Holdings is seeing the impact of higher costs play out every day across the firm’s portfolio of multifamily, hospitality and master-planned communities, said Mitch Provosty, the chief financial officer of the Dallas-based investment manager.
The firm incorporates the potential for natural disasters, like flooding or hailstorms, into its investment calculus as it seeks to invest.
“For a higher risk area, you’ll have to generate a higher cashflow to cover insurance costs. It is a risk we take, and our deductible is our risk,” Provosty said. “There is not much you can do about insurance costs because you have to have insurance.”
For more than a year, the firm has expected that greater capacity would come into the insurance market and that rates would decline – and that is happening now, Provosty said.
“We saw a 10 percent decline in insurance costs for our hotel portfolio,” Provosty said. “[The cost of insurance] is one of those things that doesn’t just always go up, it’s all about risk and reward. Now that premiums are up for insurance investors, the reward is higher. More capacity enters the market pushing down premiums.”
There is an additional mitigating factor that is making it more difficult for owners – the impact of inflation.
“The risk has always been there. But inflation makes any covered peril simply cost more. Replacement costs are higher, lost business is going to be higher,” Provosty said. “The perception of the risk in the market changes.”
We appreciate and thank PERE Credit, especially Samantha Rowan, for giving us the opportunity to speak about the current insurance environment. To access the full article on PERE Credit website, please click here.
