CMBS insurance requirements, read from a recent loan agreement

A CMBS loan requires all-risk property insurance at full replacement cost, liability, rent loss, and usually terrorism, flood (in flood zones) and windstorm cover, from insurers rated A- or better. One October 2025 agreement caps the all-risk deductible at $50,000, or 5% of insurable value for windstorm and earthquake (1010 Pacific Street loan agreement, Section 7.1).

Insurance is the covenant owners break most often without meaning to, at renewal, when a broker changes a deductible or drops a coverage line to save premium. Read your Section 7 (or its equivalent) before every renewal, and send the servicer certificates before the old policy expires.

What one recent agreement requires

Section 7.1 of the October 1, 2025 agreement between 1010 Pacific Owner LLC and Citi Real Estate Funding and Morgan Stanley Bank, a multifamily property in Brooklyn. Yours will differ by property type and location.

Coverage	Requirement
Property (all risk / special perils), including windstorm, named storm and terrorism	100% of full replacement cost, waiver of depreciation, agreed amount (no coinsurance); deductible no more than $50,000, or no more than 5% of total insurable value for windstorm / named storm and earthquake
Ordinance or law	Undamaged portion at replacement cost, plus demolition and increased cost of construction, if the building is legal non-conforming
Commercial general liability	Occurrence form, at least $2,000,000 aggregate and $1,000,000 per occurrence, no deductible
Umbrella	At least $15,000,000 per occurrence and aggregate
Rent loss / business interruption	100% of income, actual loss sustained, until restoration is complete, sized on 18 months of projected gross income, plus a 12-month extended period of indemnity
Flood	If in a FEMA special flood hazard area: the maximum available under the federal flood program, plus excess as the lender requires
Earthquake	Sized at 1.5x the scenario expected loss times replacement cost, plus rent loss
Boiler and machinery	Replacement cost of equipment
Builder’s risk	During structural work, if existing policies do not cover it
Insurer quality	A.M. Best A-, financial size class X or better, and S&P A- or better

The BANK5 2025-5YR14 prospectus describes the pool generally (pp. 215-216): hazard insurance at least equal to the lesser of the loan balance and 100% of replacement cost, general liability generally at least $1,000,000, business interruption of about 100% of gross rental income for at least 12 months, and generally no earthquake insurance requirement. Eighteen properties (26.1% of the pool) were in high seismic zones, and none had a probable maximum loss above 18.0% in its seismic report.

Terrorism insurance and TRIPRA

Terrorism cover is where CMBS insurance gets technical:

• The requirement. The Pacific Street agreement requires terrorism coverage consistent with the property, liability, rent loss, builder’s risk and umbrella requirements. While the federal program is in effect and covers both domestic and foreign acts, the lender accepts coverage for TRIPRA “covered acts” as full compliance (Section 7.1(a)(xi)).
• The federal backstop. The BANK5 prospectus (p. 105) describes the Terrorism Insurance Program: reauthorized in December 2019 through December 31, 2027; the federal government pays 80% of insured losses above an insurer deductible of 20% of its prior-year direct earned premium, capped at $100 billion a year; no payment unless industry losses from an act exceed $200 million; nuclear, biological, chemical and radiological attacks are excluded. If it is not reenacted, the prospectus expects higher premiums and narrower terms.
• When cover is not available. The servicing agreement lets the servicer forbear on a terrorism insurance default if it determines the insurance is not available at commercially reasonable rates and such hazards are not commonly insured against for similar properties in the region, or not available at any rate. That is an “Acceptable Insurance Default”, and while it holds control the Directing Certificateholder must consent, with 30 days to respond (BANK5 2025-5YR14 PSA, 1.01; 3.07(a)).

If your renewal falls after 2027, ask your broker early what the terrorism quote assumes about the program.

Blanket policies and catastrophe exposure

Blanket policies covering many locations are common and usually allowed, subject to lender approval. The Pacific Street agreement treats any reduction or erosion of flood, windstorm or earthquake limits, or adding locations exposed to those perils, as a material change that needs lender review, and asks for an updated probable maximum loss report at least annually (Section 7.1(c)). Sponsors who add properties to a shared program mid-term often trip this without noticing.

If coverage lapses: force-placed insurance

Under PSA 3.07(a), the master servicer must use efforts consistent with the Servicing Standard to cause the borrower to maintain the required insurance. If the borrower does not, the master servicer maintains it, where the trustee has an insurable interest and the cover is available at commercially reasonable rates, funded as a servicing advance the borrower owes. Force-placed cover is typically expensive and narrow.

It is also reported. Under the CREFC Portfolio Review Guidelines, property (excluding terrorism) or liability coverage more than 60 days delinquent or force-placed puts the loan on the servicer watchlist as an informational item until proof of satisfactory coverage arrives (code 1C, CREFC IRP v8.4, p. 66). See the CMBS watchlist.

After a casualty

• Property policies carry a standard mortgagee clause making losses payable to the lender (Pacific Street agreement, Section 7.1(d)). The agreement’s “Restoration Threshold” is 5% of the loan balance: if both the proceeds and the restoration cost are below it, the lender disburses the proceeds to the borrower on receipt once the conditions are met; at or above it, the lender makes them available for restoration under a draw process (Section 7.4).
• While you restore, rent loss proceeds are deposited into the cash management account and a cash management trigger period is deemed to exist (Section 7.1(a)(iii)).
• A prepayment from insurance or condemnation proceeds generally owes no yield maintenance unless an event of default is continuing (BANK5 prospectus, p. 223).
• A major casualty or condemnation equal to the lesser of 10% of the balance and $500,000 is a watchlist credit item (code 3C, CREFC IRP v8.4, p. 66).

Renewal checklist

1. Compare the renewal’s limits, deductibles, sublimits and exclusions line by line with your loan agreement’s insurance section.
2. Confirm every insurer meets the rating requirement.
3. Confirm the property policies carry the mortgagee clause in the lender’s favor and the liability policies name the lender as additional insured, with the exact wording the agreement requires.
4. Send certificates (ACORD 25 and 28) and binders to the servicer before expiry, then the full policies when issued.
5. If a coverage is unavailable or unaffordable, write to the servicer before renewal, not after. Asking for an insurance waiver or an Acceptable Insurance Default determination is a servicer consent request with its own clock.

If insurance costs have changed the property’s numbers enough to threaten DSCR, plan the refinance early. Janover Capital LLC is a commercial mortgage advisor, not a lender or insurer. Get a CMBS quote.

This page describes loan and servicing documents. It is not insurance, legal or tax advice; ask your insurance broker and counsel.

Sources: 1010 Pacific Street loan agreement, October 1, 2025, Sections 7.1-7.4 and “Restoration Threshold”; BANK5 2025-5YR14 prospectus, pp. 105, 215-216, 223; BANK5 2025-5YR14 PSA, 1.01 “Acceptable Insurance Default”, 3.07(a); CREFC IRP v8.4, p. 66.