Two common scenario loss ratios are used when calculating Probable Maximum Losses from earthquakes: Scenario Expected Loss (SEL) and Scenario Upper Loss (SUL). Analyses of seismic loss ratios prepared by fi ve seismic consulting fi rms, four loan pools securitized in the capital markets, two very large loans with many properties, two large hospitality portfolios and a general account portfolio indicate that use of SUL rather than SEL would yield signifi cantly larger numbers of loans with loss ratios in excess of 20%. When using SEL, the percentage of loans in the four large pools exceeding a 20% loss ratio was 3.8%. When SUL was used on this same data set, 47.8% of these properties had SUL values above 20%. Common industry practice has been to use SEL. Some of the implications of tightening seismic underwriting standards to apply a 20% threshold to the SUL, rather than SEL, may include: lower loan production, properties may lose value, properties may be costlier and more diffi cult to fi nance, existing loan portfolios may appear more seismically risky, and demand for insurance and seismic retrofi t could go up. Equally undesirable effects could be that seismic consultants and lenders who do more rigorous analysis will be less competitive than those who do not.Prudent evaluators look to ASTM E2026-07, a revision of ASTM E2026-99, and E2557-07 standards for guidance in how to measure seismic risk for equity investments as well as lending for individual buildings and for portfolios. ASTM E2557-07 recommends the use of SEL DBE as the appropriate measure for loans. SEL DBE is the abbreviation of Scenario Expected Loss, and is defi ned by ASTM E2026-07 as the average loss in the Design Basis Earthquake (DBE) ground motion. The DBE is defi ned as the ground motion with a 10% probability of exceedance in 50 years, equivalent to a 475-year return period for exceedance. The task group developing these standards included a wide range of mortgage banking, life insurance, fi nancial institutions, and technical specialists, including registered architects and professional engineers. Consequently, this standard represents the best that the profession collectively knows and it can be relied upon. E2557-07 references ASTM E2026 that provides a number of technical tools and defi nitions used by E2557-07.ASTM E2026-07 also defi nes Scenario Upper Loss, SUL DBE , as the loss that has a 10% probability of being exceeded in the DBE ground motion. It is one of several measures of damageability defi ned and used in seismic risk assessment. In light of changing economic and market conditions, some institutions are questioning whether SUL DBE is the more appropriate and conservative measure compared to SEL DBE .When scenario losses are used as the measure of seismic vulnerability of a property, then there are two issues posed in its use: fi rst, what scenario to use, and second, should damageability be measured by SEL or SUL?What scenario should be used? There are two common options: the DBE or the MCE earthquake ground motions. The MCE...
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