Signals: S2 Credit & Mortgage Markets · S1 Insurance Repricing · S4 Valuation & Appraisal Gap
In February 2022, the Australian city of Lismore flooded to a height of 14.36 meters, about 2.1 meters above a record that had stood since 1954.
Over the 12 months to February 2023, flood-impacted properties fell 28.6% in median value, per CoreLogic, against 10.9% for non-impacted properties in the same market. Some residents could not buy flood insurance at any price.
That combination - an uninsurable parcel and a lender still holding the loan - is what a climate overlay is designed to prevent. Here is what banks are actually changing, and where the changes are already binding.
Market Signal
A climate overlay is a screen applied on top of conventional credit criteria. The borrower’s income, loan-to-value ratio, and credit score are all unchanged. What changes is whether the collateral clears an additional hazard test.
The clearest live example is Lismore, because the sequence played out in public.
The February 28, 2022 flood crested at 14.36m (the gauge ceased functioning), about 2.1m above the previous record of 12.27m set in February 1954 and exceeding the 12.15m it reached in 1974. Thirteen people died across New South Wales in the wider event, six of them in the Northern Rivers. CoreLogic found that 16.5% of homes in the Lismore local government area were affected by flooding. Insured losses across the wider February–March 2022 southeast Queensland and northern New South Wales flood event reached AUD 5.81 billion from more than 240,000 claims, per the Insurance Council of Australia in April 2023.
The property market response was not a temporary dip. At the end of 2023, values in North and South Lismore remained down about 30%, and PointData’s analysis found land values in the worst-affected areas had halved.
Then the credit layer moved. Insurers withdrew, and residents reported being unable to place flood coverage regardless of price. For properties outside the floodplain, premiums rose roughly 25% to 50%. Lenders responded with tighter loan-to-value ratios in affected postcodes.
Watch the order of operations, because it repeats everywhere.
Hazard reprices insurance →
→ Insurance availability determines financeability →
→ Financeability determines the buyer pool →
→ The buyer pool sets the value →
→ The value is the last thing to move and the only thing most investors track.
The regulatory scaffolding is now in place across most major banking jurisdictions.
Australia’s prudential regulator issued CPG 229 on climate change financial risks. Canada’s OSFI issued Guideline B-15. The European Central Bank has been running supervisory expectations with enforcement attached. The UK’s Climate Financial Risk Forum has published implementation guidance.
The United States took the opposite approach. The interagency Principles for Climate-Related Financial Risk Management, issued in October 2023 for institutions with more than $100 billion in assets, were rescinded, effective November 18, 2025. The agencies say existing safety and soundness standards already require institutions to manage material financial risks.
For an investor, that divergence matters less than it sounds. Supervisory guidance shapes disclosure. It does not create the underlying credit exposure, nor does it remove it. A bank that has built a flood screen because its loss experience justified one will keep using it whether or not a regulator asks about it. What changes is that you can no longer read the screen in a public document.
Case Study
Florida shows the same mechanism operating through the insurance market rather than the lending market, at a scale large enough to be unambiguous.
Citizens Property Insurance, the state-backed insurer of last resort, peaked at roughly 1.42 million policies in October 2023. That is not a backstop. That is a dominant market participant, which occurs when private capacity withdraws faster than demand.
By the end of 2025, Citizens had fewer than 400,000 policies, its lowest level in more than 20 years, after transferring more than 546,000 policies to private carriers during that year.
Two very different stories fit that shape. A depopulation program returning risk to a functioning private market is a recovery. A depopulation program moving policies to thinly capitalized carriers is a deferral. Between 2017 and 2025, more than ten Florida property and casualty companies liquidated, including five in 2022.
The useful takeaway for an underwriter is not which occurred. It is knowing that your carrier’s identity is now a credit variable. A policy from a carrier that took on half a million policies in a single year is not equivalent to a policy from a national balance sheet, and lenders evaluating collateral increasingly know the difference.
California ran the same play in reverse. State Farm halted new homeowner applications in the state in May 2023, and other major carriers restricted writing. The FAIR Plan absorbed the demand. Same structure, different hazard.
The national evidence base behind all of this is now unambiguous, which is why the screens exist even when regulators don’t require them.
The NAIC’s first national study of homeowners market dynamics covered 715 carriers writing at least $50,000 in premium in 2024 and seven years of state-regulator filings from 2018 through 2024, against roughly 103 million active policies. That study covers homeowners policies only. The read-across to single-family rental, build-to-rent, and multifamily collateral is my inference, not an NAIC finding. Company-initiated non-renewal rates rose between 96% and 216% across the four NAIC zones, and more than tripled per thousand in-force policies in the West.
A lender, upon reading that data, draws one conclusion. The probability that a given piece of collateral becomes uninsurable during the term of a loan is no longer negligible, and it varies enormously by location. That is precisely the kind of variable a credit screen exists to capture.
Europe demonstrates the lending version explicitly. Dutch banks apply energy-performance criteria to mortgage terms, and ING’s research has documented measurable price effects tied to energy labels. The specific loan-to-value ceilings are bank-level policy rather than a market standard, so regard them only as examples of the mechanism rather than published rules.
Strategic Implications
The practical consequence is that an overlay does not announce itself as an overlay. It arrives as slower approval, a lower proceeds figure, or a condition you didn’t see on the last deal.
Insurance is now a credit condition, not an operating expense. A property that cannot place coverage cannot close, regardless of the borrower’s balance sheet. Confirm insurability before you confirm financing, not after.
The postcode is doing work the appraisal is not. Overlays are applied at geographic granularity finer than the market and coarser than the parcel. Two assets a mile apart can sit on opposite sides of a lender’s screen, and neither appraisal will mention it.
Carrier quality has become a diligence item. Ask who writes the policy, not only what it costs. A thinly capitalized carrier in a catastrophe-exposed state is a counterparty risk sitting inside what looks like an operating line.
Refinance risk is where this actually bites. Acquisition financing is negotiated against current conditions. A refinance five years out is negotiated against conditions nobody has seen. If your exit assumes a refinance, you are assuming a lender screen that does not exist yet.
It also matters who holds the loan. A portfolio lender keeps the credit risk and therefore has a direct financial reason to screen hard. An originator selling into the secondary market is screening to someone else’s criteria, which move on their own schedule. The same asset can clear one and fail the other in the same week. The borrower experiences that as arbitrary rather than as two different balance sheets making two different decisions.
For a borrower, the defensive move is documentation. The COPE data on your asset, meaning construction, occupancy, protection, and exposure, is what lets an underwriter price your specific building rather than its worst-case neighbor. Assets with good documentation get priced on evidence. Assets without it get priced on the assumption.
Future Signal
Three things to watch over the next few years.
Whether overlays migrate from origination to servicing. Today, the screen is applied when the loan is written. The harder question is what happens to a performing loan whose collateral becomes uninsurable mid-term. Most loan documents already require coverage at specified limits, which makes this a technical default question rather than a credit question, and it has not been tested at scale.
Whether the US disclosure gap becomes a pricing gap. With federal guidance withdrawn, American banks have less reason to publish their climate frameworks. If European and Australian lenders continue to disclose and American ones do not, cross-border capital will price in the opacity. That is a cost-of-capital consequence, not a regulatory one.
Whether insurer-of-last-resort programs stabilize or cycle. Florida’s depopulation is the largest live experiment in returning catastrophe risk to private markets. If it holds through a major storm season, it becomes a template. If it does not, the state balance sheet absorbs the difference and the lesson runs the other way.
The through-line is that credit exists where climate risk shifts from an operating problem to a liquidity problem. An expensive asset still trades. An unfinanceable one does not.
Lismore is the compressed version. The flood was one day. The insurance withdrawal took months. The lending restrictions took longer. The 30% value decline was still sitting there two years later, long after the water and the news coverage had gone.
Brief 9 showed what happens when a market’s risk map no longer describes the market. Brief 11 puts a deal-level number on the same failure after Hurricane Helene, in a market almost nobody had screened.
As always, KNOW YOUR SIGNALS and BE CLIMATE READY!
Jamie
Run this on your own deal
The CRDF Signal Tracker™ built for this brief lets you log lender and insurance availability signals in your markets, translate them into financial impact, and score which ones are actually moving your pricing. Free, no signup: Brief 10 CRDF Signal Tracker™ (xlsx)
New to the framework? The blank master Signal Tracker and Deal Stress Test workbooks are at climatereadyre.com/tools.
Related briefs
Same signal (S2 Credit & Mortgage Markets):
Brief 6 · The 30-Year Mortgage and Climate Risk: What the LA Fires Exposed About Loan Duration
Brief 22 · CMBS Spreads & Climate Risk: 77bp and 56bp per Point of Exposure - coming soon
Brief 23 · EPC Improvement Capex Financing for UK Industrial: EPC B by 2031 - coming soon
Next in sequence:
Brief 11 · Hurricane Helene Aftermath: Western North Carolina Home Insurance Rates Rise 4.4% - coming soon
Sources
Every figure above, with the date the data covers, the date it was published, and the date I verified it.
Lismore flood record — the February 28, 2022 flood crested at 14.36m (the gauge ceased functioning), about 2.1m above the previous record of 12.27m set in February 1954 and exceeding the 12.15m it reached in 1974; 13 deaths across NSW in the February–April 2022 event, 6 in the Northern Rivers; AUD 5.81 billion in insured losses across the wider February–March 2022 flood event, per the Insurance Council of Australia, April 2023 — an event-wide insured figure, not a Lismore public cost
Lismore City Council — Past floods; Lismore City Council — Lismore flood levels (PDF) · Data as of 2022–2024 · Published Mar 18, 2025 · Accessed Aug 2026
Lismore flood-impacted price effect — over the 12 months to February 2023, flood-impacted properties fell 28.6% in median value against a 10.9% fall for non-impacted properties in the same market
Cotality (CoreLogic) — East Coast Floods: One year on · Data as of Feb 2022 – Feb 2023 · Published Mar 2, 2023 · Accessed Sep 2026
CoreLogic’s own one-year-on analysis. The pairing is a 12-month change to February 2023, not a permanent level.
Lismore property value effect — North and South Lismore values down about 30% at end-2023; 16.5% of homes in the LGA flood-impacted; land values in worst-affected areas halved
PointData — Lismore land values halved following 2022 floods; CoreLogic · Data as of end-2023 · Published Mar 20, 2024 · Accessed Aug 2026
Insurance withdrawal and repricing — some residents unable to place flood cover at any price; out-of-floodplain premiums up roughly 25% to 50%
Lismore App — Flood insurance rises to ridiculous levels · Data as of Jul 2023 · Published Jul 3, 2023 · Accessed Aug 2026
Local reporting, directionally consistent with Insurance Council of Australia statements. Treat the percentage band as indicative.
Prudential climate guidance — APRA CPG 229; OSFI Guideline B-15; ECB supervisory expectations; UK Climate Financial Risk Forum
APRA — Prudential Practice Guide CPG 229: Climate Change Financial Risks · Data as of Nov 2021 · Published Nov 26, 2021 · Accessed Aug 2026
US interagency principles rescinded — 88 FR 74183 (October 30, 2023) rescinded effective November 18, 2025; applied to institutions above $100 billion in assets.
Federal Register — Rescission of Principles for Climate-Related Financial Risk Management for Large Financial Institutions · Data as of Nov 2025 · Published Nov 18, 2025 · Accessed Aug 2026
Florida Citizens policy count — peaked near 1.42 million in October 2023; below 400,000 by end-2025, the lowest in over twenty years; more than 546,000 policies transferred to private carriers in 2025
Citizens Property Insurance Corporation — Citizens Recommends Rate Cuts for Most Policyholders · Data as of Oct 2023 – Dec 2025 · Published Dec 10, 2025 · Accessed Aug 2026
The end-2025 count, the 546,000 transfers, and the lowest-ever framing are all in the Citizens release of December 10, 2025, which states 385,000 projected at year-end, a 73% fall from the October 2023 peak and the lowest level ever for Citizens, which was established in 2002.
Florida carrier insolvencies — more than ten property and casualty companies liquidated since 2017, five of them in 2022
Bankrate — Florida homeowners insurance market · Data as of 2017–2025 · Published 2025 · Accessed Aug 2026
California carrier withdrawal — State Farm halted new homeowner applications in May 2023
Insurance Journal — State Farm halts new homeowner applications in California · Data as of May 2023 · Published May 26, 2023 · Accessed Aug 2026
US non-renewal trend — company-initiated non-renewal rates rose between 96% and 216% across the four NAIC zones, based on 715 companies writing at least $50,000 in premium in 2024, against roughly 103 million active policies
NAIC — Examining Homeowner Property Insurance Market Dynamics (PDF) · Data as of 2018–2024 · Published Jul 31, 2026 · Accessed Aug 2026
Energy labels and Dutch house prices — the price difference between energy-efficient and inefficient homes runs from about EUR 10,000 to more than EUR 50,000 across the studies ING reviews.
ING Think — The cost of energy efficiency in the Dutch housing market · Data as of 2022 · Published Dec 14, 2022 · Accessed Aug 2026
Loan-to-value ceilings tied to energy labels are bank-level policy, not a market standard.
Commentary and analysis only. Not investment, financial, legal, tax, or professional advice. CRDF tools are illustrative; examples are composites drawn from public data. Do your own due diligence and consult qualified professionals.
I run this analysis on specific deals. If you are underwriting an asset and want the insurability and refinance assumptions pressure-tested before you sign, book 20 minutes.
Jamie Wolf, MBA — Founder & Publisher, Climate-Ready Real Estate Investing, © 2026, CR REI Holdings LLC