The 8.8-magnitude earthquake that shook a long swath of Chile on Feb. 27 left damage that could work its way into ABS deals, sources said. The most vulnerable asset class is related to real estate, including deals backed by residential mortgages and lease-to-own contracts, but there are safeguards that should help transactions avoid serious deterioration.
"All of the collateral we rate has earthquake insurance," said Juan Pablo Gil, an analyst at Fitch Ratings in Chile. He added, however, that the individual deductible would be the higher of either 1% of the estimated loss or 25 inflation indexed units ($1,000). This is the amount that the insurance company deducts from its payment after assessing the cost of damage. While not exorbitant by local standards, the amount a homeowner would have to cover could test those with fewer resources or those who have to make other emergency payments as a result of the earthquake.