Our department is using a flood transaction testing template provided by a compliance vendor to test loans and the line of business is using a tool off of BOL. We are getting different results and I am not sure which is correct.

The loan is a commercial loan secured by two structures in a flood zone. One building is worth $1,200,500 and the other $8,500. For the NFIP calculation, the testing worksheet is using $1,000,000 as the MAX NFIP but the BOL worksheet is using $507,500.

Which is correct? Do you only use the maximum you would require (like you would not require a $500,000 on a $8,500 building or do you always use the max available $1,000,000 so you can spread it across both buildings? Interestingly, I saw it both ways in some FDIC training I found online. 

You canon only insure a commercial building commercial for its ACV. What the building is "worth" has nothing to do with flood.

If the ACV of the smaller building is $8,500 you need a policy for $8,500. Anything over that and you requiring the building to be over insured, which is a UDAP.

The limit on an NFIP policy for a commercial building is $500,000. Without looking at the worksheets, it is hard to say what is right and what is wrong and if you are using them appropriately.

I guess my question is do you use $1,000,000 for the Max NFIP or do you use $500,000?

Based on this example from FDIC training, the BOL calculator is correct:

Commercial #1 Ins value $1,000,000 Max NFIP : $500,000 - lesser of two = $500,000
Commercial #2 Ins value $300,000 Max NFIP: $500,000 - lesser of two = $300,000

Flood ins required is $800,000.

The calculator we are using in Compliance (from the vendor) puts the $500,000 where the $300,000 is now. I think this is wrong, but the vendor will not reply and I need to be sure. I have another FDIC example that shows it the way vendor has it.

The formula is the lesser of flood insurance available from the NFIP, the insurable value of the buildings (subject to the maximum insurance available for each building) or the loan amount.

If you have two commercial buildings, the maximum available from the NFIP is $1,000,000. It sounds like they are combining two of the three tests into one.

I'm really confused - so the FDIC example is incorrect? I too thought the max NFIP for two commercial structures should be calculated as $1,000,000. But the FDIC example and the BOL tool, are taking an aggregate. I sure wish there were clear regulations on how to do this calculation. The way you and I think it should be done we are short thousands of dollars of insurance. The way the BOL tool does it, we are good. I need a clear answer.

P.S. Thanks for your assistance. I am just venting a little here.

How are you short? You cannot over insure a specific building. You cannot insure a commercial building for $300,000 if the insurable value is only $300,000. NFIP policies a building specific, so over insuring one building does not provide additional coverage on the other structure.

Plus, if we are talking about a specific example, why do you keep changing the dollar amounts? You started with $8,500 and now the insurable value of the second building is $300,000? Why are you short thousands of dollars?

Sorry to confuse. The $300,000 is from the FDIC slides. It wouldn't let me cut and paste the slide into this communication, so I just typed it out. I was trying to show in that example, they did the lesser of and aggregated the results. That is what the BOL worksheet does too. Doing it this way, the lowest amount is the MAX NFIP when you aggregate. So, in my example that would be $500,000 for the building with ACV of $1,200,500 and $8,500 for the other building or $508,500.

In the vendor document - it is taking the MAX NFIP, comparing it to the loan amount and the ACV. This results in the loan amount being the lowest, which is several thousand dollars more than the $508,500 from the above calculation.

If you have the time, I would be happy to discuss with you over a Teams call.

Since you have not once told us your loan amount, how can we tell you what is correct?

Well, I thought if I could figure out whether to use $1,000,000 or $508,500, I could figure out the rest. The loan balance is $700,000.

So here it is:

Loan Amount $700,000
NFIP Max: either $1,000,000 or $508,500
Ins Val: $1,209,000

If the $508,500 is right. We are good. If the $1M is right - we should have $700,000 in insurance, right???

You didn't provide a loan amount so I used a $750,000 loan amount and I used the building values you provided as the insurable value.

Loans Secured by Property in a SFHA - $750,000
Insurable Value - $1,200,500 & $8,500 (non residential buildings)
NFIP Max per building $500,000 ($1,000,000 total)
Insurance amount if less than NIP Max - Building 1 - $500,000 - Building 2 - $8,500 - Total NFP coverage available $508,500
Minimum Flood Insurance Required $508,500.

Thank you Dan!! (and thanks again Randy!)