Insured losses from Spain flooding to be well above €1bn: Morningstar DBRS

According to Morningstar DBRS, insured losses from the extreme flooding in eastern and southern regions of Spain are expected to be well above €1 billion, given the significant damage to people, properties, vehicles, and businesses as well as to the agriculture sector.

On October 29, 2024, extreme flooding, triggered by severe torrential rainfall, impacted the Spanish regions of Valencia, Albacete, Cuenca, and eastern Andalusia. At least 95 people are confirmed dead, with widespread damage to property and infrastructure.

“While it is still very early to provide a loss estimate, we expect that the economic losses of the weather event will reach several billion euros,” Morningstar DBRS said in a recent report.

According to the firm, part of the insured losses will be covered by the state-owned Consorcio de Compensación de Seguros (CCS), which manages the Spanish extraordinary risk insurance scheme.

“In Spain, the coverage of extraordinary risks, including floods and windstorms, is mandatory for any basic insurance coverage offered by private insurance companies. The CCS does not receive public funding; instead, it is funded by a surcharge to the policy premiums paid by policyholders and meets its obligations through the constitution of an equalization reserve,” Morningstar DBRS explained.

The CSS could also reportedly recover part of the insured losses related to the agricultural sector through its participation in Seguro Agrario Combinado (SAC), a form of coinsurance, which mostly covers risks related to adverse climate and meteorological events in the agricultural and livestock sectors.

In a note published on October 30, 2024, the CCS confirmed it will cover damage to properties and vehicles attributable to flooding.

“First of all, the Insurance Compensation Consortium and the Ministry of Economy, Trade and Enterprise express their deepest condolences to those who have suffered personal and material losses as a result of the extraordinary flooding. At this difficult time, we sympathise with each affected family and reaffirm our commitment and support to face this adversity together and begin reconstruction,” CCS’ note said.

It continued, “The CCS will directly assume, with its own means, the management and payment of the compensation claims it receives, after assessing the compensable damages that have occurred and that continue to occur as a result of this episode of extraordinary flooding.

“The requirement for access to CCS coverage is that the person or property affected must be insured and have their insurance in force at the time the extraordinary flooding occurred. This fact must be accredited in the application for compensation to the CCS.

“The CCS will compensate the damage produced to the insured persons and the damage to the insured goods, whether they are dwellings or communities of owners; motor vehicles; office premises; commercial and service establishments and other non-industrial properties; industries; and civil works and infrastructures, whether all the aforementioned goods are privately or publicly owned.”

As a result, Morningstar DBRS expect that the insured losses caused by the severe flooding will be mostly absorbed by the CCS.

“Nevertheless, given the magnitude of the atmospheric events, we consider that the consequences for the private insurance and reinsurance sector will be significant, with large claims undermining the underwriting profitability of Spanish insurance companies,” the firm concluded.

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