Spain’s Record-Breaking Floods Push Insured Losses Above €4 Billion ($4.2 Billion)
Total insured losses from recent floods in Spain are expected to exceed €4 billion (US$4.2 billion), according to credit rating agency Morningstar DBRS.
This insured price tag includes losses absorbed by the Consorcio de Compensación de Seguros (CCS), the state-backed insurer that steps in when policyholders face losses from extraordinary risks, such as acts of terrorism, rebellion, and natural disasters.
The CCS has estimated that total insured losses are likely to hit approximately, €3.5 billion ($3.7 billion), said Morningstar, with additional damages from the agriculture sector expected to be more than €160 million ($169 million), Morningstar said, quoting Aon estimates.
Spain’s Devastating Floods Will Cost Insurers Over $3.8 Billion
“Insured losses to the agriculture sector are largely covered by Seguro Agrario Combinado, a form of co-insurance amongst private companies in which the CCS directly co-insures the risk, assuming a fixed quota share of 10%, and acts as an excess-of-loss reinsurer for the other co-insurers,” Morningstar explained. “Additional insured losses generated by risks not directly covered by the CCS will be covered by private insurance companies, although we consider the overall impact manageable for the sector.”
Morningstar expects that the economic and insured losses generated by this event will be the largest in Spain’s history, with a significant number of vehicles, residential properties, businesses, and agricultural sites affected.
CCS has received 138,317 claims requests, of which 60% were related to motor vehicles, 32% were related to residential properties, 6% were related to small businesses, and 2% were related to industrial sites, said Morningstar, quoting a CCS press release issued on Nov. 8.
The CCS is supported by an “equalisation reserve,” which Morningstar said is sufficient to cover the estimated losses related to this extreme weather event. “However, we expect rates to increase going forward to allow the CCS to gradually replenish the equalisation reserve. In our view, these increases will be easily absorbed by policyholders over time given the relatively small current value of the CCS’ surcharges in all Spanish insurance policies.”
Morningstar noted that the CCS helps mitigate pricing volatility in the catastrophe insurance market, “which might be subject to sharp rate increases or insufficient available coverage in the aftermath of costly extraordinary events, such as the one that recently occurred.”
However, the ratings agency cautioned that the growing frequency and severity of natural catastrophes could become a test for the CCS’ current funding mechanism “if its equalisation reserve reaches critical levels, rendering the mutualisation mechanism insufficient.”
Photograph: A man walks through a street affected by floods in Valencia, Spain, Saturday, Nov. 2, 2024. (AP Photo/Manu Fernandez, File)
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