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Southern Spain’s devastating floods are expected to cost insurers well above €1 billion ($1.1 billion), given the significant damage to people, properties, vehicles and businesses as well as to the region’s agriculture sector, according to a commentary .

More than 200 people died during the floods on Oct. 29-Oct. 30 – one of Spain’s worst natural catastrophes.

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, the report explained. “In Spain, the coverage of extraordinary risks, including floods and windstorms, is mandatory for any basic insurance coverage offered by private insurance companies. The CSS does not receive public funding, but it is ultimately funded by a surcharge to the policy premiums paid by policyholders.”

The CCS meets its obligations via an equalisation reserve, which at end-2023, CSS’ total net equalisation reserve totalled €10.3 billion, increasing from €10.2 billion at end-2022, Morningstar DBRS added.

The CSS is also expected to 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 on the agricultural and livestock sectors, the commentary said.

The CSS directly co-insures the risk, assuming a fixed quota share of 10%, but also acts as an excess-of-loss reinsurer for the other co-insurers, DBRS said, explaining that the SAC generally benefits from public support provided by either the central government, the regions, or both.

In a note published on Oct. 30, 2024, the CSS confirmed it will cover damage to properties and vehicles attributable to flood. As a result, Morningstar DBRS expects that the insured losses caused by the severe flooding will be mostly absorbed by the CCS. Nevertheless, given the magnitude of the atmospheric events, DBRS said the consequences for the private insurance and reinsurance sector will be consistent, with large claims undermining the underwriting profitability of Spanish insurance companies.

The flash flooding from heavy rains were mostly concentrated in the vicinity of Valencia, Albacete, Cuenca, and the eastern part of the Andalusia region, resulting in floods, numerous deaths and widespread damage to property and infrastructure.

In some areas, Morningstar DBRS said, the equivalent of one year’s worth of rain fell in just eight hours. While it is still very early to provide a loss estimate, Morningstar expects that the economic losses (which include insured losses) of the weather event will reach several billion euros.

Source: Morningstar DBRS

Photograph: People clean mud from a street affected by floods, in Algemesi, Spain, on Sunday, Nov. 3, 2024. (AP Photo/Manu Fernandez)

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Topics Carriers Flood