Spanish floods may leave private re/insurers unscathed

Claims from catastrophic flash floods that hit eastern Spain at the end of October will have a limited effect on private insurers and reinsurers as they will be largely covered by a government insurance agency, according to S&P Global. 

The Consorcio de Compensación de Seguros (CCS), which is attached to the Ministry of Economy, Trade, and Business, has estimated that insured losses amount to $3.77 billion (€3.5 billion), making it one of the costliest events to hit Spain.

"The CCS is covering most of the costs that resulted from damages to insured properties -- notably residential houses -- motor vehicles, offices, shops, warehouses, industrial sites, and infrastructure, as well as business interruption," said S&P. "It also provides insurance cover for casualties. As of today, the CCS estimates that insured losses amount to €3.5 billion. 

"Even so, we forecast that the effects of these losses on insurers' results will be limited, relative to the magnitude of the event. We therefore do not expect any effects on our ratings on Spanish insurers."

S&P Global said the event highlights the importance of public-private partnerships to prevent insurance gaps and to mitigate the effects of climate change. 

"DANA, the weather phenomenon that caused the flash floods, is a recurrent natural event, but the magnitude of the most recent one is extraordinary," the report said. 

"The CCS is financed by mandatory contributions on insurance policies that are underwritten by primary insurers. It receives premiums that are calculated as a proportion of the capital insured, which, in turn, depends on the lines of business. 

"The CCS collected about €1 billion in premiums in 2023. Over decades, the CCS accumulated reserves of just above €10 billion to cover extraordinary events, such as the flash floods. This supports our view that the property/casualty insurance industry in Spain is exposed to low risk because the CCS mitigates the volatility of profitability from natural catastrophe events by absorbing the majority of peak losses. We therefore believe the flash floods will also have a limited effect on the global

reinsurance sector." 

Aon's weekly catastrophe update reported that private insurers will be have to pay claims from additional insured losses. Around $173 million (€160 million) of agricultural losses will be covered by Agroseguro, a system of pooled insurance for private insurers.

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