The catastrophic flash floods that hit the Valencia region on Oct. 29 will have limited effects on private insurers and reinsurers. The Consorcio de Compensación de Seguros (CCS)--a public institution that is attached to the Ministry of Economy, Trade, and Business--will cover most of the claim costs.
What's Happening
Apart from anything else, the flash floods in Valencia have become one of the costliest disasters Spain has ever seen, with several billions of economic and insured losses. 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. 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.
Why It Matters
The flash floods highlight the importance of public-private partnerships to prevent a potential insurance gap and 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 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.
What Comes Next
In addition to the insurance cover provided by the CCS, the Spanish government announced various financing tools to support the Valencia region and its reconstruction over the medium to long term. We will monitor the evolution of economic and insured loss estimations. We will also continue to consider the effects of extraordinary weather events on insurers' credit profiles and the mechanisms and climate adaptation measures that insurers have in place.
Related Research
- Valencia's Credit Quality Unlikely To Suffer After Floods, Thanks To Central Government Funding, Nov. 5, 2024
- Sustainability Insights: Insurers Focus On Underwriting To Tackle Climate Risk, Sept. 10, 2024
- Insurance Industry And Country Risk Assessment: Spain Non-Life, May 14, 2024
This report does not constitute a rating action.
| Primary Credit Analyst: | Simon Virmaux, CFA, Paris + (33) 1-4075-2519; simon.virmaux@spglobal.com |
| Secondary Contacts: | Taos D Fudji, Milan + 390272111276; taos.fudji@spglobal.com |
| Jean Paul Huby Klein, Frankfurt + 49 693 399 9198; jeanpaul.hubyklein@spglobal.com | |
| Marta Heras, Madrid + 34 91 389 6967; marta.heras@spglobal.com |
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