Spanish flood losses to easily exceed €1bn

Extreme flooding triggered by severe torrential rainfall in eastern and southern regions of Spain has led to one of the deadliest weather events on record in Spain and insured losses are likely to exceed €1bn, according to credit ratings agency Morningstar DBRS. Aon also said that total economic and insured losses from the event may reach into the billions of euros, with further weather warnings in place for parts of the country.

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

In some areas, 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, we expect that the economic losses of the weather event will reach several billion euros,” said Morningstar DBRS.

Insured losses are expected to be high, well above €1bn, given the significant damage to people, properties, vehicles, and businesses as well as to the region’s agriculture sector.

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.

Aon said a cut-off low-pressure system, known in Spain as DANA (depresión aislada en niveles altos) or gota fría “cold drop”, triggered persistent showers and thunderstorms. The event first caused heavy rainfall and severe storms over the Almería Province on 27-28 October with municipalities such as El Ejido and Dalías hit by large hailstones exceeding 4cm in diameter.

Across the Valencia and Castilla-La Mancha communities, continuous and heavy rainfall on 27-30 October saw areas in the Valencia, Albacete, and Cuenca provinces record more than 300mm of rainfall during the four-day period.

Aon said the event is one of the deadliest floods in Europe since 2000 and the deadliest natural disaster in Spain since flooding in 1973, which claimed about 500 fatalities (excluding heatwaves). It added that 155 of the 158 deaths confirmed so far were in Valencia, with the final death toll expected to climb as the search continues for dozens of people missing.

As well as damage to buildings, vehicles, infrastructure and industrial sites, Aon said the event has caused power outages as well as business interruption losses, including at the Ford assembly plant in Valencia, which stopped production.

“The insurance sector is bracing for potentially one of the costliest events in Spain on record,” Aon said.

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, but it is ultimately funded by a surcharge to the policy premiums paid by policyholders. It meets its obligations through the constitution of an equalisation reserve.

At end-2023, CSS’s total net equalisation reserve totalled €10.32bn, increasing from €10.24bn at end-2022, reported Morningstar DBRS.

The CCS 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 co-insurance, which mostly covers risks related to adverse climate and meteorological events on the agricultural and livestock sectors.

The CCS 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. The SAC generally benefits from public support provided by either the central government, the regions, or both, explained the credit ratings agency.

CCS confirmed it will cover damage to properties and vehicles attributable to flood.

Morningstar DBRS said: “As a result, we 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 consistent, with large claims undermining the underwriting profitability of Spanish insurance companies,” it warned.