The devastating floods in Valencia and Alicante could lead to insured losses of more than €4 billion ($4.22 billion), according to Morningstar DBRS, the world's fourth largest credit ratings agency.

The flash flooding concentrated in the vicinity of Valencia, Albacete, Cuenca, and the eastern part of the Andalusia region, resulted in more than 200 deaths.

The majority of claims will be covered by the Spanish government insurance pool Consorcio de Compensacion de Seguros (CCS), however, premiums are likely to increase to allow the CCS to replenish its reserves.

Earlier this month, the CCS revealed it had received 138,317 claims requests to date from the event, of which 60% were related to motor vehicles, 32% residential properties, 6% small businesses, and 2% industrial sites.

CCS manages the Spanish extraordinary risk insurance scheme and DBRS said there would be consequences for the private insurance and reinsurance sector. Coverage of extraordinary risks in Spain, 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 through the constitution of an equalisation reserve and at the end of 2023, CSS' total net equalisation reserve totalled €10,319 million, increasing from €10,242 million in 2022.

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 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.

Spain has announced a €10.6 billion ($11.4bn) aid package to help those affected which includes €838 million ($902m) in cash handouts to small businesses and freelance workers affected by the disaster.

W Denis arrange specialist Natural Catastrophe Peril (including Flood) protection for organisations throughout Europe and the World. This includes both conventional (re)insurance as well as parametric solutions. For more information please contact:

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Vida.Jarasiunaite@wdenis.eu

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