A recent report from Fitch Ratings has highlighted the vital role of the state-managed catastrophe insurer, Consorcio de Compensación de Seguros (CCS), in strengthening the Spanish insurance market’s resilience to climate risks, as demonstrated by the recent floods that struck the country.
For those unaware, the flash floods claimed over 220 lives, and earlier this month, the CCS reported that insured losses from the disaster amounted to €3.5 billion.
The majority of these costs reportedly stem from damages to residential homes, motor vehicles, offices, shops, warehouses, industrial sites, and infrastructure, along with losses from business interruptions.
Still, according to Fitch’s report, the effectiveness of the CCS in mitigating the financial impact of natural disasters on Spanish insurers is evident from historical data.
The firm’s analysts added, “The CCS paid out the equivalent of €10.6 billion in compensation for extraordinary risks in 1987-2022, with floods accounting for about 70%. The average combined ratio for multi-risk property insurance in Spain from 2014 to 2023 was a robust 94%, highlighting the stability provided by the CCS despite frequent weather-related losses.
“The sector combined ratio should not be significantly affected by the recent floods, but insurers will have to pay for the hail damage that happened around the same time in the Valencia region, as that is not covered by the CCS.”
The CCS scheme is funded through mandatory surcharges added to insurance policies, which are collected by insurers and transferred to the government-backed scheme.
For reference, Fitch’s report also underlined France’s Cat Nat scheme, which ensures comprehensive coverage for natural disasters.
“The French state, through CCR (Caisse Centrale de Réassurance), provides unlimited reinsurance guarantees. The system mandates that insurers provide coverage and allows them to reinsure part of their risk with CCR, which can cover up to 100% of losses beyond a certain threshold,” the report explained.
As per Fitch, this scheme has proven “effective in maintaining market stability” and ensuring that citizens and businesses receive adequate compensation for natural disaster-related damages.
The rating agency’s report concluded, “The different approaches across Europe to managing natural catastrophe risks through insurance reflect varying levels of state intervention and market mechanisms.
“We view government-backed insurance schemes like the CCS and the Cat Nat as credit positive for insurers, enhancing their financial resilience and stability.
“As climate change continues to increase the frequency and severity of natural disasters, the role of such schemes will become increasingly significant in supporting the insurance industry’s ability to manage risk and provide timely compensation to policyholders.”
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