The risk of wildfires in Southern Europe, traditionally seen as a sporadic and secondary threat, has now become a structurally significant factor influencing the volatility of profits, capital charges, and insurance purchases, according to a report released today by DBRS.
This shift is attributed to record summer temperatures and longer fire seasons, increasing the frequency and severity of claims. This trend heightens the likelihood of exceeding aggregate reinsurance limits and depleting wildfire risk budgets through multiple medium-sized events.
Insurance terms may tighten in the Iberian Peninsula and the Mediterranean, heavily affected by wildfires.
In Portugal, DBRS highlights that the forest exposure has again been tested, with nearly 65,000 hectares burned this year so far, according to the National Forest Agency, with thousands of incidents reported.
“Given Portugal’s historically high cumulative burn footprint, even a ‘normal’ summer can cause profit volatility for insurance portfolios concentrated in the rural areas of the country’s center and north,” the credit rating agency points out.
DBRS also notes losses for insurers in Spain, where the burned area nearly tripled the annual average since 2006 for this period.
In Italy and Greece, the ongoing concerns for the insurance sector during peak season include business disruptions and liability exposures related to tourism, such as evacuations and smoke-related health claims.
Under these circumstances, DBRS warns of short-term negative revenue risks for insurers heavily concentrated in the wildland-urban interface regions of the Iberian Peninsula and Greece.
For diversified European insurers, however, “the risk remains manageable, owing to strong capital generation, improved reinsurance availability, and increased access to alternative capital.”
Continental Portugal has been affected by multiple rural fires since July, particularly in the North and Center regions, amid high temperatures prompting a state of alert since August 2.
Provisional official data reports that up to August 17, 172,000 hectares burned in the country, exceeding the total burned area for the entire year of 2024.
