The wildfires spreading across Spain and France represent one of Europe’s most significant fire events in recent years, however Morningstar DBRS, a global credit ratings agency providing financial intelligence and credit ratings, said the current losses are more likely to be reflected as an earnings event for insurers rather than a material credit issue.
The ratings agency noted that European insurers entered the 2026 wildfire season with strong capital positions and liquidity, providing a buffer against claims arising from the fires.
The assessment comes as hundreds of thousands of people have been affected by evacuations and emergency measures. In France, more than 220,000 people had been evacuated as of 26 July, while in Spain more than 75,000 people had been evacuated and around 30,000 people had been ordered to shelter in place.
Fires in Spanish provinces including Madrid, Ávila and Toledo had burned more than 45,000 hectares, while France had recorded 98,000 hectares burned since the start of the year. Spain’s year-to-date burned area had exceeded 150,000 hectares.
Morningstar DBRS said the eventual insured losses would depend less on the total area burned and more on whether fires reach densely populated areas and locations with high-value commercial exposure.
The agency highlighted that the proximity of fires to Bordeaux creates potential exposure for residential property, tourism, wine-related businesses, transport networks and business interruption claims. Similar concerns apply to communities west of Madrid, where significant insured values could be exposed if fires spread into more developed areas.
Morningstar DBRS expects the current wildfires to have negative but manageable credit implications for large European insurers. French non-life insurers reported a 95.3% combined ratio for 2025 and an aggregate Solvency II ratio of 299%, while the European Insurance and Occupational Pensions Authority reported that European insurers and reinsurers remained well capitalised and profitable through 2025.
The current situation differs from events such as the 2025 Los Angeles wildfires, where a concentration of high-value property contributed to approximately $40 billion in insured losses. Spain and France generally have less combustible housing stock, while many of the affected areas so far are forested or rural locations.
The agency noted that trees, plantations and undeveloped land are often uninsured or excluded from standard property policies, meaning economic losses can significantly exceed insured losses. However, they warned that the risk profile would change if fires spread into densely populated communities.
A fire reaching Bordeaux’s suburbs or developed areas around Madrid could shift the event from a predominantly rural disaster into an urban conflagration. In that scenario, claims could extend beyond properties directly damaged by flames to include smoke and ash damage, firefighting-related losses, evacuation costs, temporary accommodation and business interruption. Smaller insurers with concentrated property portfolios and higher net retentions would be more exposed than larger, diversified insurance groups.
The agency noted that reinsurance should provide an important buffer for European insurers, with global reinsurance capital reaching a record $790 billion at the end of the first quarter of 2026. The agency noted that property catastrophe buyers secured double-digit price reductions and improved terms during the June and July renewals as available capacity exceeded demand.
This market environment should allow insurers to absorb moderate wildfire losses without significant capital pressure, according to Morningstar DBRS. However, the ratings agency said wildfire risk presents a challenge because it is often driven by frequency and accumulation rather than a single large catastrophe.
Morningstar DBRS stated that multiple medium-sized fires can gradually reduce catastrophe budgets, exhaust aggregate protection and lead to additional reinstatement costs, even where individual events do not trigger major excess-of-loss coverage. The agency also highlighted that claims development could take time, with smoke damage, evacuation costs and business interruption losses potentially emerging gradually. The treatment of multiple fires under policy event definitions could also affect whether losses are considered one occurrence or several separate events.
The agency expects insurers’ reinsurance arrangements to face greater differentiation during January 2027 renewals. Loss-affected programmes or portfolios with limited location data may face higher retentions or tighter aggregate protection, while insurers with detailed exposure data, risk-based pricing and effective mitigation measures are likely to remain attractive to reinsurers.
Morningstar DBRS said the current wildfire losses alone are unlikely to trigger broad reinsurance market hardening, although a severe urban loss or further catastrophe events across Europe could slow or reverse recent price reductions. Its main credit concern is the changing geography of wildfire risk, with fires increasingly moving closer to urban and commercial centres.
The agency cited AXA Climate estimates that the average number of high-risk wildfire days around selected French cities could rise by nearly 70% by 2050. It also noted that Spain’s 2025 wildfire season was the country’s worst in three decades, with almost 355,000 hectares burned.
Insurers will need to improve location-level exposure management, incorporate prevention measures into pricing and work with governments on land use, vegetation management, building resilience and early warning systems.
For now, Morningstar DBRS said a credit rating impact on large and diversified insurers is unlikely. The agency said this assessment would change if the current fires resulted in extensive urban destruction, exhausted annual catastrophe protection or materially weakened underwriting profitability and capital positions.
“Although the human and environmental effects of the wildfires in Spain and France are already severe, we expect the current fires to have manageable credit implications for large, diversified European insurers”, added Marcos Alvarez, Managing Director of Global Financial Institution Ratings. “The movement of wildfire risk toward urban and commercial concentrations is our main concern from a credit perspective.”
