The spreading wildfires in Spain and France are among the worst fire events in Europe in recent years, but Morningstar DBRS, a global credit rating agency that provides financial intelligence and credit ratings, said the current losses are more likely to reflect a profit event for insurance companies rather than a major credit problem.
The rating agency noted that European insurers enter the 2026 wildfire season with strong capital positions and liquidity, providing a buffer against fire claims.
The assessment comes as hundreds of thousands of people are affected by evacuations and emergency measures. As of July 26, more than 220,000 people have been evacuated in France, more than 75,000 people have been evacuated in Spain, and about 30,000 people have been ordered to shelter in place.
Fires have burned more than 45,000 hectares in the Spanish provinces of Madrid, Avila and Toledo, while France has recorded 98,000 hectares burned since the start of the year. Spain has burned more than 150,000 hectares so far this year.
Morningstar DBRS said final insured losses will depend less on the total area burned and more on whether the fire reaches densely populated areas and locations with high-value commercial risks.
The agency highlighted the fire’s proximity to Bordeaux, posing potential risks to residential property, tourism, wine-related businesses, transport networks and business interruption claims. Similar concerns apply to communities west of Madrid, where significant insurance values ​​could be affected if the fires spread to more developed areas.
Morningstar DBRS expects the current wildfires to have a negative but manageable credit impact on Europe’s largest insurance companies. French non-life insurers reported a combined ratio of 95.3% and a total Solvency II ratio of 299% in 2025, while the European Insurance and Occupational Pensions Authority reported that European insurers and reinsurers remained well capitalized and profitable in 2025.
The current situation differs from events such as the Los Angeles wildfires in 2025, when a concentration of high-value properties caused an estimated $40 billion in insured losses. Spain and France generally have less combustible housing stock, and many of the areas affected so far are forested or rural.
The agency noted that trees, plantations and undeveloped land are often uninsured or excluded from standard property policies, meaning financial losses can significantly exceed insured losses. However, they warned the risk profile would change if the fires spread to densely populated communities.
The spread of the fires into the suburbs of Bordeaux or developed areas around Madrid could turn this largely rural disaster into an urban blaze. In this case, the scope of the claim may not be limited to property directly damaged by the fire, but also include smoke and ash damage, fire-related losses, evacuation costs, temporary accommodation and business interruption. Smaller insurance companies with concentrated property portfolios and higher net retention rates will be at greater risk 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 real estate disaster buyers received double-digit price cuts and improved terms during June and July renewal periods as available capacity exceeded demand.
Morningstar DBRS said this market environment should allow insurers to absorb modest wildfire losses without significant capital pressures. However, the rating agency said wildfire risk poses a challenge because it typically results from frequency and accumulation rather than a single catastrophe.
Morningstar DBRS said multiple medium-sized fires could gradually reduce catastrophic budgets, deplete overall protection and result in additional recovery costs, even if individual events do not trigger significant excess loss coverage. The agency also stressed that claims processing may take time and that smoke damage, evacuation costs and business interruption losses may arise over time. The treatment of multiple fires under the policy event definition may also affect whether a loss is considered one event or several separate events.
The agency expects insurers to face wider differences in their reinsurance arrangements during the January 2027 renewal period. Loss-affected plans or portfolios with limited location data may face higher retention or tighter overall protections, while insurers with detailed risk data, risk-based pricing and effective mitigation may still be attractive to reinsurers.
Morningstar DBRS said that while severe urban losses or further catastrophe events across Europe could slow or reverse recent price declines, current wildfire losses alone are unlikely to trigger widespread reinsurance market hardening. Its main credit concern is the changing geography of wildfire risk, with fires moving closer to cities and business centers.
The agency cited estimates from AXA Climate that the average number of high-risk wildfire days around some French cities could increase by nearly 70% by 2050. The agency also noted that Spain’s 2025 wildfire season was the country’s worst in three decades, with nearly 355,000 hectares burned.
Insurers need to improve risk management at the site level, incorporate preventive measures into pricing and work with governments on land use, vegetation management, building resilience and early warning systems.
For now, Morningstar DBRS says credit ratings are unlikely to have an impact on large diversified insurers. The agency said that assessment would change if current fires cause widespread urban damage, exhaust annual catastrophe coverage, or significantly weaken underwriting profitability and capital positions.
“While the human and environmental impacts of wildfires in Spain and France have been severe, we expect the credit impact of the current fires on large, diversified European insurers to be manageable,” added Marcos Alvarez, managing director at Global Financial Institutions Ratings. “From a credit perspective, the shift of wildfire risk to urban and business-focused areas is our key concern.”
