Heatwave Market Dynamics

Economic consequences 

France and Spain have hundreds of thousands of displaced people, and the economic impact will be felt down the line. From a market perspective, the impact from the hot weather this summer is less clear cut.

European stock indices show resilience to domestic issues this summer  

At an index level, European stocks have not been directly affected by the emergency that is going on at home, and instead the dominant macro theme has been volatility in the oil price, and Middle East tensions. While indices remain robust, the Eurostoxx 600 index is higher by 1.5% in the past month, and is outpacing gains for the Nasdaq, the real impact from these devastating fires will be felt at the sector level. They are causing a real hit to regional tourism and they also threaten the insurance sector in Europe, which may also take a hit. 

Wildfires continue to ravage France and Spain, but insurance losses could be contained 

So far, fires in southwest France have destroyed more hectares of land than they did last year. Spain’s fires are the worst in history based on the area that has been destroyed. However, so far, even with fires burning in Italy, Spain and France, claims are unlikely to exceed the EUR 1 billion level or above for any single insurer, because the fires, although enormous, have mostly burnt forest and rural land rather than property. This will be a different story if the fire spreads to Bordeaux, which everyone is hoping will not happen. 

European wildfires not a repeat of LA in January 2025 

This is where the fires in Europe contrast sharply with the fires in Los Angeles back in January 2025, which cost European insurers an estimated EUR 3.5BN, split between the likes of Hiscox in the UK, Swiss Re, Munich Re and Zurich Insurance. 

So far, insurers are showing a high level of resilience.  For example, Hiscox, the FTSE 100 listed insurer, is down only 0.1% in the last 4 weeks, this compares with a 2.7% increase in the FTSE 100. 

Insurance stock prices remain resilient 

Swiss Re is listed on the Swiss Stock Exchange, its share price has risen in the past month and is higher by 8%. This has been driven by demand for defensive stocks on the back of rising geopolitical tensions in the Middle East, and the fact that it has issued record catastrophe bonds so far this year, which could boost profits. Zurich Insurance has also seen its share price rise more than 6% in the past month, as insurance sales soared and due to a wave of buy ratings from investment banks, which has also boosted the stock price. 

Are markets underpricing wildfire risks? 

For now, the impact from the fires on European insurers is contained, and stock prices are not reflecting concern about future claims. However, the market could be underpricing the risk. Swiss Re’s own catastrophe modelling puts 2026 global insured losses at $148bn, with a worst-case scenario at $320bn. This is a wide range. The company notes that wildfire is the fastest-growing catastrophe globally. Swiss Re sees insured losses climbing by 12% a year going forward, as wildfires become more common and more widespread. 

The Bank for International Settlements has also flagged this as a concern for the insurance sector. It said that if climate losses become more correlated across regions in the coming years, then smaller and regional reinsurers could face challenging conditions. 

While none of the world’s major insurers listed in London or Switzerland are likely to report multi-billion euro losses this year due to the wildfires, this is a growing risk to the global economy, and to the insurance sector as a whole. 

Expect volatility for reinsurers 

We expect to see volatility in catastrophe reinsurance prices, which fell sharply earlier this year due to benign catastrophe losses, which puts insurers off renewing their policies, abundant capacity, growing risk appetite and competitive pricing. 

Whether this season sees a surge in reinsurance, we shall have to see. Insurers first half earnings releases, which are coming up in the next few weeks, are worth watching closely. 

For now, the market is not pricing in the full impact of the growing wildfire risk across Europe, but this could change as we progress through 2026. 

Chart 1: Hiscox and Swiss Re share price over the last 5 years, could they be underpricing the risk from climate catastrophes in Europe? 

Source: XTB and Bloomberg. Past performance is not a reliable indicator of future results. 

Chart 2: Eurostoxx 600 insurance sector, 1-year chart 

Source: XTB and Bloomberg. Past performance is not a reliable indicator of future results.