Since early July 2026, above-average temperatures across Mediterranean Europe have driven another severe wildfire season. This follows the EU’s worst wildfire year on record in 2025, when Spain and Portugal recorded their most severe seasons in 20 years of EFFIS data.¹ Within Spain, wildfire damage reached a 20-year high in 2025, with more than 390 thousand hectares burned, exceeding the prior peak of roughly 306 thousand hectares in 2022.

For securitisation investors, the credit implications depend on two factors: whether wildfire zones overlap with securitised collateral and whether safeguards prevent physical damage from becoming credit losses.

Wildfires in Spain have historically been concentrated in rural regions with significant forest cover. The recent Madrid-region fires illustrate this pattern: the Sierra Oeste fire, the largest recorded in the region, remains some distance from urban Madrid. Immediate fire risk therefore lies largely outside dense urban mortgage collateral, limiting the direct credit impact on urban RMBS pools.

The map uses a recent Spanish prime RMBS transaction with collateral concentrated in the Madrid region. Postal-code-level loan data enables a precise comparison between mortgage exposure and current wildfire locations, showing that Madrid exposure does not necessarily imply direct exposure to the fire zone. Investors should distinguish rural collateral in affected areas from the urban Madrid mortgage market, where direct wildfire risk is more limited.

The next question to consider is how can investors recover value if mortgaged property is damaged or destroyed by fire. Spanish mortgage lenders generally require fire insurance at origination, and mortgage contracts typically allow lenders to arrange replacement coverage if a borrower lets the policy lapse.²

Active insurance generally covers repair or rebuilding costs, limiting credit losses where claims are timely and properties remain habitable. If coverage lapses, collateral value may fall while the borrower remains liable, with recoveries constrained by legal delays and weakened borrower finances.

As part of its servicer due diligence process, PGIM reviews both servicing practices and the disclosures provided in transaction documents. Practices may vary by originator, but one requirement is consistent: borrowers must have home insurance, including fire coverage, in place before receiving a mortgage loan. PGIM actively engages with servicers across its transactions to understand any wildfire-related impacts and assess how insurance coverage is operating in practice.³

Additional government support following a declaration of an area as “seriously affected by a civil protection emergency” – including property tax exemptions, grants, loans, tax relief and deferrals – can further reduce borrower stress by providing direct financial support to affected homeowners.⁴ However, wildfire is deliberately left to be covered by the private insurance market, which is precisely why insurance coverage quality drives the wildfire credit outcome.

Recent Spanish wildfires suggest that borrower outcomes depend primarily on active insurance, available public relief and the speed of claims and reconstruction. Where available, insurance and public support can limit potential credit losses.

For mortgage borrowers, losses are most likely to be recovered by insurance claims, but claim delays, documentation requirements, underinsurance, disputed coverage or slow reconstruction could still increase arrears risk. Borrowers remain responsible for their mortgage payments and any uninsured loss remains the direct credit risk to securitisations.

Recent servicer feedback supports this framework. Servicers of Spanish RMBS and Auto ABS held in PGIM portfolios reported no material number of affected borrowers or properties, as of July 2026. They confirmed that property damage insurance, including fire coverage, is required and that affected cases would be managed through established servicing procedures, including restructuring or forbearance where appropriate. Based on current information, coverage remains intact and no wildfire-related losses or material performance effects have been observed.
 

What Is the Impact to Securitisations So Far?

Based on data through July 2026 (Auto ABS) and February 2026 (RMBS), recent Spanish wildfires have produced no clear evidence of widespread deterioration in RMBS or Auto ABS securitisation arrears. This reflects the rural location of many affected areas, available insurance and public relief, and the regional diversification of most securitised pools.