The magnitude 7.8 earthquake that struck the southern Philippines on 8 June 2026 is expected to trigger a multi-line claims event for insurers and reinsurers, according to AM Best. While the quake will cause significant economic losses across Mindanao, the ratings agency reports that insured losses will represent only a fraction of the total damage due to a persistent catastrophe protection gap in the region.
How does the Philippine insurance market handle catastrophe risk?
Domestic non-life insurers are managing the initial impact of the earthquake through a risk-sharing model that combines direct policies with the Philippine Catastrophe Insurance Facility (PCIF). AM Best reports that the PCIF was specifically designed to pool domestic catastrophe risks, aiming to reduce the industry’s historical reliance on offshore reinsurance capacity. By centralizing these risks, local firms aim to stabilize their balance sheets when major seismic events occur.
The Philippine Catastrophe Insurance Facility (PCIF) was established to create a more resilient domestic market, effectively keeping more risk within the country rather than immediately passing it to global reinsurance markets.
Why are reinsurers reassessing their earthquake models?
Insurers in the Philippines remain heavily dependent on global reinsurance markets to transfer extreme earthquake risks, according to AM Best. Following the 2026 event, the ratings agency anticipates that international reinsurers will likely reassess their existing earthquake models and overall risk appetite for the region. While some models may be updated, AM Best does not expect a significant shift in risk appetite for regions outside of the affected Mindanao area in the short term.
What are the risks of increasing net retention?
Primary Philippine insurers have increasingly retained more catastrophe risk in recent years, a strategic move to balance high reinsurance costs against profitability goals. Susan Tan, a senior financial analyst at AM Best, warns that this shift has heightened sensitivity to climate risks. “This shift has exposed inaccuracies in traditional risk models due to the inherent uncertainty associated with climate change, which could lead to elevated underwriting volatility,” Tan stated.
| Metric | Trend Observed by AM Best |
|---|---|
| Gross Premiums | Consistent growth in recent years |
| Combined Ratio | Rising alongside premium gains |
What happens if a major earthquake hits a commercial hub?
While the Mindanao event is significant, experts are looking toward the potential impact of a similar event in more densely populated commercial centers. Victoria Ohorodnyk, senior director of analytics at AM Best, noted that the disparity between insured and economic losses highlights a need for better disaster financing. “A greater risk for insurers would be if an event happens in one of the more commercial centres in the country, such as Manila,” Ohorodnyk said.
For industry professionals, monitoring the combined ratio alongside catastrophe loss trends is essential. Rising administrative costs can quickly erode the gains made from premium growth during high-volatility periods.
Frequently Asked Questions
Why is there a gap between economic and insured losses in the Philippines?
According to AM Best, a significant portion of property and infrastructure damage remains uninsured due to a catastrophe protection gap, meaning property owners bear the brunt of the financial recovery.
Will insurance premiums rise following the Mindanao earthquake?
AM Best notes that while insurers are facing claims volatility and higher costs, they are already balancing these factors against profitability targets. The agency emphasizes that the focus is currently on reassessing risk models rather than immediate market-wide rate hikes.
How does climate change affect earthquake insurance?
AM Best analysts suggest that climate change introduces uncertainty into traditional risk models, making it harder for insurers to accurately price catastrophe risk and leading to potential underwriting volatility.
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