AM Best Warns of Impact from Magnitude 7.8 Earthquake on Philippine Insurers

By International Desk: A powerful magnitude 7.8 earthquake that struck off the coast of Sarangani in the Philippines is expected to deliver a modest but notable hit to the local insurance sector, with effects likely materializing in the second half of 2026, according to ratings agency AM Best. While the event caused tragic loss of life and injuries, insured losses are projected to remain relatively contained, underscoring the country’s persistent catastrophe protection gap where many homes and properties go uninsured, leaving a wide divide between overall economic damage and what the insurance industry ultimately covers.

Victoria Ohorodnyk, senior director of analytics at AM Best’s Singapore office, explained that Philippine insurers generally maintain lower exposure in the Mindanao region compared to major commercial hubs like Manila, which helps limit the immediate financial impact. She highlighted how widespread uninsured properties across the archipelago will further widen the gap between total economic losses and insured claims. Philippine insurers continue to depend significantly on the global reinsurance market to transfer substantial earthquake risks, meaning that while local firms will handle the initial layers of claims, international reinsurers are poised to absorb a meaningful portion of the larger exposures.

In its commentary titled “Mindanao Earthquake Expected to Impact Philippine Insurers’ Results in Second-Half 2026,” AM Best noted that the full scale of insured losses is still under assessment and has not been fully quantified yet. The domestic non-life insurance sector is anticipated to absorb the frontline losses through a combination of direct insurance policies and the Philippine Catastrophe Insurance Facility (PCIF), a pooling mechanism designed to share catastrophe risks more broadly within the country. This structure illustrates the interconnected roles of primary insurers and reinsurers in managing high-severity events, even when overall insured losses stay relatively low.

The agency also pointed to evolving risk retention strategies among Philippine insurers. Susan Tan, senior financial analyst at AM Best, observed that many companies have increased their retention of catastrophe risks in recent years. This shift helps balance rising reinsurance costs against profitability goals but simultaneously heightens their sensitivity to climate-related and seismic events. Traditional risk models may show limitations under such stresses, potentially resulting in greater underwriting volatility going forward. The earthquake could prompt reinsurers to review their earthquake modeling and risk appetite more broadly, although Ohorodnyk does not anticipate immediate major shifts in appetite for unaffected regions in the short term.

The human toll has been significant. As of reports following the quake, which struck at 7:37 a.m. on Monday in the Celebes Sea with General Santos City among the hardest-hit zones, the death toll had risen to 37, with additional figures still under validation across provinces including Sarangani, Davao, and South Cotabato. Over 144 people were reported injured and some remained missing in the immediate aftermath. The Philippine Institute of Volcanology and Seismology recorded more than 1,000 aftershocks, ranging from minor tremors to magnitudes up to 6.7. Government authorities, through the Office of Civil Defense, are coordinating relief efforts, including deploying generators and fuel to support hospitals and maintain essential medical services in affected communities.

This latest seismic event adds to the complex risk environment for insurers operating in the Philippines and across Southeast Asia, where natural perils intersect with economic development goals and regulatory expectations. It reinforces the importance of robust catastrophe modeling, diversified reinsurance programs, and initiatives aimed at promoting greater insurance uptake to build societal resilience. As assessments continue, the insurance industry’s response will be closely watched for insights into claims handling efficiency, loss absorption capacity, and potential lessons for future product design and risk pricing in a region highly exposed to geological and climate threats. Stakeholders, from local insurers to global reinsurers and policymakers, may draw on this experience to strengthen preparedness and address underinsurance gaps that leave many vulnerable during such disasters.