The strong tremor that hit the southern Philippine island of Mindanao is expected to result in limited insured losses due to the country's low insurance penetration, according to a commentary by AM Best.
On 8 June, a magnitude 7.8 earthquake rocked Mindanao, killing more than 40 people and causing significant destruction to infrastructure, homes and major roads. AM Best said that while the full scale of insured losses has yet to be assessed, it expects the persistent protection gap in the Philippines to limit insured losses to a small fraction of the overall economic damage.
“The domestic non-life insurance market is expected to absorb the primary layer of exposure through a risk-sharing programme involving direct policies and the Philippine Catastrophe Insurance Facility,” AM Best said.
AM Best added that while gross premiums written have continued to rise, the increase in net retention of catastrophe risks by primary insurers is a strategic response to balancing high reinsurance costs with profitability targets. However, this shift has led to heightened sensitivity to climate risks and exposed inaccuracies in traditional risk models.
The last major earthquake in the Philippines occurred in 2013 in Bohol, causing an estimated $55m to $100m in insured losses.
The Philippines is one of the world’s most disaster-prone countries and is frequently affected by earthquakes and volcanic eruptions due to its location along the Pacific Ring of Fire, an arc of seismic faults encircling the ocean.