Insurance companies are looking at billions in losses from the earthquake in Japan, with some estimates placing the figure as high as $60 billion US.

AIR Worldwide, a Boston-based specialist in catastrophe modelling, said Sunday insured losses will likely come in a range between $15 billion to $35 billion. That estimate only covers damage from the initial 8.9 earthquake, however, and not the tsunami or multiple aftershocks that followed.

"Despite a probably low insurance penetration, we feel that the magnitude of this event might make it the largest insured event ever," DZ Bank analyst Thorsten Wenzel told Bloomberg.

Other estimates came in higher than AIR's best guess. A Credit Suisse report suggested initial insurance cost estimates ranging from $10 billion to $50 billion and Barrie Cornes, an insurance analyst at Panmure Gordon & Co. in London, warned that with the tsunami bill added in, the cost to the global insurance industry could rise above $60 billion.

"The loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector — a similar impact happened post 9/11," Cornes said.

'The magnitude of this event might make it the largest insured event ever'—Bank analyst Thorsten Wenzel

Losses in the $30 to $50 billion range would make the Japanese earthquake the second-most expensive event in the history of the global insurance industry. The largest came in 2005 when Hurricane Katrina flooded New Orleans, costing the industry $62.2 billion US, according to estimates from German reinsurer Munich Re. With inflation factored in, that's roughly $70 billion in today's dollars.

For a country situated on one of the world's most active geological fault lines, earthquake insurance is not very prevalent in Japan. AIR estimates less than one fifth of Japanese homes and businesses are covered.

The Kobe earthquake in 1995, for example, only cost insurers roughly $3 billion US. But the actual economic impact was closer to $100 billion US, experts suggest. Similarly, the actual impact of Katrina was likely much more than what insurance payouts amounted to.

But the international impact of Japan's reconstruction is likely to be limited in other ways. Much like Japanese sovereign debt — which is predominantly held by domestic investors — the Japanese insurance industry is largely financed within the country."Much of the costs will be kept within Japan," Paul Kovacs of the Institute for Catastrophic Loss Reduction told CBC News.

Despite the hundreds of thousands needing to rebuild homes, the insurance impact of Japan's quake is expected to remain local. Yuriko Nakao/Reuters

That's because unlike the way the system works in Canada, Japanese earthquake insurance is set up so that the insurers know what is the maximum possible amount they would be liable for and they adjust their premiums accordingly. And what that figure is is a closely guarded industry secret, Kovacs said.

"The circumstances in Japan are particularly complex since damage to property was not only caused by the earthquake itself but also by fire following the earthquake and the ensuing tsunami," Zurich-based Swiss Re said in a statement. "In terms of residential insurance policies, the cover for earthquake shock and tsunami are provided by a government-run scheme," and as such, it's typically not reinsured in the private market, Swiss Re said.

A report from Fitch ratings agency Monday noted that the government covers up to $52.6 billion under the Earthquake Insurance System.

"It will be smaller than we've seen from other recent events," Kovacs said. Most of the international liability would come in the form of reinsurance or so-called "catastrophe bonds" — loans designed to mitigate against large insurance payouts.

"I think this will not have any impact at all on the Canadian [insurance] market," Kovacs said.

Munich Re confirmed Monday that private insurers do not face a significant bill from damage to Japan's nuclear power plants. "Any impacts due to major accidents in Japanese nuclear power plants will not significantly affect the private insurance industry," the firm said in a statement.

'We …will play our part in dealing with the losses'—Munich Re

"In connection with earthquake covers, in Japanese personal-lines business only a small portion of the risk is transferred to other countries," the company said. "We are very closely committed to our Japanese clients and the country as a whole and will play our part in dealing with the losses."

Aflac, based in Columbus, Ga., said it is the biggest insurance company in Japan in terms of individual policies in force. But the company said less than five per cent of Aflac Japan's new sales and in-force premiums come from the hard-hit Iwate, Miyagi and Fukushima prefectures there.

Aflac, which sells health and life insurance to one out of every four people in Japan, said that while it expects claims to be high, it was well-prepared to cover them.

"Swiss Re is currently evaluating its exposure to the event," the company said. "Given the nature of the destruction, combined with the ongoing recovery efforts and evacuation areas, it will take some time to estimate the damage."

The Lloyd's of London insurance market also said it was too early to estimate its losses, but Australia's QBE Insurance made a preliminary estimate of losses of $125 million.

With files from The Associated Press