Losses from a magnitude 6.3 earthquake that struck Christchurch,New Zealand Feb. 21 (Feb. 22 local time) could total as much as $12billion, according to one estimate cited in a note to clients froma JP Morgan Chase & Co. analyst.

If losses reach that high for thequake, the second to hit the city in six months, it would fallwithin the Top 10 most costly world insurance losses since1970.

Catastrophe modeler AIR Worldwide said losses from the magnitude6.3 earthquake are expected to be between $3.5 billion and $11.5billion. The estimate includes damage to property, contents anddirect business-interruption losses.

Hurricane Katrina in 2005 is the world's costliest insuranceloss at more than $71 billion. If the losses from this New Zealandearthquake reach $12 billion, it would rank eighth, in front of2005's Hurricane Rita at about $11.1 billion and behind 2005'sHurricane Wilma at about $13.8 billion, according to data compiledby the Insurance Information Institute.

Christchurch, New Zealand's second-largest city, was struck by amagnitude 7.0 earthquake in early September 2010. AIR, said thatmany affected structures may have been weakened by the firstearthquake.

Modeler Risk Management Solutions (RMS) said the shaking fromthe Feb. 21 earthquake is considered “severe” on an intensityscale, meaning there is the potential for moderate to heavy damageto resistant structures and heavy damage to vulnerablestructures.

“Reports confirm that damage is considerable in Christchurch'scentral business district and is more extensive than following theSeptember 2010 earthquake,” said Emily Paterson, associate managerof catastrophe response at RMS. “The most severe damage reportsstem from the town Lyttelton, closest to the earthquake'sepicenter, though reports are still emerging given the restrictedaccess to the area.”

ONE EVENT OR TWO?

Moody's Investor Services said losses for the quake may dependon whether this latest earthquake, considered an aftershock of theSeptember quake, will be considered the same event.

“This would have clear, favorable implications for a companylike Suncorp, which will likely experience additional losses thatcould be reinsured in full if this latest earthquake is consideredto be the same event,” Moody's said.

If this quake is a separate event, Suncorp's reinsurance willonly cover any losses above $45 million (NZD $60 million), saidMoody's.

Australia's Suncorp has also been hit hard with claims relatedto massive flooding in its home country.

The New Zealand Earthquake Commission (EQC) said otheraftershocks from the September earthquake are considered separateevents, according to a note from Willis Re sent to clients.

Moody's also said it will take no immediate action on NewZealand and Australia issuers as a result of the quake. The“immediate consequences of the earthquake—and likely directconsequences over time to rated issuers—are clearly negative but donot pose immediate rating threats,” Moody's said in a note.

The rating agency said much of the damage will be covered by theEQC to residential properties, but some insurers will still get hithard since they are already dealing with the effects of theSeptember earthquake.

The EQC provides coverage of up to $73,385 (NZD $100,000) perbuilding for residential owners who purchase fire insurance.

The country's finance minister said the EQC has sufficient fundsto cover expected claims, Willis Re reported. The EQC is liable forthe first NZ$1.5 billion (US$1.12 billion) of losses and it hasNZ$2.5 billion (US$1.87 billion) in reinsurance cover.

QBE Insurance Group is exposed mostly to commercial rather thanresidential risk, and the net loss from the September earthquakewas within their 2010 allowance for natural disasters, Moody'ssaid. The insurer's losses from this event and from flooding inAustralia are covered by its $1.5 billion allowance for 2011.

Validus Holdings said its preliminary loss estimate for thequake is between $25 million and $50 million, based oncommercial catastrophe model vendors and the company's analysis.The company said this event will produce greater losses for it thanthe September earthquake.

Validus said it believes insurance industry-wide losses from theevent could run somewhere in the range of $6 billion to $7.5billion.

Flagstone Re said it is too early to estimate its claims fromthe earthquake, but noted: “The company is protected by multiplelayers of reinsurance which could be triggered should this lossprove to be significant. This event is expected to cause sizablelosses to the insurance industry.”

In isolation, the earthquake is “absolutely not” the type ofevent that would harden the reinsurance market, accordingto David Flandro, global head of business intelligence for GuyCarpenter. In terms of the size of loss and the effect the quakewill have on reinsurers' earnings, it “would not create a sustainedturn in rates,” he said.

Though a meaningful event, the impact of the destructiveearthquake will be localized to the New Zealand market, added JohnDeMartini, leader of broker Towers Watson's catastrophe riskmanagement practice.

Mr. Flandro added, “It could change the supply-and-demandpicture there.”

In January, Mr. Flandro said a $50 billion hurricane loss “wouldonly give the market pause for a year or so,” but a terror event orearthquake in a major city could have a larger effect.

Though it is believed the latest earthquake has caused moredamage than the September quake, Mr. Flandro said reinsurers'disclosure from the September earthquake gives a look atexposure.

The median exposure to the September quake was 2 percent ofglobal capital in the reinsurance market and 10 percent of 2010pre-tax earnings, Mr. Flandro said. Aon Benfield in Januaryreported that at the end of the 2010 third quarter there was $470billion of reinsurer capacity.

But it may take some time for the true impact of the latestearthquake to be realized. Mr. Flandro said claims from earthquakes“develop more slowly than wind events” because the damage isn'talways immediately evident.

DAMAGE DONE

According to modeler Risk Management Solutions (RMS), rescuersin Christchurch, New Zealand have confirmed 98 deaths and about 225people are still missing. Infrastructure, power and communicationcontinue to be disrupted following the earthquake.

RMS said Christchurch's central business district has a numberof collapsed and heavily damaged buildings. In the town ofLyttelton, closest to the earthquake's epicenter, there is severedamage.

“Secondary impacts from the ground shaking are emergingthroughout the region, including cases of fire, landslides andlocalized liquefaction, as well as flooding,” said Ms.Paterson.

Liquefaction happens after an earthquake, when loose, sandy soilsubstantially loses strength and stiffness.

Among the buildings affected, insurance broker and risk advisorMarsh Inc. said its office in Christchurch collapsed during theearthquake.

John Clayton, Pacific region head for Marsh, said the company isparticularly concerned about three employees, one of whom isbelieved to be dead. The two others remain unaccounted for, he saidin a statement.

Marsh is a tenant in the Pyne Gould Corp. building in downtownChristchurch. According to reports, rescuers have been trying tosave people trapped in the building. Fourteen people are believedto be trapped in the rubble.  

Mr. Clayton said all other employees are accounted for.

“This is a very sad time for our company and many of us are inshock,” Mr. Clayton said.

Additional reporting by Mark E. Ruquet