Last week's earthquake in Japan could lead to insured losses of nearly $35 billion, risk modeling company AIR Worldwide said, making it one of the most expensive catastrophes in history -- even without expected additional tsunami losses that are not yet counted.

That figure is nearly as much as the entire worldwide catastrophe loss for the global insurance industry in 2010, and could be the triggering event that forces higher prices in the insurance market after years of declines.

It remains unclear who will take the biggest hit, though insurers like Chaucer and AIG and reinsurers like Munich Re and Swiss Re are expected to be exposed to some degree.

AIR said its loss estimate range was $14.5 billion to $34.6 billion. That was based on a range of 1.2 trillion yen to 2.8 trillion yen, converted at 81.85 yen to the dollar.

The company cautioned that the estimate was preliminary, and its models do not factor in the effects of the tsunami that followed the earthquake, or any potential losses from nuclear damage.

AIR said that in many cases buildings will have been damaged by the 8.9-magnitude earthquake and then swept away by the flooding thereafter, making precise counting difficult. The firm intends to issue updated estimates in future combining the quake and the floods.

HISTORICAL RECORD

At the upper end of the range, this temblor will go down by far as the costliest earthquake in modern history in terms of insured losses, surpassing the roughly $15 billion in losses of the 1994 Northridge earthquake in California.

Of all catastrophes since 1970, adjusted for inflation, it would rank as the second-costliest behind Hurricane Katrina.

It may also be enough to stem years of price declines in the global property insurance and reinsurance markets, which are awash in excess capital following an absence of major hurricane disasters in recent times.

Going into this year, analysts and brokers said it would take a $50 billion event to stem the price market for just a year.

Since January 1, the industry has $10 billion in losses from the earthquake in New Zealand, still-untold losses from floods in Australia and an estimated $8 billion to $10 billion in losses from unrest in the Middle East.

Cumulatively, some like Standard & Poor's believe the losses may be enough to trigger the long-awaited hard market in which insurers again have pricing power.

NUCLEAR RISK

There are also lingering questions about the cost of the clean-up and long-term monitoring following explosions and radiation leaks at the Fukushima nuclear reactors. Such reactors generally have insurance that excludes earthquake damage, and many Japanese homeowners have nuclear exclusions in their own policies.

That is likely to limit liability to the operator and the government and minimize impact to the insurance industry itself.

Any liability to the industry would come through participants' shares in liability pools, in which insurers come together to share risk for low-frequency, high-cost events, primarily for privately owned reactors.

The ones that would probably have insurance would be these more private companies like a TEPCO, said Dale Klein, a vice chancellor of the University of Texas and former chairman of the U.S. Nuclear Regulatory Commission.

Chaucer, a Lloyd's of London insurer currently targeted for takeover by private equity, could face a hit from earthquake-related claims because one of its main activities is insuring nuclear power plants, industry sources said.

The Japanese earthquake damaged three nuclear reactors at facilities north of Tokyo, raising the threat that radioactive material could leak into the region.

Chaucer operates Lloyd's Syndicate 1176, one of the world's biggest insurers of nuclear risk. A Chaucer spokesman declined to comment.

Under the Japanese Nuclear Act of 1961, nuclear power station operators are not deemed liable for damage caused by major natural disasters, one source told Reuters.

Chaucer said in February it had been approached for takeover by several suitors. Private equity tycoon Guy Hands' Terra Firma later said it was behind one of those approaches.

American Nuclear Insurers, an association of 21 companies that underwrites insurance for U.S. reactors, has a reinsurance relationship with the Japanese industry. Another major U.S.-based player with international operations is Overseas NEIL Ltd.

Neither ANI nor Overseas NEIL could be reached for a comment on Sunday.

(Additional reporting by Dave Cutler and Rhys Jones in London; Editing by Louise Heavens and Gunna Dickson)

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