Next year, the rating firm said, it will assess the capital adequacy of primary property-casualty insurers by using net exposure to losses==not catastrophe premiums, as is currently done.

S&P noted that the privately financed, publicly managed California Earthquake Authority is currently the world's largest residential earthquake insurer.

The rating firm said that at the end of 2004, St. Paul Travelers Companies and affiliates wrote $102.2 million of earthquake-specific direct premiums, which constituted a 14.2 percent share of the market==the largest amount. Zurich Insurance group had the second largest market share at 13.7 percent, with $98.6 million in direct premiums.

Major quakes in the United States are rare, the analysts wrote, "making estimating potential insurance losses and data quality and ongoing issue."

Analysts noted that as reference points for big quakes, insurers recently have only the experience of the 1994 Northridge earthquake in California with $17.8 billion in losses. Prior to that, there is the 1906 San Francisco earthquake and the 1811 New Madrid quake, which damaged Tennessee, Missouri, Kentucky, Arkansas and Illinois.

"Clearly property values, building locations and population trends have changed since then, which leaves underwriters and model users facing a difficult challenge in terms of price adequacy and setting capital requirements," S&P reported.

Despite the difficulty in pricing insurance and reinsurance, companies still offer the coverage. However, S&P said "it remains unclear as to the adequacy of that price and whether or not that price is sufficient to withstand the potential volatility that could occur."

The rating firm said that if it appears a company is using outdated data assumptions for quake frequency or severity, S&P will calculate that it needs a higher capital charge.