Moody's added that domestic insurers and reinsurers in Japan will probably see a significant portion of claims.

In a statement, Kenji Kawada, a Moody's vice president and senior analyst in Tokyo, said, “Insurers, both in Japan and around the world, will sustain heavy losses, and this will in turn result in negative credit implications for domestic and foreign insurers, but especially for the property and casualty sector in Japan and reinsurers globally.”

Underlining this statement, Moody's announced that it has placed Flagstone Re's ratings under review for possible downgrade, citing first-quarter catastrophe losses.

Moody's said that based on modelers' loss estimates of up to $35 billion or more, this could be the most expensive catastrophic event ever for insurers and reinsurers.

On the residential side, Moody's said 90 percent of Japan's insurance market is concentrated among three domestic insurers:

• MS&AD Insurance Group.
• Tokio Marine Group.
• NKSJ Group.

For residential earthquake insurance, the maximum liability for all domestic private insurers is $7 billion, as losses are capped by a government-supported program where a significant portion of the exposure is absorbed.

However, no limits exist on the commercial side, which is why Moody's said the losses will be more substantial for insurers and reinsurers. Lloyd's of London is also expected to take a hit.

“Catastrophe reinsurance covering Japanese earthquakes is a large market,” the report states. “An additional wildcard is the potential for business-interruption losses, caused by damage to power and transportation infrastructure.”

On the life insurance side, losses are expected to be “moderate, but manageable.”

Claims losses on that side of the business could range from ¥300 billion to ¥400 billion (U.S. $3.7 billion to $4.9 billion at the current exchange rate).