SAN FRANCISCO (MarketWatch) — Insured losses from Friday’s earthquake in Japan may reach $25 billion, catastrophe-modeling firm Eqecat estimated Wednesday.

Ace Ltd. ACE, , one of the largest global insurance and reinsurance companies, gave an estimate of losses from the disaster that was higher than expected.

The strongest quake in Japan’s recorded history has left insurers and reinsurers tallying what will likely be one of the largest losses ever for the industry, rivaling hits from the Sept. 11 attacks in 2001 and Hurricane Katrina in 2005.

Eqecat, which specializes in modeling natural catastrophe losses, sees $12 billion to $25 billion worth of claims from Friday’s disaster. That doesn’t include losses from the crisis at Japan’s Fukushima Daiichi nuclear power plant, the firm noted. Read the latest on the nuclear situation here.

AIR Worldwide, a rival modeling firm, estimated insured losses of $15 billion to $35 billion on Sunday. That estimate didn’t include the impact of the massive tsunami that engulfed large areas of Japan’s northeast coast after the quake.

This hit comes only months after flooding and a huge cyclone in Australia and earthquakes in New Zealand, which will also deplete the capital insurers and reinsurers have stored up to pay potential claims.

“We remain cautious on companies with catastrophe-heavy business models,” Cliff Gallant and other analysts at Keefe, Bruyette & Woods wrote in a note on the reinsurance industry.

“The combination of catastrophes in Australia, Japan, and New Zealand will create significant losses for the industry,” Gallant and his colleagues added.

Still, the reinsurance industry will likely remain overcapitalized following these events, they noted. That suggests a so-called hard market, in which prices rise across the industry, won’t materialize, the analysts wrote.

Flagstone Re

Flagstone Reinsurance FSR, +2.20% shares have lost 20% since Friday on concern the quake and other natural catastrophes will leave a big dent in the company’s capital. Read about Flagstone here.

“Along with our entire industry, we are currently assessing the financial impact of these events,” Flagstone Chief Executive David Brown said in a statement on Tuesday.

“While it is too early to make a reasonable estimate of the Company’s losses, we do have significant reinsurance protection covering this and subsequent events, particularly should the size of the industry losses increase,” he added.

Radiation checks on Japan imports

Flagstone didn’t give an estimate of losses from the Japan quake, but it released a preliminary estimate of between $60 million to $90 million in losses from February’s New Zealand earthquake. That’s based on an estimated industry loss of $8 billion to $12 billion from the New Zealand disaster.

“Despite the unprecedented series of events affecting our industry the last several months, we expect Flagstone to maintain its strong capitalization and solid financial position,” Brown said.

Flagstone shares climbed 1.4% to $8.83 in afternoon trading on Wednesday.

‘Guessing game’

KBW’s Gallant and colleagues advised investors to buy shares of more diversified reinsurers that have lots of capital to spare.

“This horrible tragedy is still ongoing and we would expect continued volatility in the stocks as events unfold over the next few days and weeks,” the analysts wrote.

“The guessing game of who has the worst loss is hard to win,” they added. “Rather, we would take advantage of the volatility to buy quality companies with well-diversified books of business, and strong balance sheets.”

PartnerRe Ltd. PRE, -2.80% may suffer a “large” loss, but the reinsurer is financially strong enough to absorb the hit, the analysts said.

“We have seen PartnerRe suffer large losses before and bounce back strongly,” they wrote.

Gallant and his colleagues also recommended Ace, Arch Capital Group ACGL, +0.83% and Allied World Assurance AWH, -6.15% .

Ace estimate

Ace shares rose 1.1% to $60.82 in afternoon action on Wednesday. The stock is down less than 1% since the Japan quake on Friday.

Ace said late Tuesday that it expects natural catastrophes, including the latest New Zealand earthquake, Australian floods and Cyclone Yasi, and U.S. winter storms, to leave it with $210 million in net first-quarter losses, after tax.

Of the total, $115 million is attributable to the New Zealand quake, $80 million to the Australian events and $15 million to U.S. winter storms, Ace noted.

The company also said net after-tax losses in the first quarter from the Japanese quake will be $200 million to $250 million. This is a preliminary estimate, “given details are still unfolding,” Ace added.

Brian Meredith, an insurance analyst at UBS, said Ace’s loss estimate was higher than expected.

“We were surprised by the Japan quake estimate,” given that the company has $550 million of international catastrophe reinsurance coverage, Meredith wrote in a note to investors.

Some of the losses may be from accident and health-insurance policies Ace also sells, Meredith noted.

About $1 billion to $2 billion of the insured losses from the Japan quake may be from personal accident policies, which will compensate people who are injured in the disaster, Eqecat estimated on Wednesday.

As of Monday, an estimated 450,000 people were living in emergency shelters, Eqecat noted.

“A large portion of the displaced population has been exposed to potential injuries,” Eqecat said.

Shake

Roughly $8 billion to $15 billion of the insured losses will be triggered by the shaking of the ground. This will be covered by the property insurance market, which sells quake coverage to individuals and businesses in Japan, Eqecat said.

Between $2 billion and $4 billion of insured losses caused by shaking is expected to be covered by Japan Earthquake Reinsurance Co., Eqecat added.

JER is owned by domestic Japanese property and casualty insurers, but it shares losses with Japan’s government.

Life insurers may face claims worth $2 billion to $3 billion, Eqecat estimated. At least 10,000 people are confirmed dead or missing and the average life insurance policy limit is about $360,000, the firm noted.

Marine insurance will get about $1 billion to $3 billion in claims, Eqecat estimated.

Auto insurance losses will be minimal because the standard auto policy in Japan excludes earthquake coverage, Eqecat said.