CHRISTCHURCH, New Zealand (Reuters)—New Zealand's government may have to recapitalize its crucial national disaster safety fund after being hit by two major earthquakes in five months, analysts and insurers say.

There is a fair bit of disagreement about how severe claims will be, though, and some speculation that claims from a September 2010 quake may cover some of the damage from the new event.

As of Friday morning local time, 102 were confirmed dead from Tuesday's earthquake in Christchurch, New Zealand, with 228 listed as missing. While September's early morning quake was stronger, Tuesday's was closer to the surface and happened during the busy midday hours, amplifying damage.

The government could decide to dip into its own coffers to top up the Natural Disaster Fund to pay current claims, after its reinsurance program dwindled to near depletion from paying out on hefty claims following the September earthquake.

"There's a distinct possibility they may have to go to the government," one insurer said.

"They've gone over from their first reinsurance levels," he said. "So they'll be down to their last billion or so, but it will be a close call. They could sell some of their assets that haven't been classed as reserves."

The fund's depletion could also trigger the first foray for New Zealand into the fledgling catastrophe bond market as its government seeks ways to boost its reinsurance portfolio.

Catastrophe bonds allow insurers to pass on extreme risks, like earthquakes or hurricanes, to financial market investors, and are seen as an alternative to reinsurance.

"This puts into play the possibility of a catastrophe bond for New Zealand, as well as more reinsurance which could potentially contain some collateralized cover," one U.S.-based investor said.

Varying estimates

Insurers and reinsurers are still reeling from the September earthquake, which struck Christchurch and caused an estimated $4 billion New Zealand ($2.99 billion) in damage.

If claims from the Tuesday earthquake hit $7 billion New Zealand ($5.23 billion), the fund would run out of reinsurance protection altogether, say analysts and insurers.

Before the September quake, the New Zealand Earthquake Commission (EQC), which administers the Natural Disaster Fund, said it had $4.5 billion New Zealand ($3.36 billion) in its fund as well as $2.5 billion New Zealand ($1.87 billion) in reinsurance.

September's earthquake—as well as five aftershocks that generated more than 185,000 claims—had already eaten through the first layer of reinsurance protection.

Now the fund needs its reinsurance panel to pay out again for Tuesday's quake—which is thought to potentially be the most expensive insured event globally since Hurricane Ike struck the Caribbean and southeastern United States in 2008.

Insurance losses of between $3.5 billion and $8 billion are expected from Tuesday's earthquake, according to catastrophe modeling firm Air Worldwide.

But competing risk modeler EQECAT has said that, absent the damage from the September quake, Tuesday's temblor would have produced $1.5 billion to $4 billion in insured losses.

An EQECAT official said the conundrum was this: If a building was damaged in the last quake and collapsed in this one, which incident generated the insured loss? He said in some cases, earthquake insurance policies have a "halo" of sorts that cover any damage for some period of time after the event.

"It stands to reason that building damage from the Christchurch earthquake was likely more severe than it would have been in the absence of the Darfield quake last September," said Paul Thenhaus, senior geologist at EQECAT. "There are no black and white answers."

S&P affirms

More than $4 billion New Zealand ($2.99 billion) of the fund is in New Zealand government securities, meaning the government would have to find the cash to redeem these should the EQC be unable to pay its insurance claims, according to the EQC's 2009/2010 annual report.

If this happened, the EQC said it would look at a "different balance" between the Fund and reinsurance. In the meantime, credit rating agency S&P said the government would be able to honor its grants to the EQC, given its financial condition.

In a note to investors, S&P reaffirmed its AAA/Stable rating for the Earthquake Commission.

New Zealand Prime Minister John Key said the government could afford to pay out on the recent earthquake.

"We've preserved for this," he told reporters, but admitted it would both cause a significant dent in the resources of EQC and a huge impact on the reinsurers.

The New Zealand EQC was not available for comment.