SENDAI, Japan—Despite the enormous impact of last month's earthquake in Japan, the event is expected to have a limited effect on outstanding catastrophe bonds, potentially triggering only a handful of bonds with Japanese earthquake exposure.

The typical structure of the bonds bases their triggers on events' magnitude and defined locations. And, with most of the outstanding Japanese earthquake bonds focusing their coverage on the Tokyo area, despite the enormous economic losses from the March 11 earthquake, its location to the northeast near Sendai likely will prevent it from triggering most bonds, industry experts said.

“Most of these are unlikely to be hit and the reason is most of these have their exposure definitions around Tokyo,” said Morton Lane, president of Wilmette, Ill.-based broker-dealer Lane Financial L.L.C. and director of the master's degree program in financial engineering at the University of Illinois at Urbana-Champaign.

“The damage is great...but these are more parametric-based. It's more where it happened,” said Gary Martucci, a director at Standard & Poor's Corp. in New York.

There are some exceptions. Among cat bonds it rates, S&P has placed three on CreditWatch with negative implications after the earthquake: Montana Re Ltd. Class E notes, Topiary Capital Ltd. Series 2008-1 notes and Vita Capital IV Ltd. Series III mortality notes.

Luxembourg-based Flagstone Reinsurance Holdings Ltd., whose Flagstone Reassurance Suisse S.A. unit has $60 million in second- and subsequent-occurrence coverage for U.S. hurricanes and earthquakes, European windstorms, and Japanese earthquakes and typhoons through the Montana Re Class E notes, indicated it expects the quake to be a triggering event.

Likewise, Hamilton, Bermuda-based Platinum Underwriters Holdings Ltd. said it expects the Topiary Capital issue, which provides Platinum up to $200 million in second- and subsequent-event coverage for certain U.S. hurricanes, U.S. earthquakes, European windstorms and Japan earthquakes, to be triggered by the March 11 earthquake.

“Based on where those bonds are trading in the secondary market, it seems as though they may have triggered a first event,” said Cory Anger, managing director and global head of insurance linked securities at New York-based GC Securities.

The Vita Capital notes, which provide Swiss Reinsurance Co. Ltd. up to $100 million in coverage on its life insurance exposure to an event causing extreme loss of life in the United States or Japan, and up to $75 million in coverage for such losses in Canada or Germany, are on CreditWatch pending information on the final death toll resulting from the disaster.

When the notes were issued, Risk Management Solutions Inc., which models the effect of mortality on the notes, estimated that an event in Japan that would cause 50,000 deaths uniformly spread across age and gender groups would result in a loss for noteholders, S&P said.

Another note issue expected to be affected, though not rated by S&P, is Muteki Ltd., which provided $300 million in quake cover to Zenkyoren, the Japanese National Mutual Insurance Federation of Agricultural Cooperatives, under a deal in which Munich Reinsurance Co. provided reinsurance to the Japanese mutual, then securitized the exposure through the Muteki notes.

The cat bond market has been reflecting the earthquake's likely impact on cat bond issues, with the Muteki issue's price down 60% to 70% in secondary market trading, Mr. Lane said.

“There's about $1.5 billion of Japanese earthquake-exposed bonds,” said Paul Schultz, president of Aon Benfield Securities Inc. in Chicago. “There is a view that there is a potential exposure for some of the bonds.”

The catastrophe bond market's response to the earthquake has been “orderly,” he said. “We probably mark the Japanese portfolio down by about 20%. The rest of the market hasn't traded down at all.”

“Even for bonds that aren't exposed to Japanese earthquake, we've seen a change in pricing of about 9% through last Friday,” said GC Securities' Ms. Anger. “That's not atypical with what we've seen following past events.”

According to Swiss Re, the Swiss Re Global Cat Bond Total Return Index as of March 25 had dropped more than 3.2% since the Friday prior to the earthquake. The Swiss Re index is based on about 100 catastrophe bonds, 13 of which are exposed to Japanese earthquakes, and reflects weekly pricing indications in the catastrophe bond market.

Mr. Schultz said the markets are waiting for complete data to evaluate the extent of the loss and determine whether the event actually triggers any cat bond provisions. Power outages and downed transmission lines disrupted collection of data by K-Net, the Japanese network responsible for providing the earthquake data.

“It's been more of a manual collection process,” Mr. Schultz said, adding he expects the market to have a better view of the extent of the loss in about a week. “Basically, we'll take those readings and input those readings into the model to determine whether there will be recoveries,” he said.

The cat bond market's reaction has demonstrated the securities' transparency and market's sophistication, several sources said.

“I think the market is transparent. It's relatively easy in a short period of time to get an understanding of what the risk is and what the exposure is,” Mr. Schultz said.

“I have always made the argument that this is a small market, but it's a relatively sophisticated market for being so small,” said Mr. Lane.