AIR Worldwide estimates that insured losses from last week's 8.0 magnitude Peru earthquake are not likely to exceed $1 billion.

However, AIR cautions that it is still in the very early aftermath of this event and there remains uncertainty with respect to the quake's actual parameters.

AIR, which models and analysis catastrophe risks, estimates that the percentage of residential structures in Peru that are actually insured against the earthquake peril is quite low. While commercial take-up rates are much higher, the majority of commercial exposures are located in Lima, about 90 miles from the epicentre.

"There are reports of some houses having collapsed in the center of the city, but Lima's distance from the epicenter spared it from the widespread devastation being seen closer to the epicenter," according to Dr. Guillermo Franco, senior research engineer at AIR Worldwide.

There are reports of large numbers of collapsed houses in Ica, Chincha and Pisco. A collapsed church in Ica killed 17; another 200 are reported to have been buried beneath the rubble of a church in Pisco, a port city with a population of 130,000.

"Pisco's mayor has said that 70 percent of the town was severely damaged in the quake. The destruction is similar in Chincha, a town of more than 100,000 and less than 30 miles from the epicenter. Authorities expect to find more devastation in smaller towns in the epicentral region where houses are old and poorly constructed," according to Dr. Franco.

"About 60 percent of construction in Peru is masonry, with another 15 percent traditional adobe. Away from the capital, Lima, these percentages are likely to be higher, particularly in the smaller towns and villages. Both construction types offer little or no lateral resistance against ground shaking," said Dr. Franco.

According to Dr. Franco: "development of the first Peruvian seismic code began in 1964 based on the recommendations established by the Structural Engineers Association of California. The code was implemented in 1970. After the earthquake of Chimbote-Huarez in 1970 and the Lima earthquake of 1974, the code was reviewed and the second nationwide standard was developed and established in 1977.

"After the earthquakes in Nazca (1996), Mexico (1985), Loma Prieta (1989), Northridge (1994), and Kobe (1995), the seismic code underwent another revision and new seismic provisions were implemented in 1997. These were most recently reviewed in 2003, but no new major revision of the nationwide code was implemented as a result of that review.

"Unfortunately, while Peru's building code is now quite good, many commercial structures in the region predate it."