US industry bodies have welcomed the latest step towards renewal of the Terrorism Risk Insurance Act (TRIA).

The legislation was set up to provide a reinsurance backstop for major terrorism events after private insurers withdrew cover following the September 11 2001 attacks.

It has been extended twice but is due to expire at the end of this year.

On Friday the House of Representatives Committee on Financial Services approved a bill to reauthorise TRIA for a further five years. A competing bill before the Senate would extend the legislation for seven years.

The Risk and Insurance Management Society (RIMS) has campaigned for the extension of TRIA, arguing its expiry would reduce affordable cover and damage the economy.

President Carolyn Snow says the bill streamlines the process of certifying a terrorist attack.

“While RIMS would have preferred a longer extension, the five-year extension will bring a greater degree of certainty to the terrorism insurance process, and the revised certification provisions will enable the Government to act more decisively – and quickly – in declaring an occurrence a terrorist event.

“With only six months until TRIA’s expiration, time is quickly running out, but we remain optimistic that the House and the Senate can agree upon a final TRIA bill before the sun sets on this critical federal backstop.”

The American Insurance Association has also welcomed the “significant step forward”, with President and CEO Leigh Ann Pusey urging the House to “maintain its swift legislative pace”.

“We are confident TRIA will be reauthorised in 2014 with strong bipartisan support,” she said.

A report by Marsh-owned reinsurance broker Guy Carpenter says if the Act is allowed to expire it could increase pressure on pools in other countries.

“One possible outcome… could see other pool structures coming under pressure to dissolve, resulting in fragmentation towards a more open market approach.”

Guy Carpenter says the reinsurance sector does not have enough capital to withstand high loss scenarios involving nuclear, biological, chemical or radiological weapons.

For example, a nuclear bomb detonated in Manhattan gives a modelled loss of $US900 billion ($957 billion), while dedicated global capital to the US (re)insurance market is estimated at $US700 billion ($744 billion).

“Some form of federal backstop is therefore needed if the private (re)insurance market is to continue to provide capacity to higher-risk areas.”