Marsh has called for a “robust reauthorisation” of the US Terrorism Risk Insurance Program Reauthorisation Act, which is due to expire at the end of next year.

The program, originally legislated following the September 11 2001 attacks, ensures affordable cover is available against terrorism losses.

“A federal backstop remains essential if the private reinsurance market is to continue to provide capacity to higher-risk areas,” Marsh says in its annual Terrorism Risk Insurance Report.

It says expiry or renewal with significant retention increases would lead to terrorism-exposed insurers with less than $US300 million ($436 million) in surplus likely needing to buy extra private reinsurance, to protect capacity and to satisfy ratings agencies and regulators.

Multiple insurers acting to increase their reinsurance simultaneously would drive up pricing, while non-renewal of the legislation could create capacity shortfalls for some CBDs.

Marsh says it has spoken with Treasury officials and legislators in both chambers of Congress who “generally recognise” the importance of the legislation and appear optimistic about its extension.

Insurers will be closely monitoring discussions, and may impose sunset clauses in renewals for policies that would be in effect beyond next year if it appears likely the backstop won’t continue, the broker warns. “Some insurers may also increase prices or limit deployed capacity as they reassess their exposure to terrorism.”