NEW YORK (Reuters) ? A major terrorist attack on New York City using chemical, biological or radioactive weapons could cost $778 billion in insured losses, according to the American Academy of Actuaries.

Michael McCarter, chair of the AAA's Terrorism Risk Insurance Subgroup, made the estimate at a hearing on terrorism held in the city yesterday by the National Association of Insurance Commissioners.

Even a delivery truck stuffed with explosives could cause nearly $12 billion of damages in a city as dense as New York, he said. "It is possible that terrorists could cause losses larger than any we have modelled," said McCarter.

A biological or radioactive strike "could make rehabilitation difficult or impossible", said the actuary, who sets formulas for probable future insurance pay-outs.

In the case of 2001's anthrax cases, which were spread through the US postal system, the cost of cleanup exceeded the value of the affected properties, McCarter said.

The attack on the World Trade Center and Pentagon in 2001, the largest terrorist event in history, cost $20 billion in insured losses, according to the Insurance Information Institute.

Yesterday's hearing, chaired by New York Superintendent Howard Mills, was to help set plans for future terrorism insurance.

Currently the federal government provides a backstop for insurance companies through the Terrorism Risk Insurance Act (TRIA), but that safety net will expire in December, 2007.

Congress and President Bush approved the extension in December of 2005 but raised the amount of insurers' liability after a lengthy debate that almost saw TRIA expire.

"Congress is in no mood for a straight extension of TRIA," Mills warned. "But we must have continued federal involvement."

Otherwise the stock and bond markets would see a "severe disruption" as property and casualty carriers stopped insuring real estate projects and other development in areas where terrorists were likely to strike, Mills said.

McCarter said a $778 billion terrorist strike on New York would exceed the total surplus of the US property casualty industry by two-thirds. The industry now has $414 billion in reserves, but is preparing for another hurricane season, which last year cost more than $60 billion in insured claims.

McCarter estimated possible insured terrorist losses for other cities at $171.2 billion for San Francisco and $42.3 billion for Des Moines, Iowa.

Liberty Mutual Group chairman and chief executive Edmund (Ted) Kelly said the chief executives of the 15 largest property and casualty companies were meeting to come up with an approach to deal with terrorism risk when TRIA expires.

The CEOs' plan would involve increasing the insurers' own retentions in the event of terrorist claims, creating a second layer of "catastrophe bonds" that would kick in at a certain level and, ultimately, having a federal backstop in the event of a major disaster.