Despite questions over the future of a US federal insurance scheme designed to pay up a significant portion of claims in the event of a future terrorist attack ? at least three Bermuda writers of the business see opportunities in this area.

US legislators voted through the Terrorism Risk Insurance Act (TRIA), likened to a federal ?backstop? for commercial insurers if another terrorist attack was made on US soil. The measure was put in place in 2002 for a three-year period, after massive insurance claims across multiple lines from the September 11 terrorist attacks left insurers with record claims.

Initially there was a lukewarm response from corporations for the cover, but a study from broking company Marsh released last August said that more US businesses were buying terrorism cover now than in the first two years of the Act being put in place.

Whatever the take-up rate for the coverage, the measure may have caused a level of stability for an industry reeling from an estimated $32.5 billion in insured losses, according to New York-based Insurance Information Institute (III).

However, with the measure due to expire at the end of the year, some are worried.

The III took the view, in a white paper published last July, that TRIA legislation must be extended beyond its scheduled end of 2005 ?sunset? because the threat of future catastrophic terrorist attacks on US soil remaining ?very real?.

?Unless TRIA is extended by the United States Congress, any commercial insurance policy with an inception date beyond January 1, 2005 will include a period where no federal ?backstop? is in place,? the white paper said.

?Attacks occurring on or after January 1, 2006 could be financially destabilising and lead to insurer insolvencies.?

While some see an extension to the TRIA legislation as critical to the well-being of the industry, others argue commercial insurers should develop the market on their own. Insurers are as divided on the subject as US legislators.

The US Senate recently garnered bi-partisan support for a two-year extension to the Act while lawmakers in the House have also introduced an extension bill.

But house majority leader Tom DeLay clearly isn?t behind a government ?backstop? continuing, saying in a letter to the Property Casualty Insurers Association of America: ?It is important for the industry to work with Congress to develop a long-term solution that does not involve the federal government serving as a reinsurer or permanent backstop.

?Nor can the government become a funding mechanism for the insurance industry.?

Those in favour of a continued backstop say it should be in place because of the difficulty in quantifying the cost of risk from a future terrorist attack.

Whatever happens on the US side, demand for terrorism insurance isn?t limited to that corner of the globe ? and Bermuda?s re/insurance market is stepping up to bat.

AXIS Capital and Montpelier Re both see the area as an opportunity while Arch Reinsurance Ltd. (Bermuda) said it may, on a case-by-case basis, reinsure risks resulting from terrorism on an excess of loss basis or otherwise include terrorism risk in specific contracts.

All three companies are from the so-called ?class of 2001? ? the unofficial moniker for a wave of re/insurers that set up in Bermuda after a void in capacity following the September 11, 2001 terrorist attacks.

AXIS Capital CEO John Charman said in an interview late last year that AXIS likely had the largest terrorism portfolio of any Bermuda-based company.

However, he said AXIS has backed down on writing much business in the US because of ?significant concerns about the practical application of TRIA and the ultimate recoverability to policyholders of their property terrorism reinsurance?. Mr. Charman has, in the past, criticised the US backstop measure as being ?ill-defined?.

Although Mr. Charman believes it would be possible for the commercial markets to deal with the risk in a cost-effective way, he said TRIA undermines the development of a viable response from the market.

Montpelier feels the demand for terrorism reinsurance is strong enough to have added two specialist underwriters to its team, on top of a previous stable of nine underwriters.

Last October, Montpelier said its wholly owned subsidiaries Montpelier Reinsurance Ltd. and Montpelier Agency Ltd. had come to an agreement with Overseas Private Investment Corporation (OPIC) to form an insurance facility to underwrite stand-alone terrorism insurance products. OPIC is a US-government agency with a principal objective of helping US investors manage business risk by issuing political risk insurance.

For those businesses whose main insurance concern is related to terrorism, the new facility provides stand-alone terrorism coverage for limits of up to $250 million per project.

Montpelier Agency Ltd. manages the facility on behalf of OPIC, providing underwriting and related services.

Montepelier CEO and president Anthony Taylor told : ?When we first started the demand looked as if it would be enormous.

Then the Terrorism Risk Insurance Act (TRIA) came in on the US side, and the demand reduced quite dramatically.

?Now with this question mark over the continuation of TRIA, we are starting to see a lot more enquiries. Currently we are seeing enquiries both through the OPIC facility and also a big volume of open market sources both US and non-US,? he said.

Although seeing an opportunity, Mr. Taylor said others were also going after the business.

?Lots of other people want to be in the terrorism market. Other companies have increased their underwriting limits, so it is actually quite a competitive market,? he said.

And Bermuda isn?t the only market seeing this as a possibly lucrative area.

?A lot of people in London see terrorism as an underwriting opportunity. They have all increased their appetite,? Mr. Taylor said, ?and not just in regards to US business but world-wide, including strong demand from Europe.?

Although witnessing an increase for this type of coverage globally, Mr. Taylor said the US market?s appetite for terrorism coverage would be influenced by whether or not legislators extended TRIA beyond the end of 2005.

?The demand is up and if a TRIA [extension doesn?t go through, the demand in the US is going to be very significant.?

Although some critics of the TRIA ?backstop? say it is ill thought out and does little but hinder the development of a viable commercial market for terrorism coverage in the US, Mr. Taylor questioned whether the industry can itself carry the full weight of losses from a future attack.

?I don?t think the re/insurance market has the capacity to deal with the size of risks in the US. It is not just the size of individual buildings but it is the accumulation risk in major cities.

?If TRIA goes away there will be considerable demands from the US insurance companies to add full-blown terrorism to their reinsurance programmes. If we are not careful we are going to end up where we were before the World Trade Center (attacks), having massive exposures,? he said.

Mr. Taylor added that Montpelier was ?being very careful on underwriting and controlling our exposures to terrorism?.

Under the terms of TRIA, the US federal government is responsible for paying 90 percent of an insurer?s primary property-casualty loss beyond a sliding-scale deductible that in the final year of the legislation (2005) leaves insurers with a retention of 15 percent of the prior year?s earned premium.

The federal ?backstop? can be triggered by an international act of terrorism on US soil causing damage of at least $5 million.

Mr. Taylor pointed out that even with an extension to TRIA legislation, the cost to insurers from a future terrorist act could be significant.

The III has said the aggregate insurance industry retention in 2005 is $15 billion. That is up from $12.5 billion in 2004, with the expectation that any renewal of TRIA legislation for an extended period would continue to increase the retention level on a yearly basis.

?Even if TRIA goes ahead there will still be considerable demand as if it does [get extended it will be with considerable retentions to the US insurance market,? Mr. Taylor said.

Aside from writing some direct property business, Montpelier is predominately focused on reinsurance, although it writes both direct and reinsurance terrorism coverage. About 30 percent of Montpelier?s book is made up of ?other specialty? including aviation, marine, personal accident, casualty and terrorism.