A chorus of approval has been given to the news that terrorism insurance backstop provision by the US government is to be extended for a further seven years.

It removes the spectre of insurance and reinsurance firms pulling out of risky coverage for terrorist attacks in the US because of the uncertainty of the size of insured losses that could occur from a repeat 9/11-type event or a so-called "dirty bomb" containing biological or nuclear material being exploded in a major US city.

It was on Boxing Day, as he flew to his Texas ranch aboard Air Force One, that President George W. Bush finally signed an extension to the terrorism insurance backstop that was due to expire on New Year's Eve.

Anxiety had been mounting in recent weeks across the insurance and reinsurance industry as the deadline loomed for the expiration of the Terrorism Risk Insurance Act which, since 2002, has provided a safety net for the sector should there be catastrophic insured losses resulting from a terrorist attack on the US.

The Act was a direct response to the September 11, 2001 attacks on New York and Washington DC. Since it was introduced, there has been no terrorist attack to trigger the backstop provision.

President Bush has in the past voiced opposition to the backstop provision being extended, arguing the insurance industry should come up with its own market-driven solutions to such events.

A revised Act was passed by the House of Representatives the week before Christmas and has now been endorsed by the President, who did not comment on the terror bill in particular but did express concern about the number and cost of earmarks in the US federal budget.

The Act, which was previously extended for two years at the end of 2005, gives an assurance that the US Government will step in with assistance if a single terrorist act results in losses exceeding $100 million. The cap on Fed assistance is $100 billion.

The Association of Bermuda Insurers and Reinsurers expressed concern last week at the apparent "holding the market hostage" caused by the delay in the Act being revised or extended.

News of the last minute extension has been welcomed across the industry, including Aon Corporation, the American Insurance Association, and the Risk and Insurance Management Society.

Marc Racicot, president of the American Insurance Association, said: "The seven-year extension...will help remove the risk, uncertainty and instability in the market and will foster long-term investment and economic growth."

While Joseph Annotti, senior vice president of the Property Casualty Insurers Association of America, whose members write over $194 billion in premiums each year, said: "We are pleased that President Bush has signed into law the Terrorism Risk Insurance Program Reauthorization and Extension Act of 2007, which reauthorises the Terrorism Risk Insurance Program for seven years, through December 31, 2014.

"This seven-year extension brings unprecedented certainty and stability to the terrorism insurance market and keeps in place an extremely successful and important public/private partnership that helps commercial insurance buyers and the entire economy protect themselves from the financial devastation of a future terrorist attack.

"PCI is proud to have worked with commercial consumers and others in the industry to keep this critical financial backstop in place."

The reauthorised bill, known by its initials TRIPRA, keeps most of the previous Act's provisions, while expanding the coverage by doing away with the previous distinction between foreign and domestic acts of terrorism.

A study is to be conducted into the controversial issue of providing terrorist insurance coverage for nuclear, biological, chemical or radiological events.

The not-for-profit Risk and Insurance Management Society has welcomed the extension.

Janice Ochenkowski, president of RIMS, said: "We recognise the efforts made on the part of the US House of Representatives, US Senate and the White House Administration to extend the TRIA program as one of the highlights of this legislative year.

"RIMS celebrates TRIPRA as a success for US business, as well as a safeguard for the national economy.

"It will play a key role in ensuring that businesses will have the available and affordable insurance options necessary to protect themselves against the financial consequences of a terrorist event."

Greg Case, president and chief executive officers of Aon, said: "With the seven-year extension in place and a broader definition of terrorism moving forward, the marketplace no longer faces looming price volatility and coverage uncertainty.

"To date, TRIA has been the basis for creating the market for terrorism risk in the United States.

This extension will foster broader affordability and availability of terrorism insurance for property owners, corporations, public entities and insurers. Without this important legislation, private market insurance capacity would be forced to exit the market."