WASHINGTON (Bloomberg) — The Bush administration opposed a proposed 10-year extension on the federal government's backstop for insurers of terrorism, saying the pledge to subsidise losses from another major attack should be phased out sooner.The administration also objects to expanding the program beyond conventional terrorist acts to nuclear, biological and chemical events, said David Nason, the US Treasury Department's assistant secretary for financial institutions. Lawmakers are mulling a rewrite of the Terrorism Risk Insurance Act, or TRIA, because it expires this year.

"In Treasury's view, from both a market and economic perspective, it would be better to have no TRIA than a bad TRIA," Nason said in testimony today to a panel of the House Financial Services Committee. A bill with the 10-year extension and coverage for unconventional acts was introduced June 18 by Massachusetts Democrats Barney Frank and Mike Capuano.

Congress enacted TRIA after losses from the September 11 attacks made terrorism insurance scarce and prohibitively expensive, and it was extended for two years in 2005. President George W. Bush has maintained the program, intended to be temporary, should be phased out to encourage private-sector participation. Any extension should be "short-term" and insurers should be required to shoulder more of their costs, Nason said.

Frank, the House committee's chairman, said a "market solution" would interfere with the war on terrorism.

"I don't want the market to tell us how we're going to defend ourselves against these vicious killers," he said. "We should do everything we can to neutralise the extent to which the fear of attack disarranges and interferes with the conduct of our economic affairs."

Under the current program, insurers are required to offer terrorism insurance on conventional acts to be eligible for reinsurance from the government. In the event of another major attack, the government would cover 85 percent of losses once individual insurers pay deductibles equal to 20 percent of their annual commercial insurance premiums. This year that's estimated at about $35 to $40 billion industry wide.

The new proposal would require insurers to offer coverage on nuclear and chemical attacks in order to be eligible for the government reinsurance, and pay a deductible of 7.5 percent of their annual premiums before getting aid on such a strike. It would also reduce the deductible to as low as five percent if there is another attack in a city that has already had a large loss.

Paul Kanjorski, the Pennsylvania Democrat who chairs the subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, joined Nason and at least four Republicans in opposing the provision to make the program city-specific.

"After the 9/11 attacks, the terrorism insurance marketplace retracted nationally, and not just in the areas directly affected," Kanjorski said. The proposal "has the potential to undermine the broad national support that TRIA presently enjoys."

The bill maintains a $100 billion cap on the government's total contribution. The 2001 attacks have cost an estimated $35.6 billion, according to the Insurance Information Institute. A nuclear attack in lower Manhattan could cost as much as $778 billion, the American Academy of Actuaries estimated in 2006.

Insurance trade groups are divided on whether coverage for unconventional attacks should be included in the program. The Property Casualty Insurers Association of America, based in Des Plaines, Illinois, said it amounted to an unfunded legislative mandate because a nuclear attack may cost hundreds of billions of dollars more than the program would pay.