Intensifying competition between global reinsurers in what is a benign period during which insurance linked securities have surged in popularity among investors, is forcing them to provide cover for terrorism on terms “they have sought to avoid” since the September 11 attacks.

And brokers have warned that reinsurers are agreeing to withdraw the terrorism exclusion clauses that they insisted on after the industry lost about $40 billion from the 2001 al-Qaeda hijackings, The Financial Times has reported.

The British newspaper adds that other important terms and conditions are also set to be relaxed this week as reinsurers renew billions of dollars worth of annual policies with insurance companies.

Prices have dropped for important types of cover to the lowest levels since the early 2000s “as yield-hungry investors flock to instruments such as catastrophe bonds, which incur losses when disasters strike and are an alternative to traditional reinsurance”.

Insurance broker Willis has reported that insurers are set to secure further reinsurance price falls of as much as 20 percent this week.

James Vickers, chairman of Willis Re International, is quoted saying: “It has been a pricing game — but now reinsurers are also looking at the terms and conditions.”

As well as starting to remove terrorism exclusions, reinsurers were also extending the length of time following natural disasters that they will cover, Mr Vickers said. “They were increasingly prepared to pay out for damage done more than 120 hours after hurricanes strike — up from 96 hours,” reported the newspaper.

The newspaper explained: “On top of low interest rates encouraging pension funds to buy catastrophe bonds, reinsurers are also being prevented from increasing prices by a relative absence of costly natural disasters in recent months. Academics have forecast a benign hurricane season this year.

“Credit rating agencies are becoming more bearish about the reinsurance sector because of mounting competition.”

Also, the paper found that brokers have cautioned that primary insurers remain reluctant to lower premiums and relax terms, because their market is less competitive.

“Companies struggle to secure terrorism coverage in volatile areas such as the Middle East and Ukraine. Cover for attacks involving weapons of mass destruction is generally unavailable in primary and reinsurance markets.”

Adding to the picture is that the removal of terrorism clauses from reinsurance policies comes as US lawmakers are battling over whether to extend the Terrorism Risk Insurance Act, which provides a government subsidy to the industry,

“Proponents argue that, without the backstop, availability will drop but critics counter that the scheme, created in the aftermath of September 11, amounts to corporate welfare.”