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Germany to renew terrorism coverage backstop

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COLOGNE, Germany—Germany’s terrorism insurance pool, EXTREMUS A.G., has received verbal confirmation that the government will renew its backstop for the program under the same terms through 2011, the insurer’s chief operating officer said Thursday.

“We are waiting for the written confirmation, but there is no doubt that we got (the extension) for another two years,” said EXTREMUS COO Dirk Harbrücker.

Under the arrangement, the Bundesministerium der Finanzen, Germany’s ministry of finance, has agreed to provide €8 billion ($11.35 billion) in federal warranties as a backstop for EXTREMUS, Mr. Harbrücker said.

The insurance industry, through the pool, will continue to provide €2 billion ($2.84 billion) of coverage, he added. The €8 billion in federal warranties will be in excess of the €2 billion provided by the pool.

EXTREMUS, founded in 2002, offers coverage for large property and business interruption losses caused by terrorism. The backstop had been slated to expire at the end of 2009.

After negotiations led by a representative of the Gesamtverband der Deutschen Versicherungswirtschaft e.V., the German insurance association in Berlin, EXTREMUS was told in late June that the finance ministry had agreed to renew the backstop, Mr. Harbrücker said.

Noting the government’s major financial intervention on behalf of banks and real estate companies during the economic crisis, Mr. Harbrücker said it would have been “very strange” if the government had decided to pull the terrorism backstop.

Additionally, with German troops serving in Afghanistan, law enforcement officials have warned of a heightened threat of terrorism due to Germany’s federal election scheduled for Sept. 27.

EXTREMUS has seen greater demand this year for coverage. Annual premiums in 2009 were €52 million ($73.8 million), a nearly 5% increase over last year, Mr. Harbrücker said.