WASHINGTON--The Terrorism Risk Insurance Act "has helped support a continued increase in private-sector participation in the terrorism risk insurance marketplace," says a letter from Treasury Secretary Henry Paulson accompanying a long-awaited report from the President's Working Group on Financial Markets, but the terrorism insurance marketplace report does not endorse an extension of the federal terrorism insurance financial backstop created by TRIA in 2002.

In fact, the report, released Monday afternoon, says that while terrorism risk reinsurance capacity has increased, "the presence of subsidized federal reinsurance through TRIA appears to negatively affect the emergence of private reinsurance capacity because it dilutes demand for private-sector reinsurance."

The backstop, which was scaled back by the Terrorism Risk Insurance Extension Act of 2005, is slated to expire on Dec. 31, 2007.

The new report says the affordability and availability of terrorism risk insurance has improved since Sept. 11, 2001, and that insurers "have made great strides in measuring and managing their risk accumulations." The report also holds that "while state regulations have the potential to significantly interfere with the operation of the insurance markets, it does not appear that such restrictions have had a significant impact in the market for terrorism risk insurance in the post-TRIA environment."

The report notes that coverage for chemical, nuclear, biological and radiological terrorist risks remains scarce, and it adds that "there may be little potential for future market development."

In his cover letter, Secretary Paulson noted that "TRIA was not intended to be permanent, but rather was intended to help stabilize the insurance industry." He said the program has "been successful in that regard, as the insurance industry is in a better position now than it was after Sept. 11, 2001, both in terms of financial health and understanding of overall terrorism risk exposures."