A bill passed by the US Senate on Tuesday has been called a "big win" for the insurance industry as it provides for a federal back-stop in the event of future terrorist attacks.

The US Government has been under pressure to enact legislation since last September's terrorist attacks amid worries that an inability to find terrorism coverage could have dire economic ramifications on a wide-range of business sectors.

The insurance industry was hit with estimates of $70 billion in claims stemming from the attacks. And many insurance companies have been left to bear the full risk of any future terrorist attacks as most reinsurers have opted out of including terrorism cover in their policies.

The Senate's Terrorism Risk Insurance Act of 2002 (referred to as the "terrorism bill") follows the House of Representatives passing their own legislation on the matter last November.

The fact that both bodies have now passed versions of this legislation, albeit differing in their content, could pave the way for compromise and final resolution with US President George Bush signing the matter in to law.

The Senate version calls for the US Government to pay 80 percent of claims exceeding $5 billion in the event of a future terrorist attack, and 90 percent if the total was greater than $10 billion. The Government's liability would be capped at $100 billion.

In contrast, the House version would provide loans to affected companies to cover losses.

This week the President, in speaking to the United Brotherhood of Carpenters and Joiners, called for terrorism insurance legislation that would also limit punitive damages.

President Bush also underscored the economic impact in citing the example of a commercial lending company, which he said had turned down more than $1 billion in construction projects as they were not insured against terrorism.

At least two of Bermuda's insurance companies - ACE and XL - have been pushing for terrorism insurance legislation, with bosses Brian Duppereault and Brian O'Hara joining a handful of other insurance heads in a meeting with President Bush on the matter last September.

Yesterday an ACE spokesperson said: "ACE applauds the efforts of the United States Senate and its successful passage of The Terrorism Risk Insurance Act of 2002.

"The legislation provides for a federal backstop in the event of another major terrorist attack. The federal backstop will allow the global insurance industry to function efficiently and address risks within its current capacity. The bill recognises that the insurance industry has substantial capacity to deal with risks in a post-September 11 world, but that capacity is not unlimited. The willingness of the Senate to provide this mechanism will facilitate a full recovery for the American economy in the wake of last year's attack.

"ACE hopes that the Senate and the House of Representatives will move swiftly to resolve differences in their respective bills in order that final legislation may be sent to the President soon."

Public policy groups that represent insurers have also been strong advocates of such legislation.

The Alliance of American Insurers, which this year held its annual meeting in Bermuda, said it was actively lobbying the US Government to pass such legislation. The AAI said its membership is unanimously supportive of this proposed legislation as "it is absolutely critical to reducing the volatility of pricing in the primary market."

The AAI said the matter is their biggest working issue as many US insurance carriers are faced with either sharply raising premiums or to stop offering terror risk insurance altogether.

Meanwhile, a leading insurance analyst with Morgan Stanley Dean Witter, Alice Schroeder said yesterday: "We believe this could be a big win for the insurance industry. There is still work to be done, however. Both houses of Congress must now work together to come up with one bill that they agree on and one that the President will agree on."

Ms Schroeder predicted that the process could take until September or October.