Commenting on the report's findings, Moody's assistant vice president, James Eck, said, "In the absence of legislative action, the fact that TRIA is set to expire at year-end 2005 introduces additional complexity to insurers' risk management efforts."

Mr. Eck said that's because exposures currently being underwritten would no longer benefit from the federal backstop, which offers up to $100 billion of reinsurance for losses arising from foreign terrorists' attacks.

Mr. Eck added that in the absence of TRIA, widespread terrorism exclusions will likely again become the norm for commercial lines policies. However, he also noted that terror coverage for workers' compensation is mandatory, and certain states require property policies to cover all fire losses, including those arising from terror events.

Moody's forecasts that private reinsurers are unlikely to fill the reinsurance capacity void if TRIA expires, at least in the near term.

"Consequently," said Mr. Eck, "many insurance carriers--particularly the major workers' compensation writers--could be faced with dangerously high levels of risk aggregation, unless these companies substantially reduce their exposure to large accounts."

Nevertheless, Mr. Eck also acknowledged that it isn't clear whether an extended TRIA program would "actually provide meaningful benefit" to insurers except for solvency protection in the most extreme terrorism scenarios, since TRIA deductibles can already represent a big portion of a carrier's statutory capital, and will rise even further under current TRIA extension proposals.