On the 10th anniversary of 9/11, terrorism insurance remainsstable, but availability and affordability could be affected shouldthere be a catastrophic event that reduces capacity, according to areport from Guy Carpenter.

The reinsurance broker, a subsidiary or Marsh & McLennanCos., released in August an 18-page report, "Terrorism: Terror Market Continues To ProvideAbundant Cover." According to the report, capacity in theUnited States is estimated to stand somewhere between $6 billionand $8 billion.

However, the report notes that a portion of the capacity remainsavailable through the Terrorism Risk Insurance Act of 2002 (TRIA),which provides a government backstop to acts of terrorism.

On a global basis, there is $9 billion of capacity, with anadditional $2 billion of excess capacity authorized but notassigned.

Despite the capacity, the report continues, reinsurance pricinghas begun to flatten out after years of downward movement. Thereport notes that while acts of global terrorism peaked in 2006, atmore than 14,400, acts of terrorism "still remain at historicallyhigh levels" at more than 10,000 in 2010 alone.

Due to its unpredictable nature, insurers and reinsurersstruggle to quantify the risk. "The human element means the natureof the threat is forever changing as groups relocate and adapttheir tactics in response to counterterrorism measures," says thereport.

The cost of terrorism insurance is "predominantly driven by thesupply/demand equation" rather than sophisticated underwriting,unlike with natural perils. While that may lead some to assumepricing would decline, terrorism capacity is affected by othercapacity events. The reason is that reinsurers put the capital in apool for low-frequency, high-severity catastrophe claims.

The catastrophe events of 2010 and 2011 have depleted some ofthat reinsurance capital. Depending on events during this Atlantichurricane season, reinsurers could see capacity reduced evenfurther.

Capacity has not changed over the past five years, the reportsays, and is "not expected to change in 2012, barring major eventsor very strong currency movements."

As for TRIA, talk of cuts to the program has given way to "morepressing financial matters," and it is not expected to become anissue until its expiration in 2014.