Terrorism rates fell by over 12% in 2006 due to a glut of new capacity entering the market, according to Aon.
Will Farmer, director of Aon Crisis Management, said capacity had been driven up by a combination of existing players and new entrants in the market.
Farmer added: "Although the market is generally soft, demand for terrorism insurance continues to grow. New buyers have added to the market's capacity, enticed in by reduced rates."
He added: "Quite a few existing providers have increased capacity for 2007. Hiscox is now using its $100m line more regularly, while Talbot and Beazley have increased their lines from $35m to $50m."
But he cautioned: "The market is quite patchy and there are still lots of capacity hotspots and capacity restraints, such as Manhattan, central Brussels and Dublin."
Last week, Exclusive Analysis warned of the risk of small-scale terrorist attacks in the UK. It placed the risk of a terrorist attack in the UK at 2.1 on its risk scale, representing an 'elevated' danger. The company added that "very ambitious plots will be interrupted, but more small attacks will come to fruition".
