The Lloyd's of London insurance market said yesterday it had earned a reprieve until March to come up with funds for claims arising from last month's terrorist attacks on the United States.

US insurance regulators wanted the Lloyd's market to deposit 100 per cent of its liabilities from the September 11th carnage in a US trust fund by November 15th, but Lloyd's said yesterday it had gained an extension to the deadline. The insurance market has already pledged to deposit 60 per cent of its total exposure to US claimants in the fund. The other 40 per cent - equal to around £1 billion sterling (€1.6 billion) - must now be paid by March 2002.

"The extraordinary and unanticipated nature of the events has resulted in a liquidity challenge that will prevent Lloyd's from being able to meet their full funding requirement by the deadline specified in the Lloyd's trust deed of November 15th, 2001," New York's superintendent of insurance, Mr Gregory Serio, said in a statement.

"We are very pleased to have this matter clarified," Lloyd's chairman Mr Sax Riley said. "This has always been a question of short-term liquidity, not solvency.

"We have a 300-year history of paying all valid claims and nobody should doubt our ability and commitment to ensuring that US policyholders are compensated swiftly and efficiently," Mr Riley said.

Lloyd's faces a total exposure to the September 11th atrocity of around £5.4 billion, of which £2.6 billion is to US groups. But it has mitigated a large portion of the gross liabilities in reinsurance contracts, leaving a total net loss currently estimated at £1.3 billion, a figure it has said it might have to revise upwards at some stage.

Rating agency Fitch said it continued to estimate the net loss for Lloyds at a minimum of £1.7 billion after reinsurance recoveries.

But US regulators want enough cash to be deposited to cover gross liabilities, regardless of how much Lloyd's has reduced exposure through reinsurance.

The postponement in applying the rules for Lloyd's was temporary and a special case, US regulators said. "One hundred per cent of funding of gross liabilities has been and continues to be the legal requirement for credit for reinsurance for Lloyd's of London syndicates," the National Association of Insurance Commissioners said in a statement.