The knock-on effect of any pirate deal with militants could effectively transform insurance companies into unwitting terrorist bankrollers whose terms of business would be in violation of anti-terrorist legislation across Europe and the US.

Insurance industry leaders expressed concern yesterday and said that if recent reports were true, it could make it impossible to pay ransoms, which have become almost routine in facilitating shipping in the region.

Sean Woollerson, a partner at Jardine Lloyd Thompson, a Lloyd's broker for companies seeking insurance protection, said paying ransoms to terrorist organisations was illegal.

"It would be a major problem for the world shipping and insurance industry -- and for seafarers -- if there was a definite connection between terrorism and piracy," he said.

So far, there was no evidence for a link, he said. Currently, 31 ships with 694 crew are being held by pirates in the region. Aside from its legal implications, the alleged deal raises the stakes in the Indian Ocean and Gulf of Aden, giving the pirate scourge a terrorist dimension. It also adds to the rising sense of foreboding along the Somali coast after the killing of four US hostages aboard a hijacked vessel on Tuesday.

"If proven, then a link between pirates and terrorists would probably be a game-changer," said Wing Commander Paddy O'Kennedy, the spokesman for the European Union Naval Force operating in the Horn of Africa. "It could have implications not just for the payment of cash for hostages but also for our rules of engagement. But a lot of proof (of a deal) would be required first."

Pirate sources in Harardhere, a Somali port seized by al-Shabaab late last year, were reported to have said the deal had been finalised last week. "After negotiation, we signed the 20 per cent ransom share to al-Shabaab and they released our leaders today," a pirate who identified himself as Ali told a news agency by telephone.

One British official at the centre of counter-pirate operations in Somalia said that he believed the cut was about 10 per cent. "Even so, its impact will be massive," he said.

John Drake, a piracy specialist with the security company AKE, said: "If a deal existed, then it would be unprecedented."