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An empirical analysis of the economic impact of federal terrorism reinsurance

  • Brown, Jeffrey R.
  • Cummins, J. David
  • Lewis, Christopher M.
  • Wei, Ran

This paper examines the role of the federal government in the market for terrorism reinsurance. We investigate the stock price response of affected industries to a sequence of thirteen events culminating in the enactment of the Terrorism Risk Insurance Act (TRIA) of 2002. In the industries most likely to be affected by TRIA banking, construction, insurance, real estate investment trusts, transportation, and public utilities the stock price effect was primarily negative. The Act was at best value-neutral for property-casualty insurers because it eliminated the option not to offer terrorism insurance. The negative response of the other industries may be attributable to the Act's impeding more efficient private market solutions, failing to address nuclear, chemical, and biological hazards, and reducing market expectations of federal assistance following future terrorist attacks.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 51 (2004)
Issue (Month): 5 (July)
Pages: 861-898

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Handle: RePEc:eee:moneco:v:51:y:2004:i:5:p:861-898
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  1. Kenneth A. Froot & Paul G. J. O'Connell, 1999. "The Pricing of U.S. Catastrophe Reinsurance," NBER Chapters, in: The Financing of Catastrophe Risk, pages 195-232 National Bureau of Economic Research, Inc.
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