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An Empirical Analysis of the Economic Impact of Federal Terrorism Reinsurance

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

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10388.

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Date of creation: Mar 2004
Date of revision:
Publication status: published as Brown, Jeffrey R. & Cummins, J. David & Lewis, Christopher M. & Wei, Ran, 2004. "An empirical analysis of the economic impact of federal terrorism reinsurance," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 861-898, July.
Handle: RePEc:nbr:nberwo:10388
Note: PE
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