TY - JOUR
T1 - An empirical analysis of the economic impact of federal terrorism reinsurance
AU - Brown, Jeffrey R.
AU - Cummins, J. David
AU - Lewis, Christopher M.
AU - Wei, Ran
PY - 2004/7
Y1 - 2004/7
N2 - 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 13 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.
AB - 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 13 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.
KW - Event study
KW - Insurance
KW - Reinsurance
KW - Terrorism
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U2 - 10.1016/j.jmoneco.2004.04.003
DO - 10.1016/j.jmoneco.2004.04.003
M3 - Article
AN - SCOPUS:4344670155
SN - 0304-3932
VL - 51
SP - 861
EP - 898
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 5
ER -