An empirical analysis of the economic impact of federal terrorism reinsurance

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

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish (US)
Pages (from-to)861-898
Number of pages38
JournalJournal of Monetary Economics
Volume51
Issue number5
DOIs
StatePublished - Jul 1 2004

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Keywords

  • Event study
  • Insurance
  • Reinsurance
  • Terrorism

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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