An empirical analysis of the economic impact of federal terrorism reinsurance |
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| Authors: | Jeffrey R Brown Christopher M Lewis |
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| Institution: | a University of Illinois at Urbana-Champaign, Champaign, IL 61820, USA and NBER, Cambridge, MA 02138, USAb The Wharton School, University of Pennsylvania, 3620 Locust Walk, Philadelphia, PA 19104, USAc Fitch Risk Management, Inc, New York, NY 10004, USA; Greenwich, CT 06830, USA and London, EC2A 1RS, UK |
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| 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. |
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| Keywords: | G14 G22 G28 |
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