An Empirical Analysis of the Economic Impact of Federal Terrorism Reinsurance

46 Pages Posted: 19 Apr 2004 Last revised: 22 May 2022

See all articles by Jeffrey R. Brown

Jeffrey R. Brown

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); University of Illinois College of Law; University of Illinois at Urbana-Champaign - Institute of Government and Public Affairs (IGPA); University of Illinois at Urbana-Champaign - Department of Economics

J David Cummins

Temple University - Risk Management & Insurance & Actuarial Science

Christopher M. Lewis

The Hartford

Ran Wei

University of Pennsylvania - Insurance & Risk Management Department

Multiple version iconThere are 2 versions of this paper

Date Written: March 2004

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 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.

Suggested Citation

Brown, Jeffrey R. and Cummins, J. David and Lewis, Christopher M. and Wei, Ran, An Empirical Analysis of the Economic Impact of Federal Terrorism Reinsurance (March 2004). NBER Working Paper No. w10388, Available at SSRN: https://ssrn.com/abstract=522268

Jeffrey R. Brown (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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National Bureau of Economic Research (NBER) ( email )

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University of Illinois College of Law ( email )

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University of Illinois at Urbana-Champaign - Institute of Government and Public Affairs (IGPA) ( email )

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University of Illinois at Urbana-Champaign - Department of Economics ( email )

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J. David Cummins

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
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Christopher M. Lewis

The Hartford ( email )

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Ran Wei

University of Pennsylvania - Insurance & Risk Management Department ( email )

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United States
215-898-3589 (Phone)

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