An Empirical Analysis of the Economic Impact of Federal Terrorism Reinsurance.pdfVIP

NBER WORKING PAPER SERIES AN EMPIRICAL ANALYSIS OF THE ECONOMIC IMPACT OF FEDERAL TERRORISM REINSURANCE Jeffrey R. Brown J. David Cummins Christopher M. Lewis Ran Wei Working Paper 10388 /papers/w10388 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 March 2004 The views expressed herein are those of the author and not necessarily those of the National Bureau of Economic Research. ©2004 by Jeffrey R. Brown, J. David Cummins, Christopher M. Lewis, and Ran Wei. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. An Empirical Analysis of the Economic Impact of Federal Terrorism Reinsurance Jeffrey R. Brown, J. David Cummins, Christopher M. Lewis, and Ran Wei NBER Working Paper No. 10388 March 2004 JEL No. G14, G22, G28 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 n banking, construction, insurance, real estate investment trusts, transportation, and public utilities n the stock price effect was primarily negative. The Act was at best value-neutral for property-casualty insurers because it elimina