This Congressional Budget Office (CBO) study, which was prepared at the request of the Senate Budget Committee, analyzes proposals for federal reinsurance of risks from terrorism and natural disasters. David Torregrosa of CBO's Microeconomic and Financial Studies Division wrote the paper, with contributions from Perry Beider, Kim Kowalewski, and Marvin Phaup, under the direction of Roger Hitchner. Tim VandenBerg, formerly of CBO, began the project.

Many other people contributed to the report. Rade T. Musulin of the Florida Farm Bureau Insurance Companies; Richard Roth Jr., a consulting actuary; Howard Kunreuther of the University of Pennsylvania's Wharton School; and Ron Feldman of the Minneapolis Federal Reserve reviewed several drafts. David Rafferty, formerly of the New Zealand Treasury, provided valuable information on New Zealand's disaster insurance program. Barry Anderson, Megan Carroll, Deborah Clay-Mendez, William Gainer, Mark Hadley, Arlene Holen, Deborah Lucas, Angelo Mascaro, Robert Murphy, Allison Percy, and Tom Woodward, all of CBO, made useful suggestions.

Amelie Cagle, Mark Puccia, Donald Watson, and David Weiss, all of Standard & Poor's, provided background information on the insurance industry and the implications of September 11. Anthony Mormino, Frank Nutter, and Mary Zetwick of the Reinsurance Association of America provided information on the reinsurance industry. Jim Boyd of Resources for the Future provided guidance on the effects of limiting damage awards.

The following people also contributed various forms of assistance or data: Dennis Kuzak of EQECAT; Barbara Jacobik, Tim Mantz, and Rick Shiver of the Federal Emergency Management Agency; Herbert Mitchell and Joyce Northwood of the Small Business Administration; Dan Kutzer of the Florida Windstorm Underwriting Association; J.D. Lester of the Florida Residential Property and Casualty Joint Underwriting Association; Jack Nicholson of the Florida Hurricane Catastrophe Fund; Stan Devereux of the California Earthquake Authority; Richard Kerr and Michelle Kinlaw of MarketScout; Barry Meiners of the Council of Insurance Agents and Brokers; and John Rollins of the Florida Farm Bureau Insurance Companies.

Christine Bogusz edited the report, and Leah Mazade proofread it. Rae Wiseman produced drafts of the manuscript, and Kathryn Winstead prepared the study for publication. Annette Kalicki produced the electronic versions for CBO's Web site.

Dan L. Crippen
Director
September 2002