Financial Services Modernization Act of 1999 : Market Assessment of Winners and Losers in The Insurance Industry

This paper investigates the impact of the Financial Services Modernization Act (FSMA) of 1999 on the insurance industry. We identify three events that have a differential impact across the business lines of the insurance industry. The overall impact of the FSMA across the business lines in the insurance industry is positive and the impact on each business line is significantly different. Firms in property/casualty insurance gain more than the rest of the firms in the insurance industry. Exposure to systematic risk is reduced after the FSMA and this can explain the cross-sectional variation of the wealth effect. In cross-sectional analysis we also find, consistent with merger literature, that larger and poorly performing firms benefit from the cross-industry merger opportunities under the FSMA