Capital and Value of Risk Transfer Kenneth A. Froot, Gary G. Venter, John A. Major Abstract Classical capital market theory gives little room for corporate insurance and reinsur- ance. Refinements to that theory are showing that there is a cost to bearing firm-specific risk, and a value to controlling such risk. This appears to be particularly the case for insurers. As part of an ongoing study of the market-value impact of insurer financial strength, we survey some of the literature in this area. Kenneth A. Froot, Andre R. Jakurski Professor of Business Administration, Harvard Business School, Boston, MA 02163 +1-617-495-6677 www.people.hbs.edu/kfroot/ Gary G. Venter, Guy Carpenter, One Madison Avenue, New York NY USA 10010 +1-917-937-3277 gary.g.venter@guycarp.com John A. Major, Guy Carpenter, One Madison Avenue, New York NY USA +1-860-658-4129 John.A.Major@guycarp.com