International organizations and national governments deliver billions of dollars in development assistance each year to citizens in ongoing insurgencies. Existing work shows that development assistance shapes insurgent violence, yet underspecified mechanisms and a failure to test all competing explanations have hampered knowledge cumulation. This article proposes a new theory of insurgent territorial loss to argue that development assistance should increase overall violence by insurgents, and indiscriminate violence in particular. Anti-poverty subsidies incentivize information sharing with the government, increasing incumbent territorial control and forcing insurgents to rely on increased and more indiscriminate violence to recapture territory. A difference-in-differences identification strategy combined with matching tests all existing mechanisms against one another in the context of a conditional cash transfer program in Colombia. The empirics provide support for the territorial loss mechanism, while competing explanations do not find support. Development assistance frequently produces welfare gains yet may also lead to increased insurgent violence.