To amend the Internal Revenue Code of 1986 to provide for the creation of disaster protection funds in the District of Columbia by property and casualty insurance companies for the payment of policyholders' claims arising from natural catastrophic events.

Summary: District of Columbia National Disaster Insurance Protection Act - Amends the Internal Revenue Code to provide for the creation and tax treatment of a tax-exempt natural disaster protection fund held by an insurance company that: (1) is incorporated and domiciled in the District of Columbia; (2) is subject to supervision by the District of Columbia Commissioner of Insurance, Securities, and Banking; (3) maintains an office in the District of Columbia that employs no fewer than 10 full-time employees, at least 5 of whom are District of Columbia residents; (4) is subject to any premium taxes and other taxes and fees imposed by the District of Columbia on all domestic insurance companies; and (5) is subject to an additional tax imposed by the District of Columbia on premiums charged for natural catastrophic risk coverage at a rate that does not exceed the rate of federal excise tax on a premium paid on a contract of reinsurance issued by any foreign insurer or reinsurer.

Allows distributions from such a fund to cover losses attributable to wind (including hurricanes and tornadoes), earthquakes, floods, tsunami or tidal wave, volcanic eruption, fire, hail, snow, ice freezing, or other winter catastrophes, or a pandemic or other public health catastrophe.

Sets forth tax rules for contributions to and distributions from such a fund.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``District of Columbia National 
Disaster Insurance Protection Act''.

SEC. 2. DISTRICT OF COLUMBIA NATURAL DISASTER PROTECTION FUNDS.

    (a) Contributions to Natural Disaster Protection Funds.--Subsection 
(c) of section 832 of the Internal Revenue Code of 1986 (relating to 
the taxable income of insurance companies other than life insurance 
companies) is amended by striking ``and'' at the end of paragraph (12), 
by striking the period at the end of paragraph (13) and inserting ``; 
and'', and by adding at the end the following new paragraph:
            ``(14) the qualified contributions during the taxable year 
        to a natural disaster protection fund.''
    (b) Natural Disaster Protection Fund Gross Income.--Subsection (b) 
of section 832 of such Code is amended by adding at the end the 
following new paragraph:
            ``(9) Special rule for assets held in natural disaster 
        protection fund.--For purposes of determining gross income 
        under this subsection, any items of income, gain, loss, or 
        deduction derived from or attributable to any assets held in a 
        natural disaster protection fund shall not be taken into 
        account.''
    (c) Distributions From Natural Disaster Protection Funds.--
Paragraph (1) of section 832(b) of such Code is amended by striking 
``and'' at the end of subparagraph (D), by striking the period at the 
end of subparagraph (E) and inserting ``, and'', and by adding at the 
end the following new subparagraph:
                    ``(F) the aggregate amount of all distributions 
                during the taxable year from a natural disaster 
                protection fund, except that a distribution made to 
                return to the qualified insurance company any 
                contribution that is not a qualified contribution for a 
                taxable year shall not be included in gross income if 
                such distribution is made prior to the filing by the 
                qualified insurance company of its tax return for such 
                taxable year.''
    (d) Definitions and Other Rules Relating to Natural Disaster 
Protection Funds.--Section 832 of such Code is amended by adding at the 
end the following new subsection:
    ``(h) Definitions and Other Rules Relating to Natural Disaster 
Protection Funds.--For purposes of this section--
            ``(1) Natural disaster protection fund.--The term `natural 
        disaster protection fund' (hereafter in this subsection 
        referred to as the `fund') means any money, securities, or 
        other property held by a qualified insurance company that is 
        identified and maintained in a segregated account--
                    ``(A) which is designated as a `natural disaster 
                protection fund' and held in a bank or bank branch 
                located in the District of Columbia that is licensed 
                and regulated by the Comptroller of the Currency or the 
                District of Columbia Commissioner of Insurance, 
                Securities, and Banking,
                    ``(B) under the terms of which--
                            ``(i) the assets in the fund are required 
                        to be invested in a manner consistent with the 
                        investment requirements applicable to all 
                        insurance companies under the laws of the 
                        District of Columbia,
                            ``(ii) an excess balance drawdown amount is 
                        required to be distributed to the qualified 
                        insurance company no later than the close of 
                        the taxable year following the taxable year 
                        with respect to which such amount is 
                        determined, and
                            ``(iii) no portion of the assets of the 
                        fund may be paid or distributed from the fund 
                        except for a qualified distribution.
            ``(2) Qualified insurance company.--The term `qualified 
        insurance company' means an insurer or reinsurer that--
                    ``(A) is incorporated and domiciled in the District 
                of Columbia,
                    ``(B) is subject to supervision by the District of 
                Columbia Commissioner of Insurance, Securities, and 
                Banking,
                    ``(C) maintains an office in the District of 
                Columbia that employs no fewer than 10 full-time 
                equivalent employees, of whom no fewer than 5 are 
                residents of the District of Columbia,
                    ``(D) is subject to any premium taxes and any other 
                taxes and fees imposed by the District of Columbia on 
                all domestic insurance companies, and
                    ``(E) is subject to such additional tax as may be 
                imposed by the District of Columbia--
                            ``(i) on premiums charged for natural 
                        catastrophic risk coverage written through the 
                        fund, and
                            ``(ii) at such rate--
                                    ``(I) as may be established by the 
                                District of Columbia, and
                                    ``(II) as does not exceed the rate 
                                of Federal excise tax imposed by 
                                section 4371(3) on a premium paid on a 
                                contract of reinsurance issued by any 
                                foreign insurer or reinsurer.
            ``(3) Qualified contribution.--The term `qualified 
        contribution' means a contribution to a fund established by a 
        qualified insurance company of not more than the total of net 
        premiums or other payments received during a taxable year for 
        coverage of qualified losses, but only to the extent such 
        contribution, when added to all previous contributions to the 
        fund (including net investment earnings of the fund) and after 
        subtracting all qualified distributions from the fund, does not 
        exceed the amount reasonably at risk for the payment of 
        qualified losses insured through the fund, less reinsurance on 
        those risks, as determined actuarially on a multi-year basis.
            ``(4) Qualified distribution.--The term `qualified 
        distribution' means any amount paid or distributed for--
                    ``(A) any payment of a qualified loss pursuant to 
                an insurance contract or contract of reinsurance issued 
                by the qualified insurance company,
                    ``(B) any payment made to reinsure or otherwise 
                spread the risk of catastrophe loss written by the 
                qualified insurance company,
                    ``(C) any excess balance drawdown amount,
                    ``(D) any administrative expenses directly related 
                to the maintenance and investment of the fund, and
                    ``(E) any claims investigation and adjustments 
                relating to a qualified loss.
            ``(5) Qualified loss.--The term `qualified loss' means an 
        insured loss on a United States risk that satisfies 
        subparagraphs (A) and (B).
                    ``(A) Event.--An insured loss satisfies this 
                subparagraph if the loss is attributable to one or more 
                of the following events:
                            ``(i) Wind (including hurricanes and 
                        tornados).
                            ``(ii) Earthquake (including any fire 
                        following).
                            ``(iii) Flood.
                            ``(iv) Tsunami or tidal wave.
                            ``(v) Volcanic eruption.
                            ``(vi) Fire.
                            ``(vii) Hail.
                            ``(viii) Snow, ice, freezing, or other 
                        winter catastrophes.
                            ``(ix) Pandemic or other public health 
                        catastrophe.
                    ``(B) Catastrophe designation or minimum aggregate 
                insured loss.--An insured loss, with respect to an 
                event described in subparagraph (A), satisfies this 
                subparagraph if at least one of the following occurs:
                            ``(i) Total insured losses from the event, 
                        or from more than one event happening 
                        simultaneously or immediately following, 
                        exceeds $1,000,000,000 on an industry-wide 
                        basis.
                            ``(ii) The President of the United States 
                        declares a disaster or state of emergency 
                        because of the event.
                            ``(iii) The Governor or chief executive of 
                        a State, possession or territory of the United 
                        States, or of the District of Columbia, 
                        declares a disaster or state of emergency 
                        because of such event.
                            ``(iv) The Property Claims Services unit of 
                        Insurance Services Office, Inc., declares a 
                        catastrophic industry-wide loss because of one 
                        or more events.
            ``(6) Excess balance drawdown amount.--The term `excess 
        balance drawdown amount' means the excess (if any) of--
                    ``(A) the amount of the fund balance as of the end 
                of the taxable year, over
                    ``(B) the total amount of exposure of the fund to 
                qualified losses at the end of the taxable year under 
                contracts issued by the qualified insurance company, as 
                determined actuarially on a multi-year basis.
            ``(7) United states risk.--The term `United States risk' 
        means any hazard, risk, loss, or liability attributable to 
        property situated, or an activity conducted, in the United 
        States, or its territories or possessions.
            ``(8) Exclusion of premiums and losses on certain puerto 
        rican risks.--Notwithstanding any other provision of this 
        subsection, premiums and losses with respect to risks covered 
        by a catastrophe reserve established under the laws or 
        regulations of the Commonwealth of Puerto Rico shall not be 
        taken into account under this subsection in determining the 
        amount of the qualified contributions allowed or the amount of 
        qualified losses.
            ``(9) Contributions in kind.--A transfer of property other 
        than money to a fund shall be treated as a sale or exchange of 
        such property for an amount equal to its fair market value as 
        of the date of transfer, and appropriate adjustment shall be 
        made to the basis of such property. Section 267 shall apply to 
        any loss realized upon such a transfer.
            ``(10) Distributions in kind.--A distribution of property 
        other than money from a fund to a qualified insurance company 
        shall be treated as a sale or exchange of such property, and 
        any gain or loss realized on such sale or exchange shall be 
        excluded from the gross income of the qualified insurance 
        company.
            ``(11) Regulations.--The Secretary shall prescribe 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection.''
    (e) Additional Tax on Certain Distributions From a Natural Disaster 
Protection Fund.--Subsection (d) of section 831 of such Code (relating 
to the tax on insurance companies other than life insurance companies) 
is amended by redesignating subsection (d) as subsection (e) and 
inserting after subsection (c) the following new subsection:
    ``(d) Tax on Nonqualified Distributions.--
            ``(1) In general.--In the case of a qualified insurance 
        company, the tax imposed by this section for the current year 
        shall be increased by an amount equal to 20 percent of the 
        aggregate amount of nonqualified distributions made by such 
        company during such year from a natural disaster protection 
        fund.
            ``(2) Definitions.--
                    ``(A) Nonqualified distributions.--The term 
                `nonqualified distributions' means any distribution 
                from a natural disaster protection fund other than a 
                qualified distribution (as defined in section 
                832(h)(4)).
                    ``(B) Other definitions.--The terms `qualified 
                insurance company' and `natural disaster protection 
                fund' shall have the meanings ascribed to such terms in 
                section 832(h).''
    (f) Effective Date.--The amendments made by this bill shall apply 
to taxable years beginning after December 31, 2011.