II

106TH CONGRESS

1ST SESSION S. 1361

To amend the Earthquake Hazards Reduction Act of 1977 to provide for

an expanded Federal program of hazard mitigation, relief, and insurance

against the risk of catastrophic natural disasters, such as hurricanes,

earthquakes, and volcanic eruptions, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JULY 13 (legislative day, JULY 12), 1999

Mr. STEVENS (for himself, Mr. INOUYE, Mr. LOTT, Mrs. FEINSTEIN, Mr.

AKAKA, and Mr. GRAHAM) introduced the following bill; which was read

twice and referred to the Committee on Commerce, Science, and Transportation

A BILL

To amend the Earthquake Hazards Reduction Act of 1977

to provide for an expanded Federal program of hazard

mitigation, relief, and insurance against the risk of catastrophic natural disasters, such as hurricanes, earthquakes, and volcanic eruptions, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Natural Disaster Pro5 tection and Insurance Act of 1999’’.
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1 SEC. 2. FINDINGS AND PURPOSES.

2 Section 2 of the Earthquake Hazards Reduction Act

3 of 1977 (42 U.S.C. 7701) is amended by adding at the

4 end the following new paragraphs:

5 ‘‘(12) In addition to earthquakes, other cata6 strophic natural disasters, such as major hurricanes

7 and volcanic eruptions, will strike the United States

8 in the future and will inflict substantial long-term

9 consequences in terms of deaths, injuries, property

10 damages, and social and economic losses.

11 ‘‘(13) The Federal Government and the govern12 ments of States are often not adequately equipped to

13 respond to catastrophic natural disasters.

14 ‘‘(14) Billions of dollars in taxpayer-supported

15 government assistance will be paid to rebuild fol16 lowing catastrophic natural disasters.

17 ‘‘(15) Hazard mitigation can reduce the long18 term consequences of natural disasters, especially for

19 those least capable of helping themselves, including

20 the elderly.

21 ‘‘(16) Hazard mitigation measures, including

22 building and fire safety codes, retrofitting of struc23 tures, public awareness, and community awareness

24 have proved effective in reducing deaths, injuries,

25 and property damage caused by catastrophic natural

26 disasters.
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1 ‘‘(17) Hazard mitigation measures are not in

2 place in many high-hazard areas, and are not ade3 quately enforced where they are in place.

4 ‘‘(18) First response capability, including fire

5 fighting, emergency medical assistance, and search

6 and rescue personnel, is as important as hazard

7 mitigation in lessening the impact of natural disas8 ters.

9 ‘‘(19) Millions of persons in the United States

10 do not have adequate insurance coverage to protect

11 property from catastrophic natural disasters.

12 ‘‘(20) In the early 1990’s, catastrophic natural

13 disasters (including Hurricane Andrew and Hurri14 cane Iniki and the Northridge earthquake)—

15 ‘‘(A) have inflicted substantial losses on

16 private insurance companies; and

17 ‘‘(B) those losses have limited the ability

18 to write new coverages in the stricken regions

19 and other parts of the United States.

20 ‘‘(21) The natural disasters referred to in para21 graph (20) inflicted substantial losses on State and

22 local governments and caused severe strains on the

23 budgets of those local governments.
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1 ‘‘(22) Some States have intervened to ensure

2 the continued availability of homeowners’ insurance

3 for all residents.

4 ‘‘(23) It is appropriate that efforts to improve

5 insurance availability be designed and implemented

6 at the State level.

7 ‘‘(24) While State insurance programs may be

8 adequate to cover losses from most natural disasters,

9 a small percentage of events are likely to exceed the

10 financial capacity of these programs and the local

11 insurance markets.

12 ‘‘(25) The creation of a private, nongovern13 mental, and not-for-profit membership corporation

14 to provide reinsurance coverage for natural disasters

15 will improve the effectiveness of State insurance pro16 grams and private insurance markets and will in17 crease the likelihood that homeowners’ insurance

18 claims will be fully paid in the event of a large nat19 ural catastrophe.’’.

20 SEC. 3. PURPOSE.

21 Section 3 of the Earthquake Hazards Reduction Act

22 of 1977 (42 U.S.C. 7702) is amended—

23 (1) by inserting ‘‘(a) EARTHQUAKE HAZARD

24 REDUCTION.—’’ before ‘‘It is the purpose’’; and
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1 (2) by adding at the end the following new sub2 section:

3 ‘‘(b) NATURAL DISASTER, RELIEF, AND INSUR4 ANCE.—

5 ‘‘(1) IN GENERAL.—The purpose of titles II,

6 III, and IV is to reduce deaths, injuries, and prop7 erty damage from natural disasters through a haz8 ard mitigation program and to enhance access to

9 disaster insurance coverage by improving the capac10 ity of the private insurance industry and State dis11 aster insurance programs.

12 ‘‘(2) OBJECTIVES.—The objectives of titles II,

13 III, and IV include—

14 ‘‘(A) the building of safer structures and

15 the upgrading of existing buildings and lifelines;

16 ‘‘(B) the enhancement of State and local

17 community emergency management;

18 ‘‘(C) the improvement of State and local

19 emergency first response capability, including

20 the development of standards and guidelines for

21 staffing, operations, and training;

22 ‘‘(D) the forging of a partnership with the

23 Federal Government that makes the States and

24 political subdivisions thereof ultimately respon25 sible for implementing and enforcing multi-
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1 hazard mitigation measures and emergency

2 management;

3 ‘‘(E) the creation of a self-sustaining fund4 ing mechanism to assist States in paying for

5 mitigation efforts;

6 ‘‘(F) the provision of coverage for natural

7 disaster perils together with standard insurance

8 policies;

9 ‘‘(G) the establishment of premium rates

10 based on expected losses and risk;

11 ‘‘(H) the increased likelihood that the in12 surance industry—

13 ‘‘(i) makes a substantial contribution

14 in paying losses; and

15 ‘‘(ii) continues to provide coverage fol16 lowing a catastrophic natural disaster; and

17 ‘‘(I) the more effective employment of the

18 insurance industry through a private natural

19 disaster insurance corporation which should—

20 ‘‘(i) speed rebuilding following a cata21 strophic natural disaster; and

22 ‘‘(ii) save taxpayer money by reducing

23 reliance on disaster assistance from gov24 ernments.’’.
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1 SEC. 4. DEFINITIONS.

2 Section 4 of the Earthquake Hazards Reduction Act

3 of 1977 (42 U.S.C. 7703) is amended by adding at the

4 end the following new paragraphs:

5 ‘‘(8) The term ‘building’ means any structure

6 that is—

7 ‘‘(A) fully or partially enclosed; and

8 ‘‘(B) used or intended for sheltering per9 sons or property.

10 ‘‘(9) The term ‘critical facility’ means any

11 school or structure that is essential to emergency

12 services necessary for post-natural disaster recovery,

13 including a hospital, fire or police facility, temporary

14 shelter, or emergency operating and preparedness

15 center.

16 ‘‘(10) The term ‘Corporation’ means the Nat17 ural Disaster Insurance Corporation referred to in

18 section 301.

19 ‘‘(11) The term ‘Director of the Agency’ means

20 the Director of the Federal Emergency Management

21 Agency.

22 ‘‘(12) The term ‘earthquake’ means any shak23 ing or trembling of the crust of the Earth caused by

24 underground seismic forces.

25 ‘‘(13) The term ‘federally related mortgage

26 loan’ has the meaning given the term in section 3(1)
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1 of the Real Estate Settlement Procedures Act of

2 1974 (12 U.S.C. 2602(1)).

3 ‘‘(14) The term ‘flood’ or ‘flooding’ means a

4 general and temporary condition of partial or com5 plete inundation of normally dry land areas from the

6 overflow of inland or tidal waters or the unusual and

7 rapid accumulation of runoff or surface waters from

8 any source.

9 ‘‘(15) The term ‘hurricane’—

10 ‘‘(A) means a nonfrontal, warm core, low

11 pressure atmospheric system that is officially

12 declared to be a hurricane by the National Hur13 ricane Center or declared to be a typhoon by

14 the Joint Typhoon Warning Center; and

15 ‘‘(B) includes any associated windstorm

16 events.

17 ‘‘(16) The term ‘local community’ means a po18 litical subdivision of a State that has a department,

19 or similar entity, that oversees local zoning and

20 building code compliance efforts.

21 ‘‘(17) The term ‘ordinance or law coverage’

22 means insurance coverage for the increased cost of

23 construction to repair or rebuild buildings and the

24 cost of demolition due to the enforcement of any or25 dinance or law, such as building codes.
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1 ‘‘(18) The term ‘private insurer’ means any pri2 vate insurer or private reinsurer, including all re3 lated affiliates or subsidiaries under the same owner4 ship or management consistent with the definition in

5 section 1504(a) of the Internal Revenue Code of

6 1986, that is licensed or admitted to write property

7 and casualty insurance or reinsurance within a

8 State.

9 ‘‘(19) The term ‘public facility’ has the mean10 ing given the term in section 102(8) of the Robert

11 T. Stafford Disaster Relief and Emergency Assist12 ance Act (42 U.S.C. 5122(8)).

13 ‘‘(20) The term ‘reinsurance coverage’ means

14 the contract provided by the Natural Disaster Insur15 ance Corporation under sections 306 and 307 under

16 which that corporation accepts and agrees to pay

17 part of the losses for certain catastrophic natural

18 disasters covered by a private insurer or a State in19 surance pool.

20 ‘‘(21) The term ‘residential property’ means

21 any family residential building that houses between

22 1 and 4 families (including mobile or manufactured

23 homes).

24 ‘‘(22) The term ‘State insurance pool’ means

25 any State-authorized joint underwriting or joint re-
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1 insurance association, risk pool, residual market

2 mechanism, or other type of State-sanctioned entity

3 that—

4 ‘‘(A) provides property insurance coverage

5 against hurricanes, earthquakes, windstorms,

6 volcanic eruptions, tsunamis, and wildfires; and

7 ‘‘(B) meets minimum standards estab8 lished by the Natural Disaster Insurance Cor9 poration under section 302 regarding actuari10 ally sound rates, the use of available local fi11 nancing, and reasonable underwriting stand12 ards.

13 ‘‘(23) The term ‘tsunami’ means an ocean wave

14 generated by underwater disturbances in the crust of

15 the Earth, primary earthquakes, and submarine vol16 canic eruptions.

17 ‘‘(24) The term ‘volcanic eruption’ means the

18 expulsion, as a result of natural causes, of molten

19 rock, rock fragments, gases, ashes, mud, lava flows,

20 and other natural substances through an opening in

21 the crust of the Earth.

22 ‘‘(25) The term ‘windstorm’—

23 ‘‘(A) means an atmospheric disturbance

24 marked by high velocity movements of air,
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1 which shall include tornadoes and hailstorms:

2 and

3 ‘‘(B) does not include a hurricane.

4 ‘‘(26) The term ‘covered perils’ means the nat5 ural disaster perils under section 305.

6 ‘‘(27) The term ‘covered purchaser’ means—

7 ‘‘(A) with respect to reinsurance coverage

8 made available under a contract under section

9 306, the eligible State-operated insurance or re10 insurance program that purchases such cov11 erage; and

12 ‘‘(B) with respect to reinsurance coverage

13 made available under a contract under section

14 307, the purchaser of the contract auctioned

15 under such section or any subsequent holder or

16 holders of the contract.

17 ‘‘(28) The term ‘disaster area’ means a geo18 graphical area, with respect to which—

19 ‘‘(A) a covered peril specified in section

20 305 has occurred; and

21 ‘‘(B) a declaration that a major disaster

22 exists, as a result of the occurrence of such

23 peril—

24 ‘‘(i) has been made by the President

25 of the United States; and
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1 ‘‘(ii) is in effect.

2 ‘‘(29) The term ‘eligible losses’ shall be defined

3 by the Corporation, after consultation with the Inde4 pendent Board of Actuaries provided in section 309.

5 ‘‘(30) The term ‘eligible State program’ means

6 a State program that, pursuant to section 306(a), is

7 eligible to purchase reinsurance coverage made avail8 able through contracts under section 306.

9 ‘‘(31) The term ‘price gouging’ means the pro10 viding of any consumer good or service by a supplier

11 for a price that the supplier knows or has reason to

12 know is greater, by at least the percentage set forth

13 in a State law or regulation prohibiting such act

14 (notwithstanding any real cost increase due to any

15 attendant business risk and other reasonable ex16 penses that result from the major disaster involved),

17 than the price charged by the supplier for such con18 sumer good or service immediately before the dis19 aster.

20 ‘‘(32) The term ‘qualified lines’ means lines of

21 insurance coverage for which losses are covered

22 under section 304 by reinsurance coverage under

23 this Act.
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1 ‘‘(33) The term ‘reinsurance coverage under

2 this Act’ includes coverage under contracts made

3 available under sections 306 and 307.

4 ‘‘(34) The term ‘Secretary’ means the Secretary

5 of the Treasury.

6 ‘‘(35) The term ‘State’ means the States of the

7 United States, the District of Columbia, the Com8 monwealth of Puerto Rico, the Commonwealth of the

9 Northern Mariana Islands, Guam, the Virgin Is10 lands, American Samoa, and any other territory or

11 possession of the United States.

12 SEC. 5. CONFORMING AMENDMENTS.

13 The Earthquake Hazards Reduction Act of 1977 (42

14 U.S.C. 7701 et seq.) is amended—

15 (1) in section 4(2) (42 U.S.C. 7703(2))—

16 (A) by inserting ‘‘, as used in title I,’’ be17 fore ‘‘means’’; and

18 (B) by striking ‘‘section 5’’ and inserting

19 ‘‘section 101’’;

20 (2) by inserting after section 4 the following

21 heading:
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1 ‘‘TITLE I—EARTHQUAKE HAZ2 ARDS REDUCTION PRO3 GRAM’’;

4 (3) by redesignating sections 5 through 12 as

5 sections 101 through 108, respectively;

6 (4) in sections 101, 103, 105, 106, and 108 (as

7 redesignated by paragraph (3)), by striking ‘‘this

8 Act’’ each place it appears and inserting ‘‘this title’’

9 in each such place; and

10 (5) in section 108 (as redesignated by para11 graph (3))—

12 (A) by striking ‘‘sections 5 and 6’’ each

13 place it appears and inserting ‘‘sections 101

14 and 102’’; and

15 (B) by striking ‘‘section 11’’ and inserting

16 ‘‘section 107’’.

17 SEC. 6. MULTIHAZARD MITIGATION PROGRAM.

18 The Earthquake Hazards Reduction Act of 1977 (42

19 U.S.C. 7701 et seq.) is amended by adding at the end

20 the following new title:

21 ‘‘TITLE II—MULTIHAZARD

22 MITIGATION PROGRAM

23 ‘‘SEC. 201. DEVELOPMENT OF STATE MITIGATION PLANS.

24 ‘‘(a) GENERAL AUTHORITY.—Not later than the date

25 specified in subsection (d)(1), each State shall either—
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1 ‘‘(1) develop, in consultation with the respon2 sible elected local officials, or the official designated

3 representatives of their State associations, and the

4 public, a statewide strategic mitigation plan to re5 duce hazards of future natural disasters, such as

6 hurricanes, windstorms, earthquakes, volcanic erup7 tions, and tsunamis; or

8 ‘‘(2) designate in consultation with responsible

9 elected local officials, or the official designated rep10 resentatives of their State associations, and the pub11 lic, a mitigation plan that is in effect at the time of

12 the designation that includes the elements described

13 in subsection (b) as the applicable natural hazards

14 statewide strategic mitigation plan.

15 ‘‘(b) ELEMENTS OF STATE MITIGATION PLANS.—

16 ‘‘(1) IN GENERAL.—Each State strategic miti17 gation plan described in subsection (a) shall be

18 based on broad national criteria and priorities pro19 vided by the Director of the Agency.

20 ‘‘(2) SPECIFIC PROCESSES.—Each State stra21 tegic mitigation plan described in subsection (a)

22 shall include, at a minimum, a process for—

23 ‘‘(A) ensuring that structures in hazard

24 prone areas are built with hazard mitigation

25 techniques, by—
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1 ‘‘(i) working with appropriate govern2 mental jurisdictions to promote adoption

3 and enforcement of the hazard mitigation

4 portions of established technical construc5 tion standards and national consensus

6 safety codes; and

7 ‘‘(ii) making available the necessary

8 funding, personnel, and professional train9 ing to adequately enforce such construction

10 standards and safety codes;

11 ‘‘(B) improving the capabilities for emer12 gency response to natural disasters which shall

13 include capabilities for firefighting, search and

14 rescue, and the provision of shelters, commu15 nications, and medical relief;

16 ‘‘(C) developing standards and guidelines

17 for the regular training of emergency respond18 ers to minimize the effects of natural disasters;

19 ‘‘(D) achieving enforcement of local com20 munity land use ordinances;

21 ‘‘(E) addressing further development in

22 high-risk, disaster prone areas and the impact

23 of such development on life safety and the envi24 ronment; and
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1 ‘‘(F) identifying and prioritizing essential

2 critical facilities, lifelines, and public facilities

3 to be cost-effectively retrofitted based on the

4 availability of resources.

5 ‘‘(3) DEADLINE FOR IMPLEMENTATION.—Each

6 State shall implement the processes described in

7 paragraph (2) by not later than the date specified in

8 subsection (d)(2).

9 ‘‘(c) APPROVAL OF PLAN.—The Director of the

10 Agency shall review each State strategic mitigation plan

11 submitted pursuant to subsection (d)(1) and promptly ap12 prove such plan if it contains the elements described in

13 subsection (b).

14 ‘‘(d) DEADLINES.—

15 ‘‘(1) SUBMISSION OF MITIGATION PLANS TO

16 FEMA.—

17 ‘‘(A) IN GENERAL.—Not later than 2 years

18 after enactment of this title, the chief executive

19 officer of each State shall submit to the Direc20 tor of the Agency its strategic mitigation plan

21 developed pursuant to this section.

22 ‘‘(B) NONCOMPLIANCE.—If the chief exec23 utive officer submits a strategic mitigation plan

24 under this paragraph that does not meet the re25 quirements of this section, or if the chief execu-
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1 tive officer fails to meet the deadline specified

2 in this paragraph, the State shall be considered

3 to be in noncompliance with the requirements of

4 this paragraph.

5 ‘‘(2) IMPLEMENTATION OF MITIGATION

6 PLANS.—

7 ‘‘(A) IN GENERAL.—Not later than 2 years

8 after the Director of the Agency approves the

9 strategic mitigation plan pursuant to subsection

10 (c), the chief executive officer of each State

11 shall certify to the Director of the Agency

12 whether the elements of its strategic mitigation

13 plan as described in subsection (b) are being

14 implemented in accordance with the require15 ments of this section.

16 ‘‘(B) NONCOMPLIANCE.—If the chief exec17 utive officer certifies under this paragraph that

18 the elements described in subsection (b) have

19 not been implemented, or if the chief executive

20 officer fails to make a certification by the date

21 specified in this paragraph, the State shall be

22 considered to be in noncompliance with the re23 quirements of this paragraph.

24 ‘‘(3) UPDATING OF MITIGATION PLANS.—
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1 ‘‘(A) IN GENERAL.—Not later than 3 years

2 after the Director of the Agency approves the

3 strategic mitigation plan pursuant to subsection

4 (c), and not later than every 3 years thereafter,

5 the chief executive officer of each State shall

6 submit a certification of the Director of the

7 Agency that the State has reviewed and up8 dated, as appropriate, its strategic mitigation

9 plan to reflect the latest developments in the

10 elements described in subsection (b).

11 ‘‘(B) NONCOMPLIANCE.—If the chief exec12 utive officer certifies under this paragraph that

13 the strategic mitigation plan has not been up14 dated, or if the chief executive officer fails to

15 make a certification by the date specified in this

16 paragraph, the State shall be considered to be

17 in noncompliance with the requirements of this

18 paragraph.

19 ‘‘(e) NOTIFICATION AND OPPORTUNITY TO CURE.—

20 ‘‘(1) IN GENERAL.—The Director of the Agency

21 shall promptly notify in writing any State that does

22 not meet a compliance requirement referred to in

23 subsection (d).

24 ‘‘(2) REDUCTION IN CERTAIN ASSISTANCE.—If

25 a State does not take corrective action within 180
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1 days after receiving notification under paragraph

2 (1), the State shall be denied hazard mitigation

3 funds as specified in subsection (f) until such date

4 as the Director of the Agency determines that the

5 State has taken the necessary corrective action.

6 ‘‘(f) DENIAL OF MITIGATION FUNDS.—During the

7 applicable period specified in subsection (e)(2), a State

8 that fails to meet an applicable deadline described in sub9 section (d) shall not be eligible to receive funds from the

10 Natural Disaster Hazard Mitigation Fund under section

11 202.

12 ‘‘SEC. 202. NATURAL DISASTER HAZARD FUND.

13 ‘‘(a) FUNDS TO STATES.—

14 ‘‘(1) AUTHORITY.—Beginning with the first day

15 of the full fiscal year beginning after the date of en16 actment of this title, and on the first day of every

17 fiscal year thereafter, after the Director of the Agen18 cy credits premiums from the Natural Disaster In19 surance Corporation described in section 301, the

20 Director of the Agency shall allocate to the States

21 (except for any State that is denied funds under sec22 tion 201(f)) all of the funds appropriated to the

23 Mitigation Account described in section 404.

24 ‘‘(2) FORMULA.—
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1 ‘‘(A) IN GENERAL.—Subject to paragraph

2 (3), the Director of the Agency shall allocate

3 funds from the Mitigation Account to a State

4 on the basis of a pro rata formula that is based

5 on the reinsurance coverage premiums de6 scribed in title III that are collected from that

7 State.

8 ‘‘(B) REGULATIONS.—Not later than 1

9 year after the date of enactment of this title,

10 the Director of the Agency shall issue final reg11 ulations describing the pro rata formula de12 scribed in subparagraph (A).

13 ‘‘(3) MINIMUM AMOUNT.—The minimum

14 amount allotted to a State under this subsection for

15 a fiscal year shall be equal to the greater of—

16 ‘‘(A) 0.25 percent of the amounts in the

17 Mitigation Account on the day before the date

18 of the allotment; or

19 ‘‘(B) $250,000.

20 ‘‘(b) USE.—

21 ‘‘(1) IN GENERAL.—The amounts received by

22 States from the Mitigation Fund shall be used to

23 support natural disaster hazard mitigation activities,

24 which may include assistance for—
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1 ‘‘(A) training of emergency responders and

2 building code enforcers;

3 ‘‘(B) State revolving loan funds, if estab4 lished, to undertake financing, including the

5 leveraging of funds for various hazard mitiga6 tion activities;

7 ‘‘(C) the adoption and enforcement of the

8 hazard mitigation portions of established tech9 nical construction standards and national con10 sensus safety codes;

11 ‘‘(D) low-income individuals and families

12 to help pay for the undertaking of hazard miti13 gation measures;

14 ‘‘(E) the dissemination of cost-effective

15 technologies—

16 ‘‘(i) to prevent or substantially reduce

17 damage caused by natural disasters; and

18 ‘‘(ii) for the establishment of geo19 graphically dispersed and duly incor20 porated natural disaster damage preven21 tion and mitigation Centers for Protection

22 Against Natural Disasters to carry out the

23 dissemination of these technologies;
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1 ‘‘(F) addressing further development in

2 high-risk, disaster prone areas and the impact

3 of such development; and

4 ‘‘(G) prenatural disaster hazard mitiga5 tion, including retrofitting of critical facilities,

6 lifelines, and public facilities.

7 ‘‘(2) PRIORITY.—Each State that receives an

8 allotment under subsection (d) shall give priority in

9 using the amounts received from the Mitigation

10 Fund to those hazard mitigation activities necessary

11 to bring the State into compliance with the strategic

12 mitigation plan elements described in section 201

13 (b).

14 ‘‘(c) LOCAL COMMUNITIES.—As a condition to receiv15 ing an initial allotment under subsection (a), each State

16 shall complete the consultative process described in section

17 201(a).

18 ‘‘(d) STATE PERFORMANCE.—

19 ‘‘(1) EVALUATION.—The Director of the Agen20 cy shall evaluate at least once every 3 years each

21 State’s progress in terms of implementing its stra22 tegic mitigation plan as described in section 201(b).

23 ‘‘(2) FUTURE ALLOTMENTS.—Future allot24 ments under subsection (a) shall be conditioned on
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1 a satisfactory evaluation as described in paragraph

2 (1).

3 ‘‘(e) AUDITS.—The Director of the Agency shall peri4 odically conduct audits to ensure that States and local

5 communities are using the funds from the allocations

6 made under subsection (a) to support the hazard mitiga7 tion activities described in this section and section 201.

8 ‘‘SEC. 203. PUBLIC INFRASTRUCTURE RETROFITTING.

9 ‘‘(a) STUDY.—The Comptroller General of the United

10 States shall conduct a study to identify all Federal pro11 grams that provide assistance for public facilities and life12 lines. The study shall determine which of these programs

13 include or could include as an eligible use of Federal as14 sistance the retrofitting or strengthening of the public fa15 cilities and lifelines to minimize damage from future nat16 ural disasters.

17 ‘‘(b) REPORT TO CONGRESS.—The results of the

18 study described in subsection (a), including the determina19 tions on retrofitting, shall be transmitted by the Director

20 of the Agency to Congress not later than 1 year after the

21 date of enactment of this title.

22 ‘‘SEC. 204. AUTHORIZATION OF APPROPRIATIONS.

23 ‘‘(a) OPERATIONS.—There is authorized to be appro24 priated such sums as may be necessary for the Director

25 of the Agency to carry out the provisions of this title.
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1 ‘‘(b) MITIGATION FUND.—There is authorized to be

2 appropriated such additional sums as Congress considers

3 appropriate to be deposited in the Mitigation Fund under

4 section 202 to support hazard mitigation.’’.

5 SEC. 7. NATURAL DISASTER INSURANCE.

6 The Earthquake Hazards Reduction Act of 1977 (42

7 U.S.C. 7701 et seq.), as amended by section 6, is further

8 amended by adding after title II the following new title:

9 ‘‘TITLE III—NATURAL DISASTER

10 INSURANCE

11 ‘‘SEC. 301. NATURAL DISASTER INSURANCE CORPORATION.

12 ‘‘(a) CREATION.—The Secretary of the Treasury

13 shall grant loans in accordance with section 310(c) to a

14 private, nongovernmental, and not-for-profit membership

15 corporation, that meets the requirements of subsection (b)

16 (hereafter in this title referred to as the ‘Natural Disaster

17 Insurance Corporation’ or ‘Corporation’).

18 ‘‘(b) PURPOSE.—The Natural Disaster Insurance

19 Corporation that receives loans as described in subsection

20 (a)—

21 ‘‘(1) shall provide reinsurance coverage for hur22 ricanes, earthquakes, volcanic eruptions, tsunamis,

23 windstorms, and wildfires; and
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1 ‘‘(2) shall only be eligible to receive loans under

2 section 310(c), if it complies with all requirements of

3 this title.

4 ‘‘(c) MEMBERSHIP.—The members of the Corpora5 tion shall own shares in the Corporation and shall consist

6 of private insurers and State insurance pools that pur7 chase the reinsurance coverage provided by the Corpora8 tion under sections 306 and 307.

9 ‘‘(d) STARTUP.—

10 ‘‘(1) ADMINISTRATOR.—

11 ‘‘(A) IN GENERAL.—An administrator of

12 the Corporation shall be selected by the mem13 bers of the Corporation, at the initial organiza14 tional meeting of the Corporation.

15 ‘‘(B) DUTIES OF THE ADMINISTRATOR.—

16 The administrator of the Corporation shall,

17 with respect to the Corporation, coordinate—

18 ‘‘(i) the hiring of temporary staff;

19 ‘‘(ii) obtaining office space;

20 ‘‘(iii) contracting with consultants and

21 entities;

22 ‘‘(iv) managing the election of the ini23 tial Board of Directors of the Corporation;

24 and
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1 ‘‘(v) receiving the startup loans de2 scribed in paragraph (2).

3 ‘‘(C) TERMINATION OF ADMINISTRATOR.—

4 The activities of the administrator shall termi5 nate when all members of the Board of Direc6 tors of the Corporation have been selected.

7 ‘‘(2) STARTUP LOANS.—

8 ‘‘(A) STARTUP ADMINISTRATIVE COSTS.—

9 Startup administrative costs of the Corporation

10 shall be derived from loans received from the

11 private insurers participating as members of the

12 Corporation.

13 ‘‘(B) AMOUNT OF STARTUP LOANS.—The

14 amount of startup loans received from private

15 insurers shall be in proportion to each of the

16 participating insurer’s countrywide subject net

17 written premium (as defined and determined by

18 the Director of the Agency).

19 ‘‘(C) REPAYMENT OF STARTUP LOANS.—

20 Not later than 3 years after the Corporation is

21 established under subsection (a), or such later

22 time as sufficient funds become available, all

23 startup loans received from private insurers as

24 described in this paragraph shall be repaid with

25 interest by the Corporation from amounts in
28

•S 1361 IS

1 the trust accounts established pursuant to sec2 tion 310.

3 ‘‘(e) BOARD OF DIRECTORS.—

4 ‘‘(1) GOVERNANCE.—

5 ‘‘(A) IN GENERAL.—The Corporation shall

6 be governed by a 15-member Board of Direc7 tors (hereafter in this title referred to as the

8 ‘Board’).

9 ‘‘(B) VOTING.—Each director of the Board

10 shall have 1 vote and the Board shall set policy

11 and decide all matters by a simple majority of

12 the votes cast.

13 ‘‘(C) DUTIES OF THE BOARD.—The Board

14 shall develop and approve the plan of operation

15 described in section 302 and shall be respon16 sible for the operation and management of the

17 Corporation.

18 ‘‘(2) SELECTION OF DIRECTORS.—The 15 di19 rectors of the Board shall be selected as follows:

20 ‘‘(A) INSURANCE DIRECTORS.—

21 ‘‘(i) IN GENERAL.—Nine insurance di22 rectors shall be elected by the members of

23 the Corporation. Except as provided in

24 clause (iii), each insurance director shall

25 have 1 vote. The selection of the insurance
29

•S 1361 IS

1 directors shall reflect an equitable cross

2 section of the private insurers participating

3 as members of the Corporation in accord4 ance with this subparagraph. No more

5 than 1 employee of a specific private in6 surer may serve on the Board at any time.

7 ‘‘(ii) SPECIAL CLASSES OF INSUR8 ERS.—During the period that the Corpora9 tion is in existence, of the directors of the

10 Board—

11 ‘‘(I) one director shall represent

12 reinsurers that write primarily rein13 surance;

14 ‘‘(II) one director shall represent

15 small providers of direct insurance

16 that write primarily in personal lines

17 of insurance in less than 10 States;

18 and

19 ‘‘(III) one director shall rep20 resent commercial insurers that write

21 primarily commercial insurance lines

22 throughout the United States.

23 ‘‘(iii) ELECTION BASED ON PREMIUM

24 VOLUME.—Three insurance directors shall

25 be elected to the Board on the basis of the
30

•S 1361 IS

1 premium volume weighting criteria de2 scribed as follows:

3 ‘‘(I) INITIAL ELECTION.—For

4 the initial election of the 3 directors

5 under this clause, the vote of each pri6 vate insurer serving as a member of

7 the Corporation shall be weighted in

8 proportion to that insurer’s country9 wide subject net written premium (as

10 defined and determined by the Direc11 tor of the Agency) in relationship to

12 the countrywide subject net written

13 premium for all private insurers serv14 ing as members of the Corporation.

15 ‘‘(II) SUBSEQUENT ELECTION.—

16 For the election of the 3 directors

17 under this clause other than the ini18 tial 3 such directors, the vote of each

19 private insurer serving as a member

20 of the Corporation shall be weighted

21 to reflect the proportion of all pre22 miums collected by all participating

23 providers of the primary insurance

24 coverages described in subtitle B and

25 the premium paid by all purchasers of
31

•S 1361 IS

1 the reinsurance coverage provided by

2 the Corporation pursuant to subtitle

3 C collected by the private insurer.

4 ‘‘(III) NUMBER OF VOTES.—For

5 each election held to elect any 1 of the

6 3 directors under this clause, a pri7 vate insurer may only vote for 1 can8 didate.

9 ‘‘(iv) AT-LARGE ELECTION.—Three

10 insurance directors shall be elected at large

11 by the private insurers serving as members

12 of the Corporation.

13 ‘‘(B) NONINSURANCE DIRECTORS.—

14 ‘‘(i) IN GENERAL.—Not later than

15 180 days after the election of the insur16 ance directors under subparagraph (A), the

17 insurance directors elected pursuant to

18 subparagraph (A) shall nominate 6 non19 insurance directors, who shall be elected by

20 the members of the Corporation.

21 ‘‘(ii) INTERESTS REPRESENTED.—

22 Each of the following interests shall be

23 represented by at least 1, but not more

24 than 2, of the 6 noninsurance directors:

25 ‘‘(I) Insurance agents or brokers.
32

•S 1361 IS

1 ‘‘(II) State insurance regulators.

2 ‘‘(III) Risk assessment experts

3 who are members of the national

4 academy of sciences.

5 ‘‘(IV) Consumers of property-cas6 ualty insurance, including consumers

7 of commercial insurance.

8 ‘‘(V) Representatives of the

9 banking or real estate industry which

10 are impacted by property-casualty in11 surance.

12 ‘‘(C) VACANCIES.—A vacancy on the

13 Board shall be immediately filled with a direc14 tor who is selected in the manner described in

15 the plan of operation developed under section

16 302.

17 ‘‘(3) TERMS OF SERVICE.—The directors elect18 ed under paragraph (2) shall serve staggered terms

19 of not more than 6 years.

20 ‘‘(4) CHAIRPERSON.—The Board shall select a

21 chairperson from among its directors.

22 ‘‘(5) FIDUCIARY DUTY.—For carrying out the

23 duties of the Board, the directors of the Board shall

24 have a fiduciary duty to the Corporation, that shall
33

•S 1361 IS

1 supersede any duty to an employer or other special

2 interest that the director may otherwise represent.

3 ‘‘(f) POWERS.—

4 ‘‘(1) CONTROL.—The Corporation shall be—

5 ‘‘(A) privately owned by the members of

6 the Corporation, as described in subsection (b);

7 and

8 ‘‘(B) under the direction of the Board, as

9 described in subsection (d).

10 ‘‘(2) GENERAL POWERS.—Upon the selection of

11 the 9 insurance directors under subsection (d)(2)(A),

12 the Corporation shall take all necessary and appro13 priate actions to carry out the functions of the Cor14 poration, including hiring staff, making contracts,

15 and paying the salaries and expenses of employees

16 with funds from startup loans described in sub17 section (c)(2) and the trust accounts described in

18 section 306.

19 ‘‘(3) SPECIFIC POWERS.—Consistent with the

20 plan of operation developed under section 302, the

21 Corporation, under the direction of the Board, shall

22 have the power—

23 ‘‘(A) to provide the reinsurance coverage

24 as provided in this Act;
34

•S 1361 IS

1 ‘‘(B) to manage the trust accounts de2 scribed in section 310;

3 ‘‘(C) to raise funds by issuing obligations

4 in the private market, except that such obliga5 tions shall not carry the full faith and credit of

6 the United States; and

7 ‘‘(D) to take all other actions necessary

8 and proper to carry out the operations of the

9 Corporation.

10 ‘‘(4) EXCLUDED POWERS.—The Corporation

11 may not—

12 ‘‘(A) exercise powers that are reserved to

13 the Federal Government as a sovereign govern14 ment;

15 ‘‘(B) make financial commitments with any

16 sovereign government; and

17 ‘‘(C) have as an employee any Federal em18 ployee who is subject to the civil service laws

19 under title 5, United States Code.

20 ‘‘(g) LIMITATIONS ON LIABILITY.—

21 ‘‘(1) INDIVIDUAL MEMBERS.—Individual mem22 bers of the Corporation, as described in subsection

23 (b), shall not be liable, or in any way responsible, for

24 the obligations of the Corporation and the trust ac25 counts described in section 306.
35

•S 1361 IS

1 ‘‘(2) UNDER FEDERAL LAW.—No action by the

2 Corporation or the Board pertaining to the plan of

3 operation described in section 302 or the sale of re4 insurance as described in sections 303 through 309

5 shall subject the Corporation or the Board to liabil6 ity under Federal law or any law of a State if that

7 action is taken pursuant to authority granted to the

8 Corporation under this Act.

9 ‘‘SEC. 302. PLAN OF OPERATION.

10 ‘‘(a) ESTABLISHMENT.—

11 ‘‘(1) DEVELOPMENT.—The Board shall develop

12 a plan of operation (hereafter in this section referred

13 to as the ‘plan’) describing the administration of the

14 Corporation and the provision of insurance coverages

15 by the Corporation.

16 ‘‘(2) GENERAL CONTENTS.—The plan shall set

17 forth the specific policy and programmatic details,

18 including all guidelines, criteria, definitions, clari19 fications, and procedures necessary for the reinsur20 ance coverage to operate under standard conditions

21 of insurance that shall be applicable in all States.

22 ‘‘(3) INSURANCE COVERAGE PARTICULARS.—

23 Concerning the particular information regarding the

24 insurance coverages issued or provided by the Cor-
36

•S 1361 IS

1 poration (hereafter in this subsection referred to as

2 ‘coverage particulars’), the plan shall include—

3 ‘‘(A) prices and reserve prices, as described

4 in sections 306 and 307;

5 ‘‘(B) specific terms and conditions of in6 surance coverages, including—

7 ‘‘(i) coverage eligibility requirements;

8 ‘‘(ii) coverage limits;

9 ‘‘(iii) deductibles; and

10 ‘‘(iv) levels of retained losses as de11 scribed in section 308;

12 ‘‘(C) specific insurance forms and policy

13 contracts; and

14 ‘‘(D) criteria for the settlement of insur15 ance claims.

16 ‘‘(4) MISCELLANEOUS PLAN PROVISIONS.—In

17 addition to the coverage particulars described in

18 paragraph (3), the plan shall include—

19 ‘‘(A) the minimum standards necessary for

20 State insurance pools to qualify as eligible enti21 ties to purchase the reinsurance coverage under

22 section 306;

23 ‘‘(B) the terms for the repayment of any

24 obligations issued in the private market pursu25 ant to section 301(e)(3)(C); and
37

•S 1361 IS

1 ‘‘(C) grievance procedures for resolving

2 disputes among members of the Corporation re3 sulting from the decisions of the Board.

4 ‘‘(5) PROPRIETARY INFORMATION.—To the

5 maximum extent practicable, the plan shall protect

6 as proprietary specific information provided by pri7 vate insurers that is necessary to develop the rates

8 and specific terms and conditions of the insurance

9 coverages issued or provided by the Corporation.

10 ‘‘(6) INSURER STABILITY IN INSURANCE COV11 ERAGES.—To the maximum extent practicable, the

12 plan shall encourage stability with respect to partici13 pation by private insurers in the insurance coverages

14 issued or provided by the Corporation.

15 ‘‘(b) PLAN APPROVAL.—The Natural Disaster Insur16 ance Board of Actuaries shall review and approve the plan

17 and any amendments made to the plan in accordance with

18 the process described in section 309(c).

19 ‘‘(c) ANNUAL REPORT.—

20 ‘‘(1) IN GENERAL.—Not later than 1 year after

21 the initial meeting of the Board, and annually there22 after, the Board shall prepare a written report on

23 the overall operations of the Corporation.
38

•S 1361 IS

1 ‘‘(2) DISTRIBUTION.—The Board shall dis2 tribute a copy of the report prepared under para3 graph (1) to—

4 ‘‘(A) each member of the Corporation; and

5 ‘‘(B) the Independent Board of Actuaries

6 established under section 309.

7 ‘‘SEC. 303. PROGRAM AUTHORITY.

8 ‘‘(a) IN GENERAL.—The Corporation shall carry out

9 a program under this title to make reinsurance coverage

10 available through—

11 ‘‘(1) contracts for reinsurance coverage under

12 section 306, which shall be made available for pur13 chase only by eligible State programs; and

14 ‘‘(2) contracts for reinsurance coverage under

15 section 307, which shall be made available for pur16 chase by purchasers under section 307(a)(1) only

17 through auctions under section 307(a).

18 ‘‘(b) PURPOSE.—The program shall be designed to

19 make reinsurance coverage under this title available to im20 prove the availability of homeowners’ insurance for the

21 purpose of facilitating the pooling, and spreading the risk,

22 of catastrophic financial losses from natural disasters and

23 to improve the solvency of homeowners’ insurance mar24 kets.
39

•S 1361 IS

1 ‘‘(c) CONTRACT PRINCIPLES.—Under the program

2 under this title, the Corporation shall offer reinsurance

3 coverage through contracts with covered purchasers, which

4 contracts—

5 ‘‘(1) shall not displace or compete with the pri6 vate insurance or reinsurance markets or capital

7 markets;

8 ‘‘(2) shall minimize the administrative costs;

9 ‘‘(3) shall, in the case of any contract under

10 section 306 for eligible State programs, provide cov11 erage based solely on insured losses within the State

12 of the eligible State program purchasing the con13 tract; and

14 ‘‘(4) shall, in the case of any contract under

15 section 307 for purchase at auction, provide cov16 erage based solely on insured losses within the re17 gion established pursuant to section 307(a) for

18 which the auction is held.

19 ‘‘SEC. 304. QUALIFIED LINES OF COVERAGE.

20 ‘‘Each contract for reinsurance coverage made avail21 able under this Act shall provide insurance coverage

22 against residential property losses to homes (including

23 dwellings owned under condominium and cooperative own24 ership arrangements) and the contents of apartment

25 buildings.
40

•S 1361 IS

1 ‘‘SEC. 305. COVERED PERILS.

2 ‘‘Each contract for reinsurance coverage made avail3 able under this Act shall cover losses that are—

4 ‘‘(1) proximately caused by—

5 ‘‘(A) earthquakes;

6 ‘‘(B) perils ensuing from earthquakes, in7 cluding fire and tsunami;

8 ‘‘(C) hurricanes and windstorms;

9 ‘‘(D) volcanic eruptions; and

10 ‘‘(E) wildfires; and

11 ‘‘(2) in the case only of a contract under section

12 306, insured by the eligible State program pur13 chasing the contract.

14 ‘‘SEC. 306. CONTRACTS FOR REINSURANCE COVERAGE FOR

15 ELIGIBLE STATE PROGRAMS.

16 ‘‘(a) ELIGIBLE STATE PROGRAMS.—A program shall

17 be eligible to purchase a contract under this section for

18 reinsurance coverage under this title only if the program

19 is a State-operated program that complies with the fol20 lowing requirements:

21 ‘‘(1) PROGRAM DESIGN.—The program shall be

22 a State-operated—

23 ‘‘(A) insurance program that offers cov24 erage for homes (which may include dwellings

25 owned under condominium and cooperative

26 ownership arrangements) and the contents of
41

•S 1361 IS

1 apartments to State residents because of a find2 ing by the State insurance commissioner or

3 other State entity authorized to make such de4 termination that such a program is necessary in

5 order to provide for the continued availability of

6 such residential coverage for all residents; or

7 ‘‘(B) reinsurance program that is designed

8 to improve private insurance markets which

9 offer coverage for homes (which may include

10 dwellings owned under condominium and coop11 erative ownership arrangements) and the con12 tents of apartments because of a finding by the

13 State insurance commissioner or other State

14 entity authorized to make such determination

15 that such a program is necessary in order to

16 provide for the continued availability of such

17 residential coverage for all residents.

18 ‘‘(2) TAX STATUS.—The program shall be

19 structured and carried out in a manner so that the

20 program is exempt from all Federal taxation.

21 ‘‘(3) EARNINGS.—The program may not pro22 vide for the redistribution of any part of any net

23 profits of the program to any insurer that partici24 pates in the program.

25 ‘‘(4) MITIGATION.—
42

•S 1361 IS

1 ‘‘(A) IN GENERAL.—The program shall in2 clude mitigation provisions that require that not

3 less than 10 percent of the net investment in4 come of the State insurance or reinsurance pro5 gram be used for programs to mitigate losses

6 from natural disasters for which the State in7 surance or reinsurance program was estab8 lished. For purposes of this paragraph, mitiga9 tion shall include methods to reduce losses of

10 life and property.

11 ‘‘(B) EXCEPTION.—Notwithstanding sub12 paragraph (A), in the case of any State for

13 which the Secretary has determined, pursuant

14 to a request by the State insurance commis15 sioner, that the 10 percent requirement under

16 subparagraph (A) will jeopardize the actuarial

17 soundness of the State program, subparagraph

18 (A) shall be applied by substituting ‘5 percent’

19 for ‘10 percent’.

20 ‘‘(5) REQUIREMENTS REGARDING COVERAGE.—

21 ‘‘(A) IN GENERAL.—The program—

22 ‘‘(i) may not involve cross-subsidiza23 tion between any separate property and

24 casualty lines covered under the program;
43

•S 1361 IS

1 ‘‘(ii) shall include provisions that au2 thorize the State insurance commissioner

3 or other State entity authorized to make

4 such a determination to terminate the pro5 gram if the insurance commissioner or

6 other such entity determines that the pro7 gram is no longer necessary to ensure the

8 availability of homeowners’ insurance for

9 all State residents; and

10 ‘‘(iii) shall provide that, for any insur11 ance coverage for homes (which may in12 clude dwellings owned under condominium

13 and cooperative ownership arrangements)

14 and the contents of apartments that is

15 made available under the State insurance

16 program and for any reinsurance coverage

17 for such insurance coverage made available

18 under the State reinsurance program, the

19 premium rates charged shall be amounts

20 that, at a minimum, are sufficient to cover

21 the full actuarial costs of such coverage,

22 based on consideration of the risks involved

23 and accepted actuarial and ratemaking

24 principles, anticipated administrative ex-
44

•S 1361 IS

1 penses, and loss and loss-adjustment ex2 penses.

3 ‘‘(B) APPLICABILITY.—This paragraph

4 shall apply to any program which, after Janu5 ary 1, 1999, commences offering insurance or

6 reinsurance coverage described in subparagraph

7 (A) or (B), respectively, of paragraph (1), or ef8 fective 2 years after the date of enactment of

9 this title for any existing State program de10 scribed in section 308, provided that such a re11 quirement does not reduce a State program’s

12 claims paying capacity.

13 ‘‘(6) OTHER QUALIFICATIONS.—

14 ‘‘(A) IN GENERAL.—The program shall

15 have been certified (for the year for which the

16 coverage is in effect) by the Corporation as in

17 compliance with regulations that shall be issued

18 under this paragraph by the Corporation, in

19 consultation with the Independent Board of Ac20 tuaries established under section 309. The reg21 ulations shall establish criteria for State pro22 grams to qualify to purchase reinsurance under

23 this section, which are in addition to the re24 quirements under the other paragraphs of this

25 subsection.
45

•S 1361 IS

1 ‘‘(B) CONTENTS.—The regulations issued

2 under this paragraph shall include requirements

3 that—

4 ‘‘(i) the State program have public

5 members on its board of directors or have

6 an advisory board with public members;

7 ‘‘(ii) insurance coverage made avail8 able through the State program not sup9 plant coverage that is otherwise reasonably

10 available and affordable in the private in11 surance market;

12 ‘‘(iii) the State program provide ade13 quate insurance protection for the peril

14 covered, which shall include a range of

15 deductibles and premium costs that reflect

16 the applicable risk to eligible properties;

17 ‘‘(iv) the insurance protection pro18 vided by the State program is made avail19 able on a nondiscriminatory basis to all

20 qualifying residents;

21 ‘‘(v) the State, or the appropriate

22 local governments within the State, have

23 certified that new construction insured by

24 the program complies with applicable

25 building, fire, and safety codes;
46

•S 1361 IS

1 ‘‘(vi) the State, or appropriate local

2 governments within the State, have in ef3 fect building, fire, and safety codes gen4 erally consistent with Federal Emergency

5 Management Agency guidelines designed to

6 reduce losses from the peril covered;

7 ‘‘(vii) the State has taken actions to

8 establish an insurance rate structure that

9 takes into account measures to mitigate in10 surance losses; and

11 ‘‘(viii) the State program complies

12 with such other requirements that the Sec13 retary considers necessary to carry out the

14 purposes of this title.

15 ‘‘(b) TERMS OF CONTRACTS.—Each contract under

16 this section for reinsurance coverage under this title shall

17 be subject to the following terms and conditions:

18 ‘‘(1) MATURITY.—The term of the contract

19 shall not exceed 1 year.

20 ‘‘(2) PAYMENT CONDITION.—The contract shall

21 authorize claims payments for eligible losses only to

22 the eligible State program purchasing the coverage.

23 ‘‘(3) RETAINED LOSSES REQUIREMENT.—The

24 contract shall pay eligible losses only if the total

25 amount of insurance claims for losses, which are
47

•S 1361 IS

1 covered by qualified lines, occur to properties located

2 within the State covered by the contract, and result

3 from a single event of a covered peril, exceeds the

4 amount of retained losses provided under the con5 tract (pursuant to section 308(a)) purchased by the

6 eligible State program.

7 ‘‘(4) MULTIPLE EVENTS.—The contract shall

8 cover any eligible losses from 1 or more covered

9 events that may occur during the term of the con10 tract.

11 ‘‘(5) TIMING OF ELIGIBLE LOSSES.—Eligible

12 losses under the contract shall include only insur13 ance claims for property covered by qualified lines

14 that are reported to the eligible State program with15 in the 3-year period beginning upon the event or

16 events for which payment under the contract is

17 made.

18 ‘‘(6) PRICING.—

19 ‘‘(A) DETERMINATION.—The cost of rein20 surance coverage under the contract shall be an

21 amount established by the Corporation as fol22 lows:

23 ‘‘(i) RECOMMENDATIONS.—The Cor24 poration shall take into consideration the

25 recommendations of the Independent
48

•S 1361 IS

1 Board of Actuaries in establishing the cost,

2 but the cost may not be less than the

3 amount recommended by the Independent

4 Board of Actuaries.

5 ‘‘(ii) FAIRNESS TO TAXPAYERS.—The

6 cost shall be established at a level that is

7 designed to return to the Federal Govern8 ment fair compensation for the risks being

9 borne by the people of the United States

10 and that takes into consideration the devel11 opmental stage of empirical models of nat12 ural disasters and the capacity of private

13 markets to absorb insured losses from nat14 ural disasters.

15 ‘‘(iii) SELF-SUFFICIENCY.—The rates

16 for reinsurance coverage shall be estab17 lished at a level that annually produces ex18 pected premiums which shall be sufficient

19 to pay the annualized cost of all claims,

20 loss adjustment expenses, and all adminis21 trative costs of reinsurance coverage of22 fered under this section.

23 ‘‘(B) COMPONENTS.—The cost shall con24 sist of the following components:
49

•S 1361 IS

1 ‘‘(i) RISK-BASED PRICE.—A risk2 based price, which shall reflect the antici3 pated annualized payout of the contract

4 according to the actuarial analysis and rec5 ommendations of the Commission.

6 ‘‘(ii) RISK LOAD.—A risk load in an

7 amount that is not less than the risk-based

8 price under clause (i).

9 ‘‘(iii) ADMINISTRATIVE COSTS.—A

10 sum sufficient to provide for the operation

11 of the Corporation and the Independent

12 Board of Actuaries and the administrative

13 expenses incurred in carrying out this Act.

14 ‘‘(7) REPAYMENT TERMS.—The contract shall

15 include a condition that requires that, in the event

16 that a covered purchaser receives payments for

17 qualifying claims that consist of amounts derived

18 from a loan provided under section 310(c), such cov19 ered purchaser shall continue to purchase the rein20 surance coverage provided under this title, in

21 amounts that are at least as great as those imme22 diately before the Fund was credited with amounts

23 borrowed under section 310(c) until such borrowed

24 moneys, including interest, are repaid pursuant to

25 section 310(c)(3).
50

•S 1361 IS

1 ‘‘(8) INFORMATION.—The contract shall contain

2 a condition providing that the Corporation may re3 quire the State program that is covered to submit to

4 the Corporation all information on the State pro5 gram relevant to the duties of the Corporation, as

6 determined by the Corporation.

7 ‘‘(9) EXHAUSTION OF COVERAGE.—

8 ‘‘(A) IN GENERAL.—Each contract shall

9 provide that, if during the term of the contract

10 the coverage under the contract is exhausted

11 because of payment for losses from a covered

12 event, the covered purchaser shall, during the

13 15-day period beginning upon the covered event

14 that causes exhaustion of the coverage under

15 the original contract, have an option to make a

16 single purchase of similar coverage for the re17 maining term of the contract under terms and

18 conditions similar to the original contract, but

19 reflecting a new loss cost estimate and at a cost

20 prorated based upon the remaining term.

21 ‘‘(B) DISCRETION.—To facilitate making

22 available contracts pursuant to the exercise of

23 options under subparagraph (A), the Corpora24 tion may make—
51

•S 1361 IS

1 ‘‘(i) any estimates and determinations

2 that may be necessary regarding whether

3 coverage under a contract is exhausted and

4 the amount of losses retained by a State

5 program;

6 ‘‘(ii) any estimates and assumptions

7 necessary to establish the price, terms, and

8 conditions of a contract provided pursuant

9 to such an option; and

10 ‘‘(iii) any subsequent adjustments to a

11 contract provided pursuant to the exercise

12 of such an option (including cancellation of

13 the contract) to conform the price, terms,

14 and conditions in accordance with findings

15 by the Corporation regarding issues pre16 viously estimated and assumed by the Cor17 poration pursuant to clause (ii).

18 ‘‘(10) OTHERS.—The contract shall contain

19 such other terms as the Corporation considers nec20 essary to carry out this Act and to ensure the long21 term financial integrity of the program under this

22 Act.

23 ‘‘(c) PRICE GOUGING PROTECTIONS.—Notwith24 standing any other provision of this section, a State-oper25 ated program that otherwise meets the requirements of
52

•S 1361 IS

1 this section shall be eligible to purchase a contract under

2 this section for reinsurance coverage made available under

3 this title only if the Corporation determines that there are

4 in effect, in such State, laws or regulations sufficient to

5 prohibit price gouging, during the term of such reinsur6 ance coverage, in any disaster area located within the

7 State.

8 ‘‘SEC. 307. AUCTION OF CONTRACTS FOR REINSURANCE

9 COVERAGE.

10 ‘‘(a) AUCTION PROGRAM REQUIREMENTS.—The Cor11 poration shall carry out a program to auction contracts

12 for reinsurance coverage under this title made available

13 pursuant to section 303(a)(2), which shall comply with the

14 following requirements:

15 ‘‘(1) PURCHASERS.—The auction program shall

16 provide for auctioning all contracts made available

17 under this section to private insurers and reinsurers,

18 State insurance and reinsurance programs, and

19 other interested entities.

20 ‘‘(2) REGIONAL AUCTIONS.—The auction pro21 gram shall provide for auctions on a regional basis.

22 The Corporation shall divide the States into not less

23 than 6 regions for the purpose of holding such re24 gional auctions, which shall include separate regions

25 for all or part of the State of California and all or
53

•S 1361 IS

1 part of the State of Florida. Auctions for each re2 gion shall be conducted not less often than annually.

3 ‘‘(3) RESERVE PRICE.—In auctioning a con4 tract under this section for reinsurance coverage, the

5 Corporation shall set a reserve price as the lowest

6 base price for that contract, taking into account the

7 recommendations of the Independent Board of Actu8 aries. The reserve price shall be determined on the

9 basis of the following components:

10 ‘‘(A) RISK-BASED PRICE.—A risk-based

11 price, which shall reflect the anticipated

12 annualized payout of the contract according to

13 the actuarial analysis and recommendations of

14 the Independent Board of Actuaries.

15 ‘‘(B) RISK LOAD.—A risk load in an

16 amount that is not less than the risk-based

17 price under subparagraph (A).

18 ‘‘(C) ADMINISTRATIVE COSTS.—A sum suf19 ficient to provide for the operation of the Cor20 poration and the Independent Board of Actu21 aries and the administrative expenses incurred

22 by the Corporation in carrying out this section.

23 ‘‘(D) MITIGATION.—An adjustment that

24 takes into account any efforts that are being
54

•S 1361 IS

1 made to reduce losses to property in the region

2 in which the contract is being sold.

3 ‘‘(4) OTHER REQUIREMENTS.—The Corporation

4 may establish such other requirements for the auc5 tion program as the Corporation considers necessary

6 to carry out this title.

7 ‘‘(b) CONTRACT TERMS AND CONDITIONS.—Each

8 contract for reinsurance coverage auctioned under the pro9 gram under this section shall include the following terms

10 and conditions:

11 ‘‘(1) MATURITY.—The term of each such con12 tract shall not exceed 1 year.

13 ‘‘(2) TRANSFERABILITY.—The contract shall at

14 all times be fully transferable, assignable, and divis15 ible.

16 ‘‘(3) MULTIPLE EVENTS.—The contract shall

17 contain the provisions described in section

18 306(b)(4).

19 ‘‘(4) THRESHOLD OF COVERAGE.—Each con20 tract auctioned in a region established under sub21 section (a)(2) shall provide that the covered pur22 chaser may receive a payment for losses covered

23 under the contract if, under a process specified in

24 the contract, the Corporation determines that the in25 surance industry will, as a result of a single event
55

•S 1361 IS

1 of a covered peril, incur losses within the coverage

2 area for such region that are covered by 1 or more

3 lines of insurance under section 305 in an aggregate

4 amount, for such event, greater than the level of re5 tained losses specified in section 308.

6 ‘‘(5) EXHAUSTION OF COVERAGE.—Each con7 tract shall contain the provisions described in section

8 306(b)(9).

9 ‘‘(6) OTHERS.—The contract shall contain such

10 other terms as the Corporation considers necessary

11 to carry out this Act and to ensure the long-term fi12 nancial integrity of the program under this title.

13 ‘‘(c) PRICE GOUGING PROTECTIONS.—Notwith14 standing any other provision of this section, a contract for

15 reinsurance auctioned under this section shall provide re16 insurance coverage only for losses incurred for property

17 located in a State for which the Corporation has deter18 mined that there are in effect, in such State, laws or regu19 lations sufficient to prohibit price gouging, during the

20 term of such reinsurance coverage, in any disaster area

21 located within the State.

22 ‘‘SEC. 308. MINIMUM LEVEL OF RETAINED LOSSES AND

23 MAXIMUM FEDERAL LIABILITY.

24 ‘‘(a) AVAILABLE LEVELS OF RETAINED LOSSES.—

25 In making reinsurance coverage available under this title,
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•S 1361 IS

1 the Corporation shall make available for purchase con2 tracts for such coverage that require the sustainment of

3 retained losses from a single event of a covered peril (as

4 required under sections 306(b)(3) and 307(b)(4) for pay5 ment of eligible losses) in various amounts, as the Sec6 retary determines appropriate and subject to the require7 ments under subsection (b).

8 ‘‘(b) MINIMUM LEVEL OF RETAINED LOSSES.—

9 ‘‘(1) CONTRACTS FOR STATE PROGRAMS.—Sub10 ject to paragraph (3) and notwithstanding any other

11 provision of this title, a contract for reinsurance cov12 erage under section 306 for an eligible State pro13 gram that offers insurance or reinsurance coverage

14 described in subparagraph (A) or (B), respectively,

15 of section 306(a)(1) may not be made available or

16 sold unless the contract requires retained losses from

17 a single event of a covered peril in the following

18 amount:

19 ‘‘(A) IN GENERAL.—The State program

20 shall sustain an amount of retained losses of

21 not less than the greater of—

22 ‘‘(i) $2,000,000,000;

23 ‘‘(ii) the claims-paying capacity of the

24 eligible State program, as determined by

25 the Corporation; and
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•S 1361 IS

1 ‘‘(iii) an amount, determined by the

2 Corporation in consultation with the Inde3 pendent Board of Actuaries which is suffi4 cient to cover eligible losses in the State

5 during a 12-month period for all events

6 having a likelihood of occurrence of once

7 every 100 years.

8 ‘‘(B) TRANSITION RULE FOR EXISTING

9 STATE PROGRAMS.—

10 ‘‘(i) CLAIMS-PAYING CAPACITY.—Sub11 ject to clause (ii), in the case of any eligi12 ble State program that was offering insur13 ance or reinsurance coverage on the date

14 of enactment of this title and the claims15 paying capacity of which is greater than

16 $2,000,000,000 but less than an amount

17 determined for the State under subpara18 graph (A)(iii), the minimum level of re19 tained losses applicable under this para20 graph shall be the claims-paying capacity

21 of such State program.

22 ‘‘(ii) AGREEMENT.—Clause (i) shall

23 apply to a State program only if the State

24 program enters into a written agreement

25 with the Corporation that shall provide a
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•S 1361 IS

1 schedule for increasing the claims-paying

2 capacity of the State program to the

3 amount determined sufficient by the Cor4 poration under subparagraph (A)(iii) of

5 this subsection over a period not to exceed

6 5 years. The Corporation may extend the

7 5-year period for not more than 2 addi8 tional 1-year periods if the Corporation de9 termines that losses incurred by the State

10 program as a result of covered perils create

11 excessive hardship on the State program.

12 The Corporation shall consult with the ap13 propriate officials of the State program re14 garding the required schedule and any po15 tential 1-year extensions.

16 ‘‘(C) TRANSITION RULE FOR NEW STATE

17 PROGRAMS.—

18 ‘‘(i) 100-YEAR EVENT.—The Corpora19 tion may provide that, in the case of an eli20 gible State program that, after the date of

21 enactment of this title, commences offering

22 insurance or reinsurance coverage, during

23 the 5-year period beginning on the date

24 that reinsurance coverage under section

25 306 is first made available, the minimum
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•S 1361 IS

1 level of retained losses applicable under

2 this paragraph shall be the amount deter3 mined for the State under subparagraph

4 (A)(iii), except that such minimum level

5 shall be adjusted annually as provided in

6 clause (ii) of this subparagraph.

7 ‘‘(ii) ANNUAL ADJUSTMENT.—Each

8 annual adjustment under this clause shall

9 increase the minimum level of retained

10 losses applicable under this subparagraph

11 to an eligible State program described in

12 clause (i) in a manner such that—

13 ‘‘(I) during the course of such 5-

14 year period, the applicable minimum

15 level of retained losses approaches the

16 minimum level that, under subpara17 graph (A), will apply to the eligible

18 State program upon the expiration of

19 such period; and

20 ‘‘(II) each such annual increase

21 is a substantially similar amount, to

22 the extent practicable.

23 ‘‘(D) REDUCTION BECAUSE OF REDUCED

24 CLAIMS-PAYING CAPACITY.—
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•S 1361 IS

1 ‘‘(i) AUTHORITY.—Notwithstanding

2 subparagraphs (A), (B), and (C) or the

3 terms contained in a contract for reinsur4 ance pursuant to such subparagraphs, if

5 the Corporation determines that the

6 claims-paying capacity of an eligible State

7 program has been reduced because of pay8 ment for losses due to an event, the Cor9 poration may reduce the minimum level of

10 retained losses for the State commensurate

11 with the current capacity of the State pro12 gram, as determined by the Corporation,

13 but in no case may such minimum level be

14 less than $2,000,000,000.

15 ‘‘(ii) TERM OF REDUCTION.—If the

16 minimum level of retained losses for an eli17 gible State program is reduced pursuant to

18 clause (i), upon the expiration of the 5-

19 year period beginning upon such reduction

20 the minimum level of retained losses appli21 cable to such State program under a con22 tract for reinsurance coverage under sec23 tion 306 shall be increased to an amount

24 not less than the amount applicable to
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•S 1361 IS

1 such State program immediately before

2 such reduction.

3 ‘‘(E) CLAIMS-PAYING CAPACITY.—For pur4 poses of this paragraph, the claims-paying ca5 pacity of a State-operated insurance or reinsur6 ance program under section 306(a)(1) shall be

7 determined by the Corporation, in consultation

8 with the Independent Board of Actuaries, tak9 ing into consideration retained losses to private

10 insurers in the State in an amount assigned by

11 the State insurance commissioner, the cash sur12 plus of the program, and the lines of credit, re13 insurance, and other financing mechanisms of

14 the program established by law.

15 ‘‘(2) AUCTION CONTRACTS.—Subject to para16 graph (3) and notwithstanding any other provision

17 of this title, a contract for reinsurance coverage may

18 not be made available or sold under section 307

19 through a regional auction unless the contract re20 quires that the insurance industry in the region for

21 which the auction was conducted sustains a cumu22 lative amount of retained losses (in covered lines re23 sulting from covered perils) of not less than the

24 greater of—

25 ‘‘(A) $2,000,000,000; or
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•S 1361 IS

1 ‘‘(B) an amount, determined by the Cor2 poration in consultation with the Independent

3 Board of Actuaries, which is sufficient to cover

4 eligible losses in the region during a 12-month

5 period for all events having a likelihood of oc6 currence of once every 100 years.

7 ‘‘(3) ANNUAL ADJUSTMENT.—The Corporation

8 may annually raise the minimum level of retained

9 losses established under paragraph (1) for an eligible

10 State program or under paragraph (2) for a region

11 to reflect, as determined by the Corporation—

12 ‘‘(A) in the case of an eligible State pro13 gram, changes to the claims-paying capacity of

14 the program;

15 ‘‘(B) changes in the capacity of the private

16 insurance and reinsurance market;

17 ‘‘(C) increases in the market value of prop18 erties; or

19 ‘‘(D) such other situations as the Corpora20 tion considers appropriate.

21 In making any determination under this paragraph

22 in the minimum level of retained losses, the Corpora23 tion shall establish such level at an amount such

24 that the program under this Act for making reinsur25 ance coverage available does not displace or compete
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•S 1361 IS

1 with the private insurance or reinsurance markets

2 or capital markets, as determined by the Corpora3 tion.

4 ‘‘(4) OPTIONAL ANNUAL INFLATIONARY AD5 JUSTMENT.—The Corporation may, on an annual

6 basis, raise the minimum level of retained losses es7 tablished under paragraph (1) for each eligible State

8 program and under paragraph (2) for each region to

9 reflect the annual rate of inflation. Any such raise

10 shall be made in accordance with an inflation index

11 that the Corporation determines to be appropriate.

12 The first such raise may be made 1 year after con13 tracts for reinsurance coverage under this Act are

14 first made available for purchase.

15 ‘‘(c) MAXIMUM PAYOUT.—

16 ‘‘(1) IN GENERAL.—Notwithstanding any other

17 provision of law, the maximum amount paid for all

18 events in any single year by the Corporation pursu19 ant to claims under all contracts for reinsurance cov20 erage under this title shall not exceed the applicable

21 maximum amount for such year determined under

22 paragraph (2). If, in any single year, claims under

23 existing contracts for reinsurance coverage exceed

24 the applicable maximum amount, each claimant shall
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•S 1361 IS

1 receive a prorated portion of the amount available

2 for payment of claims.

3 ‘‘(2) APPLICABLE MAXIMUM AMOUNT.—For

4 purposes of paragraph (1), the applicable maximum

5 amount shall not exceed—

6 ‘‘(A) the accumulated assets of the trust

7 account in section 310; and

8 ‘‘(B) any Federal loans to the trust ac9 count as provided in section 310(c).

10 ‘‘(d) LIMITATION ON PERCENTAGE OF RISK IN EX11 CESS OF RETAINED LOSSES.—

12 ‘‘(1) IN GENERAL.—The Corporation may not

13 make available for purchase contracts for reinsur14 ance coverage under this title that represent more

15 than 50 percent of the risk of insured losses in ex16 cess of retained losses—

17 ‘‘(A) in the case of a contract under sec18 tion 306 for an eligible State program, for such

19 State; and

20 ‘‘(B) in the case of a contract made avail21 able through a regional auction under section

22 307, for such region.

23 ‘‘(2) PAYOUT.—For purposes of this subsection,

24 the amount of payout from a reinsurance contract

25 shall be the amount of eligible losses multiplied by
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•S 1361 IS

1 the percentage in effect at the time under paragraph

2 (1).

3 ‘‘SEC. 309. INDEPENDENT BOARD OF ACTUARIES.

4 ‘‘(a) ESTABLISHMENT.—There is established an inde5 pendent Natural Disaster Insurance Board of Actuaries

6 (referred to in this title as the ‘Independent Board’) to

7 review and approve the plan of operation developed under

8 section 302 and to advise the Corporation regarding the

9 estimated loss costs associated with the contracts for rein10 surance coverage available under this title and carrying

11 out the functions specified in this title.

12 ‘‘(b) MEMBERSHIP.—

13 ‘‘(1) APPOINTMENT.—Not later than 180 days

14 after the date of enactment of this title, the Sec15 retary of the Treasury (hereafter in this section re16 ferred to as the ‘Secretary’) shall appoint the mem17 bers of the Independent Board.

18 ‘‘(2) MEMBERS.—

19 ‘‘(A) IN GENERAL.—The Independent

20 Board shall be comprised of 5 members.

21 ‘‘(B) VACANCIES.—The Secretary shall,

22 upon the occurrence of a vacancy on the Inde23 pendent Board, immediately appoint a member

24 to fill the vacancy in the same manner as the

25 original appointment.
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•S 1361 IS

1 ‘‘(3) QUALIFICATIONS.—The members of the

2 Independent Board described in paragraph (1)—

3 ‘‘(A) shall be citizens of the United States;

4 ‘‘(B) may not be employees of members of

5 the Corporation; and

6 ‘‘(C) shall be professional actuaries who—

7 ‘‘(i) are members of the Casualty Ac8 tuarial Society or the American Academy

9 of Actuaries (or its successor) and meet

10 the qualification standards of the Academy

11 (or its successor) for public statements of

12 actuarial opinion; and

13 ‘‘(ii) have previous experience in set14 ting actuarially sound property and cas15 ualty rates.

16 ‘‘(4) CHAIRPERSON.—The Secretary shall des17 ignate a chairperson of the Independent Board from

18 among members appointed to the Independent

19 Board.

20 ‘‘(5) TERMS OF SERVICE.—The members ap21 pointed under paragraph (2) shall serve staggered

22 terms of not more than 6 years, as determined by

23 the Secretary at the time of appointment.

24 ‘‘(c) APPROVAL OF THE PLAN OF OPERATION.—
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•S 1361 IS

1 ‘‘(1) SUBMISSION OF DRAFT PLAN TO INDE2 PENDENT BOARD.—Not later than 15 months after

3 the date of enactment of this title, the Board of the

4 Corporation shall submit to the Independent Board

5 a draft plan of operation that satisfies the require6 ments of section 302(a).

7 ‘‘(2) APPROVAL OF THE PLAN.—If, upon the

8 termination of the 90-day period beginning on the

9 date on which the Independent Board receives the

10 draft plan under paragraph (1), the Independent

11 Board has not disapproved the draft plan under

12 paragraph (3), the draft plan shall be deemed to

13 have been approved and shall become final.

14 ‘‘(3) STANDARD FOR DISAPPROVAL.—The Inde15 pendent Board may disapprove the draft plan de16 scribed in paragraph (2) only if the plan, as a whole,

17 is materially inconsistent with the provisions of this

18 title.

19 ‘‘(4) OPPORTUNITY TO CURE.—

20 ‘‘(A) IN GENERAL.—If the Independent

21 Board disapproves a draft plan under para22 graph (2), the chairperson of the Independent

23 Board shall immediately return the plan to the

24 Board of the Corporation, together with written

25 instructions of the changes required for the
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•S 1361 IS

1 plan to be materially consistent with the provi2 sions of this title.

3 ‘‘(B) REVISIONS.—Upon receipt of the

4 plan and instructions returned under subpara5 graph (A), the Board of the Corporation

6 shall—

7 ‘‘(i) modify the plan in a manner con8 sistent with the instructions; and

9 ‘‘(ii) submit a modified plan to the

10 Independent Board for approval in accord11 ance with the process described in para12 graph (2).

13 ‘‘(5) AMENDMENTS TO THE PLAN.—Any

14 amendments to the plan shall be developed by the

15 Board of the Corporation under section 302 and ap16 proved by the Independent Board in accordance with

17 the process described in paragraph (2).

18 ‘‘(6) REPORT TO SECRETARY.—After reviewing

19 the draft plan of operation, and amendments there20 to, the Independent Board shall prepare and submit

21 a report to the Secretary of its finding regarding

22 such plan.

23 ‘‘(d) APPROVAL OF RATES.—

24 ‘‘(1) SUBMISSION OF PROPOSED RATES TO THE

25 INDEPENDENT BOARD.—Not later than 1 year after
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•S 1361 IS

1 the date of enactment of this title, the Board of the

2 Corporation shall submit to the Independent Board

3 for approval prices and reserve prices developed by

4 the Board of the Corporation that are proposed to

5 be established for the reinsurance contracts issued

6 or provided by the Corporation, including any meth7 odologies used in developing such prices.

8 ‘‘(2) APPROVAL BY THE INDEPENDENT

9 BOARD.—If, at the termination of the 90-day period

10 beginning on the date on which the Independent

11 Board receives the information concerning the meth12 odologies used for determining proposed prices

13 under paragraph (1), the Independent Board has

14 not disapproved the methodologies on the basis of

15 the standard described in paragraph (3), the meth16 odologies shall be deemed to have been approved.

17 ‘‘(3) STANDARD FOR DISAPPROVAL.—The Inde18 pendent Board may disapprove the prices or meth19 odologies described in paragraph (2) only if the

20 Independent Board presents compelling and substan21 tial actuarial evidence on the record that the prices

22 or methodologies are materially inconsistent with the

23 actuarial soundness.

24 ‘‘(4) OPPORTUNITY TO CURE.—
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•S 1361 IS

1 ‘‘(A) IN GENERAL.—If the Independent

2 Board disapproves any proposed prices or meth3 odologies under this subsection, the chairperson

4 of the Independent Board shall immediately re5 turn the rates and methodologies to the Board

6 of the Corporation together with written in7 structions of the changes required to the prices

8 and methodologies to satisfy actuarial sound9 ness.

10 ‘‘(B) REVISIONS.—Upon receipt of the

11 prices or methodologies returned under sub12 paragraph (A), the Board shall modify the rates

13 or methodologies in a manner consistent with

14 the instructions of the Independent Board and

15 resubmit them to the Independent Board for

16 approval according to the process described in

17 paragraph (2).

18 ‘‘(5) APPROVAL OF PRICES.—Upon the ap19 proval by the Independent Board of methodologies

20 for the reinsurance coverage prices under this sub21 section, the prices for the reinsurance coverage pro22 posed under paragraph (1) shall—

23 ‘‘(A) become final; and
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•S 1361 IS

1 ‘‘(B) be included by the Board in the plan

2 of operation under section 302 for the reinsur3 ance coverage provided by the Corporation.

4 ‘‘(6) ADJUSTMENT OF PRICES.—Any adjust5 ment of the prices for the methodologies used in de6 veloping the prices for the reinsurance coverage shall

7 be developed by the Board of the Corporation under

8 sections 306 and 307 and approved by the Inde9 pendent Board according to the process described in

10 paragraph (2).

11 ‘‘(e) CONSULTATION.—The Independent Board shall

12 consult risk assessment experts who are employed by the

13 United States Geological Survey of the Department of the

14 Interior (or its designated successor agency), the National

15 Oceanic and Atmospheric Administration of the Depart16 ment of Commerce (or its designated successor agency),

17 the National Academy of Sciences, and similar public and

18 private scientific groups to ensure that natural disaster

19 risk models and the geographic rating territories used in

20 developing and approving the actuarial rates under this

21 section are accurate.

22 ‘‘SEC. 310. TRUST ACCOUNTS.

23 ‘‘(a) REINSURANCE COVERAGE TRUST ACCOUNT.—

24 ‘‘(1) ESTABLISHMENT.—The Corporation shall

25 establish and maintain a Reinsurance Coverage
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•S 1361 IS

1 Trust Account (hereafter in this section referred to

2 as the ‘reinsurance account’) to hold funds in trust

3 generated through the reinsurance coverage de4 scribed in this title.

5 ‘‘(2) ACCOUNT DEPOSITS.—Except for the

6 amount set aside for the Mitigation Account under

7 section 403(b), the Board shall deposit in the rein8 surance account premiums paid by private insurers,

9 reinsurers, State insurance and reinsurance pro10 grams, other interested entities that have purchased

11 the reinsurance coverage policy described in this

12 title, plus any interest income accrued on those pre13 miums.

14 ‘‘(3) PAYMENT OF CLAIMS.—From amounts in

15 the reinsurance account, the Corporation shall pay

16 qualifying claims to entities that have purchased the

17 reinsurance coverage.

18 ‘‘(b) INVESTMENTS.—

19 ‘‘(1) GENERAL AUTHORITY.—The Board shall

20 invest as the Board considers appropriate, in the

21 primary account and the reinsurance account such

22 amounts as are not required to meet current finan23 cial commitments.

24 ‘‘(2) DEPOSITS.—Any income generated from

25 the investments described in paragraph (1) shall be
73

•S 1361 IS

1 deposited by the Board, as appropriate, into the pri2 mary account or the reinsurance account.

3 ‘‘(c) FEDERAL LOANS.—

4 ‘‘(1) LENDING AUTHORITY.—To the extent that

5 the accumulated assets of the trust accounts de6 scribed in subsection (a) or funds raised by issuing

7 obligations in the private market pursuant to section

8 301(e)(3)(C), are insufficient to pay claims and ex9 penses resulting from the primary insurance cov10 erages or the reinsurance coverage, the Secretary of

11 the Treasury shall provide direct loans from the Pri12 vate Loss Account described in section 402 in suffi13 cient amounts to cover that shortfall in accordance

14 with this subsection.

15 ‘‘(2) CONDITIONS.—The following conditions

16 shall apply to each Federal loan provided to the Cor17 poration under this subsection:

18 ‘‘(A) FINANCIAL CAPACITY.—The aggre19 gate amount of all outstanding loans to the

20 Corporation at any given time shall not exceed

21 the financial capacity of the Corporation to

22 repay those loans not later than 20 years after

23 receiving the loans.

24 ‘‘(B) NO SUBSIDY COST.—All loans au25 thorized by this subsection shall be made under
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•S 1361 IS

1 such terms and conditions as are necessary to

2 ensure that, at the time the loans are made,

3 there is no subsidy cost to the Federal Govern4 ment for purposes of the Federal Credit Reform

5 Act of 1990.

6 ‘‘(C) LOAN SUBJECT TO APPROPRIA7 TIONS.—All loans are subject to the availability

8 of funds pursuant to appropriations Acts.

9 ‘‘(3) REPAYMENT.—

10 ‘‘(A) IN GENERAL.—In a manner con11 sistent with paragraph (2), the Secretary of the

12 Treasury shall recoup—

13 ‘‘(i) any amounts that the Corporation

14 borrows from the Federal Government

15 under this subsection; and

16 ‘‘(ii) interest on the borrowed funds.

17 ‘‘(B) INTEREST RATES.—The rate of inter18 est on any loan made to the Corporation under

19 this subsection shall be at a nonsubsidized rate

20 of interest established by the Secretary of the

21 Treasury, taking into consideration the current

22 average market yield on outstanding marketable

23 obligations of the United States of comparable

24 maturities.
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•S 1361 IS

1 ‘‘(C) REINSURANCE REPAYMENT TERMS.—

2 The Corporation shall require, under contrac3 tual terms and conditions with eligible entities

4 (as defined in sections 306 and 307), that those

5 eligible entities that receive payments for quali6 fying claims under section 306 and 307 that

7 consist of funds loaned from the Federal Gov8 ernment or from private sources under this sub9 section shall—

10 ‘‘(i) continue to purchase the reinsur11 ance coverage under sections 306 and 307

12 at levels that are at least equivalent to the

13 levels of coverage in effect before the re14 ceipt of such payments until the loans

15 made to the Corporation, including inter16 est, are fully repaid by the Corporation

17 pursuant to subparagraph (A); or

18 ‘‘(ii) fully repay the portion of the

19 loans made to the Corporation, including

20 interest, within a reasonable period estab21 lished by the Corporation.

22 ‘‘(4) MITIGATION PAYMENTS.—The failure of

23 the Corporation to pay natural disaster hazard miti24 gation funds and deposit those funds in the Mitiga25 tion Account as provided in section 403 shall render
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•S 1361 IS

1 the Corporation ineligible to obtain Federal loans

2 under this subsection.

3 ‘‘SEC. 311. NO FEDERAL FUNDS.

4 ‘‘Except as provided for in section 310(c), no Federal

5 funds shall be authorized or appropriated to fund any ac6 tivity of the Corporation.

7 ‘‘SEC. 312. GAO AUDITS.

8 ‘‘(a) AUDITS.—Not later than 1 year after the Cor9 poration commences the issuance of reinsurance coverage,

10 and once every 3 years thereafter, during the period that

11 the Corporation provides reinsurance coverages, the

12 Comptroller General of the United States shall audit ac13 tivities of the Corporation and the Independent Board of

14 Actuaries established under section 309 to ensure that

15 both entities are complying with the provisions of this title.

16 ‘‘(b) SUBMISSION TO CONGRESS.—Upon completion

17 of each audit conducted under subsection (a), the Comp18 troller General of the United States shall submit to Con19 gress a report on the results of the audit.’’.

20 SEC. 8. NATURAL DISASTER PROTECTION FUND.

21 The Earthquake Hazards Reduction Act of 1977 (42

22 U.S.C. 7701 et seq.), as amended by section 7, is further

23 amended by adding at the end the following new title:
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•S 1361 IS

1 ‘‘TITLE IV—NATURAL DISASTER

2 PROTECTION FUND

3 ‘‘SEC. 401. ESTABLISHMENT.

4 ‘‘(a) THE FUND.—There is established within the

5 Treasury of the United States a trust fund to be known

6 as the Natural Disaster Protection Fund (referred to in

7 this title as the ‘Fund’), consisting of such amounts as

8 may be appropriated or credited to the Fund, as provided

9 in this title.

10 ‘‘(b) ACCOUNTS.—There is established in the Fund

11 the following accounts:

12 ‘‘(1) PRIVATE LOSS ACCOUNT.—A Private Loss

13 Account, as described in section 402.

14 ‘‘(2) MITIGATION ACCOUNT.—A Mitigation Ac15 count, as described in section 403.

16 ‘‘(c) NO COMMINGLING.—The amounts in the ac17 counts established in subsection (b) shall be kept separate.

18 The Secretary of the Treasury shall not permit borrowing

19 of moneys among the accounts.

20 ‘‘SEC. 402. PRIVATE LOSS ACCOUNT.

21 ‘‘Funds in the Private Loss Account established in

22 section 401(b)(1) shall be used by the Secretary of the

23 Treasury to provide direct Federal loans to cover short24 falls in the reinsurance account described in section
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•S 1361 IS

1 306(b), subject to the lending authority, conditions, and

2 repayment terms of section 306(d).

3 ‘‘SEC. 403. MITIGATION ACCOUNT.

4 ‘‘(a) PURPOSE OF THE ACCOUNT.—The Mitigation

5 Account established in section 401(b)(2) shall support the

6 natural disaster hazard mitigation efforts described in title

7 II.

8 ‘‘(b) MITIGATION SET-ASIDE.—

9 ‘‘(1) IN GENERAL.—The Corporation shall pay

10 a percent of the annual net premiums collected for

11 the primary insurance coverages described in title II

12 and the reinsurance coverage described in title III

13 for natural disaster hazard mitigation purposes.

14 ‘‘(2) PRECISE PERCENTAGE.—

15 ‘‘(A) IN GENERAL.—The percent amount

16 described in paragraph (1) shall be a percent17 age amount that totals on an annual basis

18 $200,000,000.

19 ‘‘(B) ADJUSTMENT.—For any calendar

20 year after 1999, the dollar amount specified in

21 subparagraph (A) shall be adjusted by the per22 centage change in the Consumer Price Index

23 for the preceding calendar year.
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•S 1361 IS

1 ‘‘(c) DEPOSITS.—The Director of the Agency shall

2 transfer and credit on an annual basis to the Mitigation

3 Account amounts received from—

4 ‘‘(1) the amounts set aside of the annual pre5 miums described in subsection (b); and

6 ‘‘(2) appropriations provided for prenatural dis7 aster hazard mitigation activities conducted under

8 the Robert T. Stafford Disaster Relief and Emer9 gency Assistance Act (42 U.S.C. 5121 et seq.).

10 ‘‘(d) AUTHORIZATION.—For the purposes of sub11 section (c)(2) only, there is authorized to be appropriated

12 to the Mitigation Account for fiscal year 2000, and annu13 ally thereafter, an amount equal to the amounts provided

14 annually from the percent set aside of premiums received

15 pursuant to subsection (b).’’.

Æ