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[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1361 Introduced in Senate (IS)]

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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Natural Disaster Protection and 
Insurance Act of 1999''.

SEC. 2. FINDINGS AND PURPOSES.

    Section 2 of the Earthquake Hazards Reduction Act of 1977 (42 
U.S.C. 7701) is amended by adding at the end the following new 
paragraphs:
            ``(12) In addition to earthquakes, other catastrophic 
        natural disasters, such as major hurricanes and volcanic 
        eruptions, will strike the United States in the future and will 
        inflict substantial long-term consequences in terms of deaths, 
        injuries, property damages, and social and economic losses.
            ``(13) The Federal Government and the governments of States 
        are often not adequately equipped to respond to catastrophic 
        natural disasters.
            ``(14) Billions of dollars in taxpayer-supported government 
        assistance will be paid to rebuild following catastrophic 
        natural disasters.
            ``(15) Hazard mitigation can reduce the long-term 
        consequences of natural disasters, especially for those least 
        capable of helping themselves, including the elderly.
            ``(16) Hazard mitigation measures, including building and 
        fire safety codes, retrofitting of structures, public 
        awareness, and community awareness have proved effective in 
        reducing deaths, injuries, and property damage caused by 
        catastrophic natural disasters.
            ``(17) Hazard mitigation measures are not in place in many 
        high-hazard areas, and are not adequately enforced where they 
        are in place.
            ``(18) First response capability, including fire fighting, 
        emergency medical assistance, and search and rescue personnel, 
        is as important as hazard mitigation in lessening the impact of 
        natural disasters.
            ``(19) Millions of persons in the United States do not have 
        adequate insurance coverage to protect property from 
        catastrophic natural disasters.
            ``(20) In the early 1990's, catastrophic natural disasters 
        (including Hurricane Andrew and Hurricane Iniki and the 
        Northridge earthquake)--
                    ``(A) have inflicted substantial losses on private 
                insurance companies; and
                    ``(B) those losses have limited the ability to 
                write new coverages in the stricken regions and other 
                parts of the United States.
            ``(21) The natural disasters referred to in paragraph (20) 
        inflicted substantial losses on State and local governments and 
        caused severe strains on the budgets of those local 
        governments.
            ``(22) Some States have intervened to ensure the continued 
        availability of homeowners' insurance for all residents.
            ``(23) It is appropriate that efforts to improve insurance 
        availability be designed and implemented at the State level.
            ``(24) While State insurance programs may be adequate to 
        cover losses from most natural disasters, a small percentage of 
        events are likely to exceed the financial capacity of these 
        programs and the local insurance markets.
            ``(25) The creation of a private, nongovernmental, and not-
        for-profit membership corporation to provide reinsurance 
        coverage for natural disasters will improve the effectiveness 
        of State insurance programs and private insurance markets and 
        will increase the likelihood that homeowners' insurance claims 
        will be fully paid in the event of a large natural 
        catastrophe.''.

SEC. 3. PURPOSE.

    Section 3 of the Earthquake Hazards Reduction Act of 1977 (42 
U.S.C. 7702) is amended--
            (1) by inserting ``(a) Earthquake Hazard Reduction.--'' 
        before ``It is the purpose''; and
            (2) by adding at the end the following new subsection:
    ``(b) Natural Disaster, Relief, and Insurance.--
            ``(1) In general.--The purpose of titles II, III, and IV is 
        to reduce deaths, injuries, and property damage from natural 
        disasters through a hazard mitigation program and to enhance 
        access to disaster insurance coverage by improving the capacity 
        of the private insurance industry and State disaster insurance 
        programs.
            ``(2) Objectives.--The objectives of titles II, III, and IV 
        include--
                    ``(A) the building of safer structures and the 
                upgrading of existing buildings and lifelines;
                    ``(B) the enhancement of State and local community 
                emergency management;
                    ``(C) the improvement of State and local emergency 
                first response capability, including the development of 
                standards and guidelines for staffing, operations, and 
                training;
                    ``(D) the forging of a partnership with the Federal 
                Government that makes the States and political 
                subdivisions thereof ultimately responsible for 
                implementing and enforcing multihazard mitigation 
                measures and emergency management;
                    ``(E) the creation of a self-sustaining funding 
                mechanism to assist States in paying for mitigation 
                efforts;
                    ``(F) the provision of coverage for natural 
                disaster perils together with standard insurance 
                policies;
                    ``(G) the establishment of premium rates based on 
                expected losses and risk;
                    ``(H) the increased likelihood that the insurance 
                industry--
                            ``(i) makes a substantial contribution in 
                        paying losses; and
                            ``(ii) continues to provide coverage 
                        following a catastrophic natural disaster; and
                    ``(I) the more effective employment of the 
                insurance industry through a private natural disaster 
                insurance corporation which should--
                            ``(i) speed rebuilding following a 
                        catastrophic natural disaster; and
                            ``(ii) save taxpayer money by reducing 
                        reliance on disaster assistance from 
                        governments.''.

SEC. 4. DEFINITIONS.

    Section 4 of the Earthquake Hazards Reduction Act of 1977 (42 
U.S.C. 7703) is amended by adding at the end the following new 
paragraphs:
            ``(8) The term `building' means any structure that is--
                    ``(A) fully or partially enclosed; and
                    ``(B) used or intended for sheltering persons or 
                property.
            ``(9) The term `critical facility' means any school or 
        structure that is essential to emergency services necessary for 
        post-natural disaster recovery, including a hospital, fire or 
        police facility, temporary shelter, or emergency operating and 
        preparedness center.
            ``(10) The term `Corporation' means the Natural Disaster 
        Insurance Corporation referred to in section 301.
            ``(11) The term `Director of the Agency' means the Director 
        of the Federal Emergency Management Agency.
            ``(12) The term `earthquake' means any shaking or trembling 
        of the crust of the Earth caused by underground seismic forces.
            ``(13) The term `federally related mortgage loan' has the 
        meaning given the term in section 3(1) of the Real Estate 
        Settlement Procedures Act of 1974 (12 U.S.C. 2602(1)).
            ``(14) The term `flood' or `flooding' means a general and 
        temporary condition of partial or complete inundation of 
        normally dry land areas from the overflow of inland or tidal 
        waters or the unusual and rapid accumulation of runoff or 
        surface waters from any source.
            ``(15) The term `hurricane'--
                    ``(A) means a nonfrontal, warm core, low pressure 
                atmospheric system that is officially declared to be a 
                hurricane by the National Hurricane Center or declared 
                to be a typhoon by the Joint Typhoon Warning Center; 
                and
                    ``(B) includes any associated windstorm events.
            ``(16) The term `local community' means a political 
        subdivision of a State that has a department, or similar 
        entity, that oversees local zoning and building code compliance 
        efforts.
            ``(17) The term `ordinance or law coverage' means insurance 
        coverage for the increased cost of construction to repair or 
        rebuild buildings and the cost of demolition due to the 
        enforcement of any ordinance or law, such as building codes.
            ``(18) The term `private insurer' means any private insurer 
        or private reinsurer, including all related affiliates or 
        subsidiaries under the same ownership or management consistent 
        with the definition in section 1504(a) of the Internal Revenue 
        Code of 1986, that is licensed or admitted to write property 
        and casualty insurance or reinsurance within a State.
            ``(19) The term `public facility' has the meaning given the 
        term in section 102(8) of the Robert T. Stafford Disaster 
        Relief and Emergency Assistance Act (42 U.S.C. 5122(8)).
            ``(20) The term `reinsurance coverage' means the contract 
        provided by the Natural Disaster Insurance Corporation under 
        sections 306 and 307 under which that corporation accepts and 
        agrees to pay part of the losses for certain catastrophic 
        natural disasters covered by a private insurer or a State 
        insurance pool.
            ``(21) The term `residential property' means any family 
        residential building that houses between 1 and 4 families 
        (including mobile or manufactured homes).
            ``(22) The term `State insurance pool' means any State-
        authorized joint underwriting or joint reinsurance association, 
        risk pool, residual market mechanism, or other type of State-
        sanctioned entity that--
                    ``(A) provides property insurance coverage against 
                hurricanes, earthquakes, windstorms, volcanic 
                eruptions, tsunamis, and wildfires; and
                    ``(B) meets minimum standards established by the 
                Natural Disaster Insurance Corporation under section 
                302 regarding actuarially sound rates, the use of 
                available local financing, and reasonable underwriting 
                standards.
            ``(23) The term `tsunami' means an ocean wave generated by 
        underwater disturbances in the crust of the Earth, primary 
        earthquakes, and submarine volcanic eruptions.
            ``(24) The term `volcanic eruption' means the expulsion, as 
        a result of natural causes, of molten rock, rock fragments, 
        gases, ashes, mud, lava flows, and other natural substances 
        through an opening in the crust of the Earth.
            ``(25) The term `windstorm'--
                    ``(A) means an atmospheric disturbance marked by 
                high velocity movements of air, which shall include 
                tornadoes and hailstorms: and
                    ``(B) does not include a hurricane.
            ``(26) The term `covered perils' means the natural disaster 
        perils under section 305.
            ``(27) The term `covered purchaser' means--
                    ``(A) with respect to reinsurance coverage made 
                available under a contract under section 306, the 
                eligible State-operated insurance or reinsurance 
                program that purchases such coverage; and
                    ``(B) with respect to reinsurance coverage made 
                available under a contract under section 307, the 
                purchaser of the contract auctioned under such section 
                or any subsequent holder or holders of the contract.
            ``(28) The term `disaster area' means a geographical area, 
        with respect to which--
                    ``(A) a covered peril specified in section 305 has 
                occurred; and
                    ``(B) a declaration that a major disaster exists, 
                as a result of the occurrence of such peril--
                            ``(i) has been made by the President of the 
                        United States; and
                            ``(ii) is in effect.
            ``(29) The term `eligible losses' shall be defined by the 
        Corporation, after consultation with the Independent Board of 
        Actuaries provided in section 309.
            ``(30) The term `eligible State program' means a State 
        program that, pursuant to section 306(a), is eligible to 
        purchase reinsurance coverage made available through contracts 
        under section 306.
            ``(31) The term `price gouging' means the providing of any 
        consumer good or service by a supplier for a price that the 
        supplier knows or has reason to know is greater, by at least 
        the percentage set forth in a State law or regulation 
        prohibiting such act (notwithstanding any real cost increase 
        due to any attendant business risk and other reasonable 
        expenses that result from the major disaster involved), than 
        the price charged by the supplier for such consumer good or 
        service immediately before the disaster.
            ``(32) The term `qualified lines' means lines of insurance 
        coverage for which losses are covered under section 304 by 
        reinsurance coverage under this Act.
            ``(33) The term `reinsurance coverage under this Act' 
        includes coverage under contracts made available under sections 
        306 and 307.
            ``(34) The term `Secretary' means the Secretary of the 
        Treasury.
            ``(35) The term `State' means the States of the United 
        States, the District of Columbia, the Commonwealth of Puerto 
        Rico, the Commonwealth of the Northern Mariana Islands, Guam, 
        the Virgin Islands, American Samoa, and any other territory or 
        possession of the United States.

 SEC. 5. CONFORMING AMENDMENTS.

    The Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 et 
seq.) is amended--
            (1) in section 4(2) (42 U.S.C. 7703(2))--
                    (A) by inserting ``, as used in title I,'' before 
                ``means''; and
                    (B) by striking ``section 5'' and inserting 
                ``section 101'';
            (2) by inserting after section 4 the following heading:

           ``TITLE I--EARTHQUAKE HAZARDS REDUCTION PROGRAM'';

            (3) by redesignating sections 5 through 12 as sections 101 
        through 108, respectively;
            (4) in sections 101, 103, 105, 106, and 108 (as 
        redesignated by paragraph (3)), by striking ``this Act'' each 
        place it appears and inserting ``this title'' in each such 
        place; and
            (5) in section 108 (as redesignated by paragraph (3))--
                    (A) by striking ``sections 5 and 6'' each place it 
                appears and inserting ``sections 101 and 102''; and
                    (B) by striking ``section 11'' and inserting 
                ``section 107''.

 SEC. 6. MULTIHAZARD MITIGATION PROGRAM.

    The Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 et 
seq.) is amended by adding at the end the following new title:

               ``TITLE II--MULTIHAZARD MITIGATION PROGRAM

``SEC. 201. DEVELOPMENT OF STATE MITIGATION PLANS.

    ``(a) General Authority.--Not later than the date specified in 
subsection (d)(1), each State shall either--
            ``(1) develop, in consultation with the responsible elected 
        local officials, or the official designated representatives of 
        their State associations, and the public, a statewide strategic 
        mitigation plan to reduce hazards of future natural disasters, 
        such as hurricanes, windstorms, earthquakes, volcanic 
        eruptions, and tsunamis; or
            ``(2) designate in consultation with responsible elected 
        local officials, or the official designated representatives of 
        their State associations, and the public, a mitigation plan 
        that is in effect at the time of the designation that includes 
        the elements described in subsection (b) as the applicable 
        natural hazards statewide strategic mitigation plan.
    ``(b) Elements of State Mitigation Plans.--
            ``(1) In general.--Each State strategic mitigation plan 
        described in subsection (a) shall be based on broad national 
        criteria and priorities provided by the Director of the Agency.
            ``(2) Specific processes.--Each State strategic mitigation 
        plan described in subsection (a) shall include, at a minimum, a 
        process for--
                    ``(A) ensuring that structures in hazard prone 
                areas are built with hazard mitigation techniques, by--
                            ``(i) working with appropriate governmental 
                        jurisdictions to promote adoption and 
                        enforcement of the hazard mitigation portions 
                        of established technical construction standards 
                        and national consensus safety codes; and
                            ``(ii) making available the necessary 
                        funding, personnel, and professional training 
                        to adequately enforce such construction 
                        standards and safety codes;
                    ``(B) improving the capabilities for emergency 
                response to natural disasters which shall include 
                capabilities for firefighting, search and rescue, and 
                the provision of shelters, communications, and medical 
                relief;
                    ``(C) developing standards and guidelines for the 
                regular training of emergency responders to minimize 
                the effects of natural disasters;
                    ``(D) achieving enforcement of local community land 
                use ordinances;
                    ``(E) addressing further development in high-risk, 
                disaster prone areas and the impact of such development 
                on life safety and the environment; and
                    ``(F) identifying and prioritizing essential 
                critical facilities, lifelines, and public facilities 
                to be cost-effectively retrofitted based on the 
                availability of resources.
            ``(3) Deadline for implementation.--Each State shall 
        implement the processes described in paragraph (2) by not later 
        than the date specified in subsection (d)(2).
    ``(c) Approval of Plan.--The Director of the Agency shall review 
each State strategic mitigation plan submitted pursuant to subsection 
(d)(1) and promptly approve such plan if it contains the elements 
described in subsection (b).
    ``(d) Deadlines.--
            ``(1) Submission of mitigation plans to fema.--
                    ``(A) In general.--Not later than 2 years after 
                enactment of this title, the chief executive officer of 
                each State shall submit to the Director of the Agency 
                its strategic mitigation plan developed pursuant to 
                this section.
                    ``(B) Noncompliance.--If the chief executive 
                officer submits a strategic mitigation plan under this 
                paragraph that does not meet the requirements of this 
                section, or if the chief executive officer fails to 
                meet the deadline specified in this paragraph, the 
                State shall be considered to be in noncompliance with 
                the requirements of this paragraph.
            ``(2) Implementation of mitigation plans.--
                    ``(A) In general.--Not later than 2 years after the 
                Director of the Agency approves the strategic 
                mitigation plan pursuant to subsection (c), the chief 
                executive officer of each State shall certify to the 
                Director of the Agency whether the elements of its 
                strategic mitigation plan as described in subsection 
                (b) are being implemented in accordance with the 
                requirements of this section.
                    ``(B) Noncompliance.--If the chief executive 
                officer certifies under this paragraph that the 
                elements described in subsection (b) have not been 
                implemented, or if the chief executive officer fails to 
                make a certification by the date specified in this 
                paragraph, the State shall be considered to be in 
                noncompliance with the requirements of this paragraph.
            ``(3) Updating of mitigation plans.--
                    ``(A) In general.--Not later than 3 years after the 
                Director of the Agency approves the strategic 
                mitigation plan pursuant to subsection (c), and not 
                later than every 3 years thereafter, the chief 
                executive officer of each State shall submit a 
                certification of the Director of the Agency that the 
                State has reviewed and updated, as appropriate, its 
                strategic mitigation plan to reflect the latest 
                developments in the elements described in subsection 
                (b).
                    ``(B) Noncompliance.--If the chief executive 
                officer certifies under this paragraph that the 
                strategic mitigation plan has not been updated, or if 
                the chief executive officer fails to make a 
                certification by the date specified in this paragraph, 
                the State shall be considered to be in noncompliance 
                with the requirements of this paragraph.
    ``(e) Notification and Opportunity To Cure.--
            ``(1) In general.--The Director of the Agency shall 
        promptly notify in writing any State that does not meet a 
        compliance requirement referred to in subsection (d).
            ``(2) Reduction in certain assistance.--If a State does not 
        take corrective action within 180 days after receiving 
        notification under paragraph (1), the State shall be denied 
        hazard mitigation funds as specified in subsection (f) until 
        such date as the Director of the Agency determines that the 
        State has taken the necessary corrective action.
    ``(f) Denial of Mitigation Funds.--During the applicable period 
specified in subsection (e)(2), a State that fails to meet an 
applicable deadline described in subsection (d) shall not be eligible 
to receive funds from the Natural Disaster Hazard Mitigation Fund under 
section 202.

``SEC. 202. NATURAL DISASTER HAZARD FUND.

    ``(a) Funds to States.--
            ``(1) Authority.--Beginning with the first day of the full 
        fiscal year beginning after the date of enactment of this 
        title, and on the first day of every fiscal year thereafter, 
        after the Director of the Agency credits premiums from the 
        Natural Disaster Insurance Corporation described in section 
        301, the Director of the Agency shall allocate to the States 
        (except for any State that is denied funds under section 
        201(f)) all of the funds appropriated to the Mitigation Account 
        described in section 404.
            ``(2) Formula.--
                    ``(A) In general.--Subject to paragraph (3), the 
                Director of the Agency shall allocate funds from the 
                Mitigation Account to a State on the basis of a pro 
                rata formula that is based on the reinsurance coverage 
                premiums described in title III that are collected from 
                that State.
                    ``(B) Regulations.--Not later than 1 year after the 
                date of enactment of this title, the Director of the 
                Agency shall issue final regulations describing the pro 
                rata formula described in subparagraph (A).
            ``(3) Minimum amount.--The minimum amount allotted to a 
        State under this subsection for a fiscal year shall be equal to 
        the greater of--
                    ``(A) 0.25 percent of the amounts in the Mitigation 
                Account on the day before the date of the allotment; or
                    ``(B) $250,000.
    ``(b) Use.--
            ``(1) In general.--The amounts received by States from the 
        Mitigation Fund shall be used to support natural disaster 
        hazard mitigation activities, which may include assistance 
        for--
                    ``(A) training of emergency responders and building 
                code enforcers;
                    ``(B) State revolving loan funds, if established, 
                to undertake financing, including the leveraging of 
                funds for various hazard mitigation activities;
                    ``(C) the adoption and enforcement of the hazard 
                mitigation portions of established technical 
                construction standards and national consensus safety 
                codes;
                    ``(D) low-income individuals and families to help 
                pay for the undertaking of hazard mitigation measures;
                    ``(E) the dissemination of cost-effective 
                technologies--
                            ``(i) to prevent or substantially reduce 
                        damage caused by natural disasters; and
                            ``(ii) for the establishment of 
                        geographically dispersed and duly incorporated 
                        natural disaster damage prevention and 
                        mitigation Centers for Protection Against 
                        Natural Disasters to carry out the 
                        dissemination of these technologies;
                    ``(F) addressing further development in high-risk, 
                disaster prone areas and the impact of such 
                development; and
                    ``(G) prenatural disaster hazard mitigation, 
                including retrofitting of critical facilities, 
                lifelines, and public facilities.
            ``(2) Priority.--Each State that receives an allotment 
        under subsection (d) shall give priority in using the amounts 
        received from the Mitigation Fund to those hazard mitigation 
        activities necessary to bring the State into compliance with 
        the strategic mitigation plan elements described in section 201 
        (b).
    ``(c) Local Communities.--As a condition to receiving an initial 
allotment under subsection (a), each State shall complete the 
consultative process described in section 201(a).
    ``(d) State Performance.--
            ``(1) Evaluation.--The Director of the Agency shall 
        evaluate at least once every 3 years each State's progress in 
        terms of implementing its strategic mitigation plan as 
        described in section 201(b).
            ``(2) Future allotments.--Future allotments under 
        subsection (a) shall be conditioned on a satisfactory 
evaluation as described in paragraph (1).
    ``(e) Audits.--The Director of the Agency shall periodically 
conduct audits to ensure that States and local communities are using 
the funds from the allocations made under subsection (a) to support the 
hazard mitigation activities described in this section and section 201.

``SEC. 203. PUBLIC INFRASTRUCTURE RETROFITTING.

    ``(a) Study.--The Comptroller General of the United States shall 
conduct a study to identify all Federal programs that provide 
assistance for public facilities and lifelines. The study shall 
determine which of these programs include or could include as an 
eligible use of Federal assistance the retrofitting or strengthening of 
the public facilities and lifelines to minimize damage from future 
natural disasters.
    ``(b) Report to Congress.--The results of the study described in 
subsection (a), including the determinations on retrofitting, shall be 
transmitted by the Director of the Agency to Congress not later than 1 
year after the date of enactment of this title.

``SEC. 204. AUTHORIZATION OF APPROPRIATIONS.

    ``(a) Operations.--There is authorized to be appropriated such sums 
as may be necessary for the Director of the Agency to carry out the 
provisions of this title.
    ``(b) Mitigation Fund.--There is authorized to be appropriated such 
additional sums as Congress considers appropriate to be deposited in 
the Mitigation Fund under section 202 to support hazard mitigation.''.

SEC. 7. NATURAL DISASTER INSURANCE.

    The Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 et 
seq.), as amended by section 6, is further amended by adding after 
title II the following new title:

                ``TITLE III--NATURAL DISASTER INSURANCE

``SEC. 301. NATURAL DISASTER INSURANCE CORPORATION.

    ``(a) Creation.--The Secretary of the Treasury shall grant loans in 
accordance with section 310(c) to a private, nongovernmental, and not-
for-profit membership corporation, that meets the requirements of 
subsection (b) (hereafter in this title referred to as the `Natural 
Disaster Insurance Corporation' or `Corporation').
    ``(b) Purpose.--The Natural Disaster Insurance Corporation that 
receives loans as described in subsection (a)--
            ``(1) shall provide reinsurance coverage for hurricanes, 
        earthquakes, volcanic eruptions, tsunamis, windstorms, and 
        wildfires; and
            ``(2) shall only be eligible to receive loans under section 
        310(c), if it complies with all requirements of this title.
    ``(c) Membership.--The members of the Corporation shall own shares 
in the Corporation and shall consist of private insurers and State 
insurance pools that purchase the reinsurance coverage provided by the 
Corporation under sections 306 and 307.
    ``(d) Startup.--
            ``(1) Administrator.--
                    ``(A) In general.--An administrator of the 
                Corporation shall be selected by the members of the 
                Corporation, at the initial organizational meeting of 
                the Corporation.
                    ``(B) Duties of the administrator.--The 
                administrator of the Corporation shall, with respect to 
                the Corporation, coordinate--
                            ``(i) the hiring of temporary staff;
                            ``(ii) obtaining office space;
                            ``(iii) contracting with consultants and 
                        entities;
                            ``(iv) managing the election of the initial 
                        Board of Directors of the Corporation; and
                            ``(v) receiving the startup loans described 
                        in paragraph (2).
                    ``(C) Termination of administrator.--The activities 
                of the administrator shall terminate when all members 
                of the Board of Directors of the Corporation have been 
                selected.
            ``(2) Startup loans.--
                    ``(A) Startup administrative costs.--Startup 
                administrative costs of the Corporation shall be 
                derived from loans received from the private insurers 
                participating as members of the Corporation.
                    ``(B) Amount of startup loans.--The amount of 
                startup loans received from private insurers shall be 
                in proportion to each of the participating insurer's 
                countrywide subject net written premium (as defined and 
                determined by the Director of the Agency).
                    ``(C) Repayment of startup loans.--Not later than 3 
                years after the Corporation is established under 
                subsection (a), or such later time as sufficient funds 
                become available, all startup loans received from 
                private insurers as described in this paragraph shall 
                be repaid with interest by the Corporation from amounts 
                in the trust accounts established pursuant to section 
                310.
    ``(e) Board of Directors.--
            ``(1) Governance.--
                    ``(A) In general.--The Corporation shall be 
                governed by a 15-member Board of Directors (hereafter 
                in this title referred to as the `Board').
                    ``(B) Voting.--Each director of the Board shall 
                have 1 vote and the Board shall set policy and decide 
                all matters by a simple majority of the votes cast.
                    ``(C) Duties of the board.--The Board shall develop 
                and approve the plan of operation described in section 
                302 and shall be responsible for the operation and 
                management of the Corporation.
            ``(2) Selection of directors.--The 15 directors of the 
        Board shall be selected as follows:
                    ``(A) Insurance directors.--
                            ``(i) In general.--Nine insurance directors 
                        shall be elected by the members of the 
                        Corporation. Except as provided in clause 
                        (iii), each insurance director shall have 1 
                        vote. The selection of the insurance directors 
shall reflect an equitable cross section of the private insurers 
participating as members of the Corporation in accordance with this 
subparagraph. No more than 1 employee of a specific private insurer may 
serve on the Board at any time.
                            ``(ii) Special classes of insurers.--During 
                        the period that the Corporation is in 
                        existence, of the directors of the Board--
                                    ``(I) one director shall represent 
                                reinsurers that write primarily 
                                reinsurance;
                                    ``(II) one director shall represent 
                                small providers of direct insurance 
                                that write primarily in personal lines 
                                of insurance in less than 10 States; 
                                and
                                    ``(III) one director shall 
                                represent commercial insurers that 
                                write primarily commercial insurance 
                                lines throughout the United States.
                            ``(iii) Election based on premium volume.--
                        Three insurance directors shall be elected to 
                        the Board on the basis of the premium volume 
                        weighting criteria described as follows:
                                    ``(I) Initial election.--For the 
                                initial election of the 3 directors 
                                under this clause, the vote of each 
                                private insurer serving as a member of 
                                the Corporation shall be weighted in 
                                proportion to that insurer's 
                                countrywide subject net written premium 
                                (as defined and determined by the 
                                Director of the Agency) in relationship 
                                to the countrywide subject net written 
                                premium for all private insurers 
                                serving as members of the Corporation.
                                    ``(II) Subsequent election.--For 
                                the election of the 3 directors under 
                                this clause other than the initial 3 
                                such directors, the vote of each 
                                private insurer serving as a member of 
                                the Corporation shall be weighted to 
                                reflect the proportion of all premiums 
                                collected by all participating 
                                providers of the primary insurance 
                                coverages described in subtitle B and 
                                the premium paid by all purchasers of 
                                the reinsurance coverage provided by 
                                the Corporation pursuant to subtitle C 
                                collected by the private insurer.
                                    ``(III) Number of votes.--For each 
                                election held to elect any 1 of the 3 
                                directors under this clause, a private 
                                insurer may only vote for 1 candidate.
                            ``(iv) At-large election.--Three insurance 
                        directors shall be elected at large by the 
                        private insurers serving as members of the 
                        Corporation.
                    ``(B) Noninsurance directors.--
                            ``(i) In general.--Not later than 180 days 
                        after the election of the insurance directors 
                        under subparagraph (A), the insurance directors 
                        elected pursuant to subparagraph (A) shall 
                        nominate 6 noninsurance directors, who shall be 
                        elected by the members of the Corporation.
                            ``(ii) Interests represented.--Each of the 
                        following interests shall be represented by at 
                        least 1, but not more than 2, of the 6 
                        noninsurance directors:
                                    ``(I) Insurance agents or brokers.
                                    ``(II) State insurance regulators.
                                    ``(III) Risk assessment experts who 
                                are members of the national academy of 
                                sciences.
                                    ``(IV) Consumers of property-
                                casualty insurance, including consumers 
                                of commercial insurance.
                                    ``(V) Representatives of the 
                                banking or real estate industry which 
                                are impacted by property-casualty 
                                insurance.
                    ``(C) Vacancies.--A vacancy on the Board shall be 
                immediately filled with a director who is selected in 
                the manner described in the plan of operation developed 
                under section 302.
            ``(3) Terms of service.--The directors elected under 
        paragraph (2) shall serve staggered terms of not more than 6 
        years.
            ``(4) Chairperson.--The Board shall select a chairperson 
        from among its directors.
            ``(5) Fiduciary duty.--For carrying out the duties of the 
        Board, the directors of the Board shall have a fiduciary duty 
        to the Corporation, that shall supersede any duty to an 
        employer or other special interest that the director may 
        otherwise represent.
    ``(f) Powers.--
            ``(1) Control.--The Corporation shall be--
                    ``(A) privately owned by the members of the 
                Corporation, as described in subsection (b); and
                    ``(B) under the direction of the Board, as 
                described in subsection (d).
            ``(2) General powers.--Upon the selection of the 9 
        insurance directors under subsection (d)(2)(A), the Corporation 
        shall take all necessary and appropriate actions to carry out 
        the functions of the Corporation, including hiring staff, 
        making contracts, and paying the salaries and expenses of 
        employees with funds from startup loans described in subsection 
        (c)(2) and the trust accounts described in section 306.
            ``(3) Specific powers.--Consistent with the plan of 
        operation developed under section 302, the Corporation, under 
        the direction of the Board, shall have the power--
                    ``(A) to provide the reinsurance coverage as 
                provided in this Act;
                    ``(B) to manage the trust accounts described in 
                section 310;
                    ``(C) to raise funds by issuing obligations in the 
                private market, except that such obligations shall not 
                carry the full faith and credit of the United States; 
                and
                    ``(D) to take all other actions necessary and 
                proper to carry out the operations of the Corporation.
            ``(4) Excluded powers.--The Corporation may not--
                    ``(A) exercise powers that are reserved to the 
                Federal Government as a sovereign government;
                    ``(B) make financial commitments with any sovereign 
                government; and
                    ``(C) have as an employee any Federal employee who 
                is subject to the civil service laws under title 5, 
                United States Code.
    ``(g) Limitations on Liability.--
            ``(1) Individual members.--Individual members of the 
        Corporation, as described in subsection (b), shall not be 
        liable, or in any way responsible, for the obligations of the 
        Corporation and the trust accounts described in section 306.
            ``(2) Under federal law.--No action by the Corporation or 
        the Board pertaining to the plan of operation described in 
        section 302 or the sale of reinsurance as described in sections 
        303 through 309 shall subject the Corporation or the Board to 
        liability under Federal law or any law of a State if that 
        action is taken pursuant to authority granted to the 
        Corporation under this Act.

``SEC. 302. PLAN OF OPERATION.

    ``(a) Establishment.--
            ``(1) Development.--The Board shall develop a plan of 
        operation (hereafter in this section referred to as the `plan') 
        describing the administration of the Corporation and the 
        provision of insurance coverages by the Corporation.
            ``(2) General contents.--The plan shall set forth the 
        specific policy and programmatic details, including all 
        guidelines, criteria, definitions, clarifications, and 
        procedures necessary for the reinsurance coverage to operate 
        under standard conditions of insurance that shall be applicable 
        in all States.
            ``(3) Insurance coverage particulars.--Concerning the 
        particular information regarding the insurance coverages issued 
        or provided by the Corporation (hereafter in this subsection 
        referred to as `coverage particulars'), the plan shall 
        include--
                    ``(A) prices and reserve prices, as described in 
                sections 306 and 307;
                    ``(B) specific terms and conditions of insurance 
                coverages, including--
                            ``(i) coverage eligibility requirements;
                            ``(ii) coverage limits;
                            ``(iii) deductibles; and
                            ``(iv) levels of retained losses as 
                        described in section 308;
                    ``(C) specific insurance forms and policy 
                contracts; and
                    ``(D) criteria for the settlement of insurance 
                claims.
            ``(4) Miscellaneous plan provisions.--In addition to the 
        coverage particulars described in paragraph (3), the plan shall 
        include--
                    ``(A) the minimum standards necessary for State 
                insurance pools to qualify as eligible entities to 
                purchase the reinsurance coverage under section 306;
                    ``(B) the terms for the repayment of any 
                obligations issued in the private market pursuant to 
                section 301(e)(3)(C); and
                    ``(C) grievance procedures for resolving disputes 
                among members of the Corporation resulting from the 
                decisions of the Board.
            ``(5) Proprietary information.--To the maximum extent 
        practicable, the plan shall protect as proprietary specific 
        information provided by private insurers that is necessary to 
        develop the rates and specific terms and conditions of the 
        insurance coverages issued or provided by the Corporation.
            ``(6) Insurer stability in insurance coverages.--To the 
        maximum extent practicable, the plan shall encourage stability 
        with respect to participation by private insurers in the 
        insurance coverages issued or provided by the Corporation.
    ``(b) Plan Approval.--The Natural Disaster Insurance Board of 
Actuaries shall review and approve the plan and any amendments made to 
the plan in accordance with the process described in section 309(c).
    ``(c) Annual Report.--
            ``(1) In general.--Not later than 1 year after the initial 
        meeting of the Board, and annually thereafter, the Board shall 
        prepare a written report on the overall operations of the 
        Corporation.
            ``(2) Distribution.--The Board shall distribute a copy of 
        the report prepared under paragraph (1) to--
                    ``(A) each member of the Corporation; and
                    ``(B) the Independent Board of Actuaries 
                established under section 309.

``SEC. 303. PROGRAM AUTHORITY.

    ``(a) In General.--The Corporation shall carry out a program under 
this title to make reinsurance coverage available through--
            ``(1) contracts for reinsurance coverage under section 306, 
        which shall be made available for purchase only by eligible 
        State programs; and
            ``(2) contracts for reinsurance coverage under section 307, 
        which shall be made available for purchase by purchasers under 
        section 307(a)(1) only through auctions under section 307(a).
    ``(b) Purpose.--The program shall be designed to make reinsurance 
coverage under this title available to improve the availability of 
homeowners' insurance for the purpose of facilitating the pooling, and 
spreading the risk, of catastrophic financial losses from natural 
disasters and to improve the solvency of homeowners' insurance markets.
    ``(c) Contract Principles.--Under the program under this title, the 
Corporation shall offer reinsurance coverage through contracts with 
covered purchasers, which contracts--
            ``(1) shall not displace or compete with the private 
        insurance or reinsurance markets or capital markets;
            ``(2) shall minimize the administrative costs;
            ``(3) shall, in the case of any contract under section 306 
        for eligible State programs, provide coverage based solely on 
        insured losses within the State of the eligible State program 
        purchasing the contract; and
            ``(4) shall, in the case of any contract under section 307 
        for purchase at auction, provide coverage based solely on 
        insured losses within the region established pursuant to 
        section 307(a) for which the auction is held.

``SEC. 304. QUALIFIED LINES OF COVERAGE.

    ``Each contract for reinsurance coverage made available under this 
Act shall provide insurance coverage against residential property 
losses to homes (including dwellings owned under condominium and 
cooperative ownership arrangements) and the contents of apartment 
buildings.

``SEC. 305. COVERED PERILS.

    ``Each contract for reinsurance coverage made available under this 
Act shall cover losses that are--
            ``(1) proximately caused by--
                    ``(A) earthquakes;
                    ``(B) perils ensuing from earthquakes, including 
                fire and tsunami;
                    ``(C) hurricanes and windstorms;
                    ``(D) volcanic eruptions; and
                    ``(E) wildfires; and
            ``(2) in the case only of a contract under section 306, 
        insured by the eligible State program purchasing the contract.

``SEC. 306. CONTRACTS FOR REINSURANCE COVERAGE FOR ELIGIBLE STATE 
              PROGRAMS.

    ``(a) Eligible State Programs.--A program shall be eligible to 
purchase a contract under this section for reinsurance coverage under 
this title only if the program is a State-operated program that 
complies with the following requirements:
            ``(1) Program design.--The program shall be a State-
        operated--
                    ``(A) insurance program that offers coverage for 
                homes (which may include dwellings owned under 
                condominium and cooperative ownership arrangements) and 
                the contents of apartments to State residents because 
                of a finding by the State insurance commissioner or 
                other State entity authorized to make such 
                determination that such a program is necessary in order 
                to provide for the continued availability of such 
                residential coverage for all residents; or
                    ``(B) reinsurance program that is designed to 
                improve private insurance markets which offer coverage 
                for homes (which may include dwellings owned under 
                condominium and cooperative ownership arrangements) and 
                the contents of apartments because of a finding by the 
                State insurance commissioner or other State entity 
                authorized to make such determination that such a 
                program is necessary in order to provide for the 
                continued availability of such residential coverage for 
                all residents.
            ``(2) Tax status.--The program shall be structured and 
        carried out in a manner so that the program is exempt from all 
        Federal taxation.
            ``(3) Earnings.--The program may not provide for the 
        redistribution of any part of any net profits of the program to 
        any insurer that participates in the program.
            ``(4) Mitigation.--
                    ``(A) In general.--The program shall include 
                mitigation provisions that require that not less than 
                10 percent of the net investment income of the State 
                insurance or reinsurance program be used for programs 
                to mitigate losses from natural disasters for which the 
                State insurance or reinsurance program was established. 
                For purposes of this paragraph, mitigation shall 
                include methods to reduce losses of life and property.
                    ``(B) Exception.--Notwithstanding subparagraph (A), 
                in the case of any State for which the Secretary has 
                determined, pursuant to a request by the State 
                insurance commissioner, that the 10 percent requirement 
                under subparagraph (A) will jeopardize the actuarial 
                soundness of the State program, subparagraph (A) shall 
                be applied by substituting `5 percent' for `10 
                percent'.
            ``(5) Requirements regarding coverage.--
                    ``(A) In general.--The program--
                            ``(i) may not involve cross-subsidization 
                        between any separate property and casualty 
                        lines covered under the program;
                            ``(ii) shall include provisions that 
                        authorize the State insurance commissioner or 
                        other State entity authorized to make such a 
                        determination to terminate the program if the 
                        insurance commissioner or other such entity 
                        determines that the program is no longer 
                        necessary to ensure the availability of 
                        homeowners' insurance for all State residents; 
                        and
                            ``(iii) shall provide that, for any 
                        insurance coverage for homes (which may include 
                        dwellings owned under condominium and 
                        cooperative ownership arrangements) and the 
                        contents of apartments that is made available 
                        under the State insurance program and for any 
                        reinsurance coverage for such insurance 
                        coverage made available under the State 
                        reinsurance program, the premium rates charged 
                        shall be amounts that, at a minimum, are 
                        sufficient to cover the full actuarial costs of 
                        such coverage, based on consideration of the 
                        risks involved and accepted actuarial and 
                        ratemaking principles, anticipated 
                        administrative expenses, and loss and loss-
                        adjustment expenses.
                    ``(B) Applicability.--This paragraph shall apply to 
                any program which, after January 1, 1999, commences 
                offering insurance or reinsurance coverage described in 
                subparagraph (A) or (B), respectively, of paragraph 
                (1), or effective 2 years after the date of enactment 
                of this title for any existing State program described 
                in section 308, provided that such a requirement does 
                not reduce a State program's claims paying capacity.
            ``(6) Other qualifications.--
                    ``(A) In general.--The program shall have been 
                certified (for the year for which the coverage is in 
                effect) by the Corporation as in compliance with 
                regulations that shall be issued under this paragraph 
                by the Corporation, in consultation with the 
                Independent Board of Actuaries established under 
                section 309. The regulations shall establish criteria 
                for State programs to qualify to purchase reinsurance 
                under this section, which are in addition to the 
                requirements under the other paragraphs of this 
                subsection.
                    ``(B) Contents.--The regulations issued under this 
                paragraph shall include requirements that--
                            ``(i) the State program have public members 
                        on its board of directors or have an advisory 
                        board with public members;
                            ``(ii) insurance coverage made available 
                        through the State program not supplant coverage 
                        that is otherwise reasonably available and 
                        affordable in the private insurance market;
                            ``(iii) the State program provide adequate 
                        insurance protection for the peril covered, 
                        which shall include a range of deductibles and 
                        premium costs that reflect the applicable risk 
                        to eligible properties;
                            ``(iv) the insurance protection provided by 
                        the State program is made available on a 
                        nondiscriminatory basis to all qualifying 
                        residents;
                            ``(v) the State, or the appropriate local 
                        governments within the State, have certified 
                        that new construction insured by the program 
                        complies with applicable building, fire, and 
                        safety codes;
                            ``(vi) the State, or appropriate local 
                        governments within the State, have in effect 
                        building, fire, and safety codes generally 
                        consistent with Federal Emergency Management 
                        Agency guidelines designed to reduce losses 
                        from the peril covered;
                            ``(vii) the State has taken actions to 
                        establish an insurance rate structure that 
                        takes into account measures to mitigate 
                        insurance losses; and
                            ``(viii) the State program complies with 
                        such other requirements that the Secretary 
                        considers necessary to carry out the purposes 
                        of this title.
    ``(b) Terms of Contracts.--Each contract under this section for 
reinsurance coverage under this title shall be subject to the following 
terms and conditions:
            ``(1) Maturity.--The term of the contract shall not exceed 
        1 year.
            ``(2) Payment condition.--The contract shall authorize 
        claims payments for eligible losses only to the eligible State 
        program purchasing the coverage.
            ``(3) Retained losses requirement.--The contract shall pay 
        eligible losses only if the total amount of insurance claims 
        for losses, which are covered by qualified lines, occur to 
        properties located within the State covered by the contract, 
        and result from a single event of a covered peril, exceeds the 
        amount of retained losses provided under the contract (pursuant 
        to section 308(a)) purchased by the eligible State program.
            ``(4) Multiple events.--The contract shall cover any 
        eligible losses from 1 or more covered events that may occur 
        during the term of the contract.
            ``(5) Timing of eligible losses.--Eligible losses under the 
        contract shall include only insurance claims for property 
        covered by qualified lines that are reported to the eligible 
        State program within the 3-year period beginning upon the event 
        or events for which payment under the contract is made.
            ``(6) Pricing.--
                    ``(A) Determination.--The cost of reinsurance 
                coverage under the contract shall be an amount 
                established by the Corporation as follows:
                            ``(i) Recommendations.--The Corporation 
                        shall take into consideration the 
                        recommendations of the Independent Board of 
Actuaries in establishing the cost, but the cost may not be less than 
the amount recommended by the Independent Board of Actuaries.
                            ``(ii) Fairness to taxpayers.--The cost 
                        shall be established at a level that is 
                        designed to return to the Federal Government 
                        fair compensation for the risks being borne by 
                        the people of the United States and that takes 
                        into consideration the developmental stage of 
                        empirical models of natural disasters and the 
                        capacity of private markets to absorb insured 
                        losses from natural disasters.
                            ``(iii) Self-sufficiency.--The rates for 
                        reinsurance coverage shall be established at a 
                        level that annually produces expected premiums 
                        which shall be sufficient to pay the annualized 
                        cost of all claims, loss adjustment expenses, 
                        and all administrative costs of reinsurance 
                        coverage offered under this section.
                    ``(B) Components.--The cost shall consist of the 
                following components:
                            ``(i) Risk-based price.--A risk-based 
                        price, which shall reflect the anticipated 
                        annualized payout of the contract according to 
                        the actuarial analysis and recommendations of 
                        the Commission.
                            ``(ii) Risk load.--A risk load in an amount 
                        that is not less than the risk-based price 
                        under clause (i).
                            ``(iii) Administrative costs.--A sum 
                        sufficient to provide for the operation of the 
                        Corporation and the Independent Board of 
                        Actuaries and the administrative expenses 
                        incurred in carrying out this Act.
            ``(7) Repayment terms.--The contract shall include a 
        condition that requires that, in the event that a covered 
        purchaser receives payments for qualifying claims that consist 
        of amounts derived from a loan provided under section 310(c), 
        such covered purchaser shall continue to purchase the 
        reinsurance coverage provided under this title, in amounts that 
        are at least as great as those immediately before the Fund was 
        credited with amounts borrowed under section 310(c) until such 
        borrowed moneys, including interest, are repaid pursuant to 
        section 310(c)(3).
            ``(8) Information.--The contract shall contain a condition 
        providing that the Corporation may require the State program 
        that is covered to submit to the Corporation all information on 
        the State program relevant to the duties of the Corporation, as 
        determined by the Corporation.
            ``(9) Exhaustion of coverage.--
                    ``(A) In general.--Each contract shall provide 
                that, if during the term of the contract the coverage 
                under the contract is exhausted because of payment for 
                losses from a covered event, the covered purchaser 
                shall, during the 15-day period beginning upon the 
                covered event that causes exhaustion of the coverage 
                under the original contract, have an option to make a 
                single purchase of similar coverage for the remaining 
                term of the contract under terms and conditions similar 
                to the original contract, but reflecting a new loss 
                cost estimate and at a cost prorated based upon the 
                remaining term.
                    ``(B) Discretion.--To facilitate making available 
                contracts pursuant to the exercise of options under 
                subparagraph (A), the Corporation may make--
                            ``(i) any estimates and determinations that 
                        may be necessary regarding whether coverage 
                        under a contract is exhausted and the amount of 
                        losses retained by a State program;
                            ``(ii) any estimates and assumptions 
                        necessary to establish the price, terms, and 
                        conditions of a contract provided pursuant to 
                        such an option; and
                            ``(iii) any subsequent adjustments to a 
                        contract provided pursuant to the exercise of 
                        such an option (including cancellation of the 
                        contract) to conform the price, terms, and 
                        conditions in accordance with findings by the 
                        Corporation regarding issues previously 
                        estimated and assumed by the Corporation 
                        pursuant to clause (ii).
            ``(10) Others.--The contract shall contain such other terms 
        as the Corporation considers necessary to carry out this Act 
        and to ensure the long-term financial integrity of the program 
        under this Act.
    ``(c) Price Gouging Protections.--Notwithstanding any other 
provision of this section, a State-operated program that otherwise 
meets the requirements of this section shall be eligible to purchase a 
contract under this section for reinsurance coverage made available 
under this title only if the Corporation determines that there are in 
effect, in such State, laws or regulations sufficient to prohibit price 
gouging, during the term of such reinsurance coverage, in any disaster 
area located within the State.

``SEC. 307. AUCTION OF CONTRACTS FOR REINSURANCE COVERAGE.

    ``(a) Auction Program Requirements.--The Corporation shall carry 
out a program to auction contracts for reinsurance coverage under this 
title made available pursuant to section 303(a)(2), which shall comply 
with the following requirements:
            ``(1) Purchasers.--The auction program shall provide for 
        auctioning all contracts made available under this section to 
        private insurers and reinsurers, State insurance and 
        reinsurance programs, and other interested entities.
            ``(2) Regional auctions.--The auction program shall provide 
        for auctions on a regional basis. The Corporation shall divide 
        the States into not less than 6 regions for the purpose of 
        holding such regional auctions, which shall include separate 
        regions for all or part of the State of California and all 
or part of the State of Florida. Auctions for each region shall be 
conducted not less often than annually.
            ``(3) Reserve price.--In auctioning a contract under this 
        section for reinsurance coverage, the Corporation shall set a 
        reserve price as the lowest base price for that contract, 
        taking into account the recommendations of the Independent 
        Board of Actuaries. The reserve price shall be determined on 
        the basis of the following components:
                    ``(A) Risk-based price.--A risk-based price, which 
                shall reflect the anticipated annualized payout of the 
                contract according to the actuarial analysis and 
                recommendations of the Independent Board of Actuaries.
                    ``(B) Risk load.--A risk load in an amount that is 
                not less than the risk-based price under subparagraph 
                (A).
                    ``(C) Administrative costs.--A sum sufficient to 
                provide for the operation of the Corporation and the 
                Independent Board of Actuaries and the administrative 
                expenses incurred by the Corporation in carrying out 
                this section.
                    ``(D) Mitigation.--An adjustment that takes into 
                account any efforts that are being made to reduce 
                losses to property in the region in which the contract 
                is being sold.
            ``(4) Other requirements.--The Corporation may establish 
        such other requirements for the auction program as the 
        Corporation considers necessary to carry out this title.
    ``(b) Contract Terms and Conditions.--Each contract for reinsurance 
coverage auctioned under the program under this section shall include 
the following terms and conditions:
            ``(1) Maturity.--The term of each such contract shall not 
        exceed 1 year.
            ``(2) Transferability.--The contract shall at all times be 
        fully transferable, assignable, and divisible.
            ``(3) Multiple events.--The contract shall contain the 
        provisions described in section 306(b)(4).
            ``(4) Threshold of coverage.--Each contract auctioned in a 
        region established under subsection (a)(2) shall provide that 
        the covered purchaser may receive a payment for losses covered 
        under the contract if, under a process specified in the 
        contract, the Corporation determines that the insurance 
        industry will, as a result of a single event of a covered 
        peril, incur losses within the coverage area for such region 
        that are covered by 1 or more lines of insurance under section 
        305 in an aggregate amount, for such event, greater than the 
        level of retained losses specified in section 308.
            ``(5) Exhaustion of coverage.--Each contract shall contain 
        the provisions described in section 306(b)(9).
            ``(6) Others.--The contract shall contain such other terms 
        as the Corporation considers necessary to carry out this Act 
        and to ensure the long-term financial integrity of the program 
        under this title.
    ``(c) Price Gouging Protections.--Notwithstanding any other 
provision of this section, a contract for reinsurance auctioned under 
this section shall provide reinsurance coverage only for losses 
incurred for property located in a State for which the Corporation has 
determined that there are in effect, in such State, laws or regulations 
sufficient to prohibit price gouging, during the term of such 
reinsurance coverage, in any disaster area located within the State.

``SEC. 308. MINIMUM LEVEL OF RETAINED LOSSES AND MAXIMUM FEDERAL 
              LIABILITY.

    ``(a) Available Levels of Retained Losses.--In making reinsurance 
coverage available under this title, the Corporation shall make 
available for purchase contracts for such coverage that require the 
sustainment of retained losses from a single event of a covered peril 
(as required under sections 306(b)(3) and 307(b)(4) for payment of 
eligible losses) in various amounts, as the Secretary determines 
appropriate and subject to the requirements under subsection (b).
    ``(b) Minimum Level of Retained Losses.--
            ``(1) Contracts for state programs.--Subject to paragraph 
        (3) and notwithstanding any other provision of this title, a 
        contract for reinsurance coverage under section 306 for an 
        eligible State program that offers insurance or reinsurance 
        coverage described in subparagraph (A) or (B), respectively, of 
        section 306(a)(1) may not be made available or sold unless the 
        contract requires retained losses from a single event of a 
        covered peril in the following amount:
                    ``(A) In general.--The State program shall sustain 
                an amount of retained losses of not less than the 
                greater of--
                            ``(i) $2,000,000,000;
                            ``(ii) the claims-paying capacity of the 
                        eligible State program, as determined by the 
                        Corporation; and
                            ``(iii) an amount, determined by the 
                        Corporation in consultation with the 
                        Independent Board of Actuaries which is 
                        sufficient to cover eligible losses in the 
                        State during a 12-month period for all events 
                        having a likelihood of occurrence of once every 
                        100 years.
                    ``(B) Transition rule for existing state 
                programs.--
                            ``(i) Claims-paying capacity.--Subject to 
                        clause (ii), in the case of any eligible State 
                        program that was offering insurance or 
                        reinsurance coverage on the date of enactment 
                        of this title and the claims-paying capacity of 
                        which is greater than $2,000,000,000 but less 
                        than an amount determined for the State under 
                        subparagraph (A)(iii), the minimum level of 
                        retained losses applicable under this paragraph 
                        shall be the claims-paying capacity of such 
                        State program.
                            ``(ii) Agreement.--Clause (i) shall apply 
                        to a State program only if the State program 
                        enters into a written agreement with the 
                        Corporation that shall provide a schedule for 
increasing the claims-paying capacity of the State program to the 
amount determined sufficient by the Corporation under subparagraph 
(A)(iii) of this subsection over a period not to exceed 5 years. The 
Corporation may extend the 5-year period for not more than 2 additional 
1-year periods if the Corporation determines that losses incurred by 
the State program as a result of covered perils create excessive 
hardship on the State program. The Corporation shall consult with the 
appropriate officials of the State program regarding the required 
schedule and any potential 1-year extensions.
                    ``(C) Transition rule for new state programs.--
                            ``(i) 100-year event.--The Corporation may 
                        provide that, in the case of an eligible State 
                        program that, after the date of enactment of 
                        this title, commences offering insurance or 
                        reinsurance coverage, during the 5-year period 
                        beginning on the date that reinsurance coverage 
                        under section 306 is first made available, the 
                        minimum level of retained losses applicable 
                        under this paragraph shall be the amount 
                        determined for the State under subparagraph 
                        (A)(iii), except that such minimum level shall 
                        be adjusted annually as provided in clause (ii) 
                        of this subparagraph.
                            ``(ii) Annual adjustment.--Each annual 
                        adjustment under this clause shall increase the 
                        minimum level of retained losses applicable 
                        under this subparagraph to an eligible State 
                        program described in clause (i) in a manner 
                        such that--
                                    ``(I) during the course of such 5-
                                year period, the applicable minimum 
                                level of retained losses approaches the 
                                minimum level that, under subparagraph 
                                (A), will apply to the eligible State 
                                program upon the expiration of such 
                                period; and
                                    ``(II) each such annual increase is 
                                a substantially similar amount, to the 
                                extent practicable.
                    ``(D) Reduction because of reduced claims-paying 
                capacity.--
                            ``(i) Authority.--Notwithstanding 
                        subparagraphs (A), (B), and (C) or the terms 
                        contained in a contract for reinsurance 
                        pursuant to such subparagraphs, if the 
                        Corporation determines that the claims-paying 
                        capacity of an eligible State program has been 
                        reduced because of payment for losses due to an 
                        event, the Corporation may reduce the minimum 
                        level of retained losses for the State 
                        commensurate with the current capacity of the 
                        State program, as determined by the 
                        Corporation, but in no case may such minimum 
                        level be less than $2,000,000,000.
                            ``(ii) Term of reduction.--If the minimum 
                        level of retained losses for an eligible State 
                        program is reduced pursuant to clause (i), upon 
                        the expiration of the 5-year period beginning 
                        upon such reduction the minimum level of 
                        retained losses applicable to such State 
                        program under a contract for reinsurance 
                        coverage under section 306 shall be increased 
                        to an amount not less than the amount 
                        applicable to such State program immediately 
                        before such reduction.
                    ``(E) Claims-paying capacity.--For purposes of this 
                paragraph, the claims-paying capacity of a State-
                operated insurance or reinsurance program under section 
                306(a)(1) shall be determined by the Corporation, in 
                consultation with the Independent Board of Actuaries, 
                taking into consideration retained losses to private 
                insurers in the State in an amount assigned by the 
                State insurance commissioner, the cash surplus of the 
                program, and the lines of credit, reinsurance, and 
                other financing mechanisms of the program established 
                by law.
            ``(2) Auction contracts.--Subject to paragraph (3) and 
        notwithstanding any other provision of this title, a contract 
        for reinsurance coverage may not be made available or sold 
        under section 307 through a regional auction unless the 
        contract requires that the insurance industry in the region for 
        which the auction was conducted sustains a cumulative amount of 
        retained losses (in covered lines resulting from covered 
        perils) of not less than the greater of--
                    ``(A) $2,000,000,000; or
                    ``(B) an amount, determined by the Corporation in 
                consultation with the Independent Board of Actuaries, 
                which is sufficient to cover eligible losses in the 
                region during a 12-month period for all events having a 
                likelihood of occurrence of once every 100 years.
            ``(3) Annual adjustment.--The Corporation may annually 
        raise the minimum level of retained losses established under 
        paragraph (1) for an eligible State program or under paragraph 
        (2) for a region to reflect, as determined by the Corporation--
                    ``(A) in the case of an eligible State program, 
                changes to the claims-paying capacity of the program;
                    ``(B) changes in the capacity of the private 
                insurance and reinsurance market;
                    ``(C) increases in the market value of properties; 
                or
                    ``(D) such other situations as the Corporation 
                considers appropriate.
        In making any determination under this paragraph in the minimum 
        level of retained losses, the Corporation shall establish such 
        level at an amount such that the program under this Act for 
        making reinsurance coverage available does not displace or 
        compete with the private insurance or reinsurance markets or 
capital markets, as determined by the Corporation.
            ``(4) Optional annual inflationary adjustment.--The 
        Corporation may, on an annual basis, raise the minimum level of 
        retained losses established under paragraph (1) for each 
        eligible State program and under paragraph (2) for each region 
        to reflect the annual rate of inflation. Any such raise shall 
        be made in accordance with an inflation index that the 
        Corporation determines to be appropriate. The first such raise 
        may be made 1 year after contracts for reinsurance coverage 
        under this Act are first made available for purchase.
    ``(c) Maximum Payout.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, the maximum amount paid for all events in any single year 
        by the Corporation pursuant to claims under all contracts for 
        reinsurance coverage under this title shall not exceed the 
        applicable maximum amount for such year determined under 
        paragraph (2). If, in any single year, claims under existing 
        contracts for reinsurance coverage exceed the applicable 
        maximum amount, each claimant shall receive a prorated portion 
        of the amount available for payment of claims.
            ``(2) Applicable maximum amount.--For purposes of paragraph 
        (1), the applicable maximum amount shall not exceed--
                    ``(A) the accumulated assets of the trust account 
                in section 310; and
                    ``(B) any Federal loans to the trust account as 
                provided in section 310(c).
    ``(d) Limitation on Percentage of Risk in Excess of Retained 
Losses.--
            ``(1) In general.--The Corporation may not make available 
        for purchase contracts for reinsurance coverage under this 
        title that represent more than 50 percent of the risk of 
        insured losses in excess of retained losses--
                    ``(A) in the case of a contract under section 306 
                for an eligible State program, for such State; and
                    ``(B) in the case of a contract made available 
                through a regional auction under section 307, for such 
                region.
            ``(2) Payout.--For purposes of this subsection, the amount 
        of payout from a reinsurance contract shall be the amount of 
        eligible losses multiplied by the percentage in effect at the 
        time under paragraph (1).

``SEC. 309. INDEPENDENT BOARD OF ACTUARIES.

    ``(a) Establishment.--There is established an independent Natural 
Disaster Insurance Board of Actuaries (referred to in this title as the 
`Independent Board') to review and approve the plan of operation 
developed under section 302 and to advise the Corporation regarding the 
estimated loss costs associated with the contracts for reinsurance 
coverage available under this title and carrying out the functions 
specified in this title.
    ``(b) Membership.--
            ``(1) Appointment.--Not later than 180 days after the date 
        of enactment of this title, the Secretary of the Treasury 
        (hereafter in this section referred to as the `Secretary') 
        shall appoint the members of the Independent Board.
            ``(2) Members.--
                    ``(A) In general.--The Independent Board shall be 
                comprised of 5 members.
                    ``(B) Vacancies.--The Secretary shall, upon the 
                occurrence of a vacancy on the Independent Board, 
                immediately appoint a member to fill the vacancy in the 
                same manner as the original appointment.
            ``(3) Qualifications.--The members of the Independent Board 
        described in paragraph (1)--
                    ``(A) shall be citizens of the United States;
                    ``(B) may not be employees of members of the 
                Corporation; and
                    ``(C) shall be professional actuaries who--
                            ``(i) are members of the Casualty Actuarial 
                        Society or the American Academy of Actuaries 
                        (or its successor) and meet the qualification 
                        standards of the Academy (or its successor) for 
                        public statements of actuarial opinion; and
                            ``(ii) have previous experience in setting 
                        actuarially sound property and casualty rates.
            ``(4) Chairperson.--The Secretary shall designate a 
        chairperson of the Independent Board from among members 
        appointed to the Independent Board.
            ``(5) Terms of service.--The members appointed under 
        paragraph (2) shall serve staggered terms of not more than 6 
        years, as determined by the Secretary at the time of 
        appointment.
    ``(c) Approval of the Plan of Operation.--
            ``(1) Submission of draft plan to independent board.--Not 
        later than 15 months after the date of enactment of this title, 
        the Board of the Corporation shall submit to the Independent 
        Board a draft plan of operation that satisfies the requirements 
of section 302(a).
            ``(2) Approval of the plan.--If, upon the termination of 
        the 90-day period beginning on the date on which the 
        Independent Board receives the draft plan under paragraph (1), 
        the Independent Board has not disapproved the draft plan under 
        paragraph (3), the draft plan shall be deemed to have been 
        approved and shall become final.
            ``(3) Standard for disapproval.--The Independent Board may 
        disapprove the draft plan described in paragraph (2) only if 
        the plan, as a whole, is materially inconsistent with the 
        provisions of this title.
            ``(4) Opportunity to cure.--
                    ``(A) In general.--If the Independent Board 
                disapproves a draft plan under paragraph (2), the 
                chairperson of the Independent Board shall immediately 
                return the plan to the Board of the Corporation, 
                together with written instructions of the changes 
                required for the plan to be materially consistent with 
                the provisions of this title.
                    ``(B) Revisions.--Upon receipt of the plan and 
                instructions returned under subparagraph (A), the Board 
                of the Corporation shall--
                            ``(i) modify the plan in a manner 
                        consistent with the instructions; and
                            ``(ii) submit a modified plan to the 
                        Independent Board for approval in accordance 
                        with the process described in paragraph (2).
            ``(5) Amendments to the plan.--Any amendments to the plan 
        shall be developed by the Board of the Corporation under 
        section 302 and approved by the Independent Board in accordance 
        with the process described in paragraph (2).
            ``(6) Report to secretary.--After reviewing the draft plan 
        of operation, and amendments thereto, the Independent Board 
        shall prepare and submit a report to the Secretary of its 
        finding regarding such plan.
    ``(d) Approval of Rates.--
            ``(1) Submission of proposed rates to the independent 
        board.--Not later than 1 year after the date of enactment of 
        this title, the Board of the Corporation shall submit to the 
        Independent Board for approval prices and reserve prices 
        developed by the Board of the Corporation that are proposed to 
        be established for the reinsurance contracts issued or provided 
        by the Corporation, including any methodologies used in 
        developing such prices.
            ``(2) Approval by the independent board.--If, at the 
        termination of the 90-day period beginning on the date on which 
        the Independent Board receives the information concerning the 
        methodologies used for determining proposed prices under 
        paragraph (1), the Independent Board has not disapproved the 
        methodologies on the basis of the standard described in 
        paragraph (3), the methodologies shall be deemed to have been 
        approved.
            ``(3) Standard for disapproval.--The Independent Board may 
        disapprove the prices or methodologies described in paragraph 
        (2) only if the Independent Board presents compelling and 
        substantial actuarial evidence on the record that the prices or 
        methodologies are materially inconsistent with the actuarial 
        soundness.
            ``(4) Opportunity to cure.--
                    ``(A) In general.--If the Independent Board 
                disapproves any proposed prices or methodologies under 
                this subsection, the chairperson of the Independent 
                Board shall immediately return the rates and 
                methodologies to the Board of the Corporation together 
                with written instructions of the changes required to 
                the prices and methodologies to satisfy actuarial 
                soundness.
                    ``(B) Revisions.--Upon receipt of the prices or 
                methodologies returned under subparagraph (A), the 
                Board shall modify the rates or methodologies in a 
                manner consistent with the instructions of the 
                Independent Board and resubmit them to the Independent 
                Board for approval according to the process described 
                in paragraph (2).
            ``(5) Approval of prices.--Upon the approval by the 
        Independent Board of methodologies for the reinsurance coverage 
        prices under this subsection, the prices for the reinsurance 
        coverage proposed under paragraph (1) shall--
                    ``(A) become final; and
                    ``(B) be included by the Board in the plan of 
                operation under section 302 for the reinsurance 
                coverage provided by the Corporation.
            ``(6) Adjustment of prices.--Any adjustment of the prices 
        for the methodologies used in developing the prices for the 
        reinsurance coverage shall be developed by the Board of the 
        Corporation under sections 306 and 307 and approved by the 
Independent Board according to the process described in paragraph (2).
    ``(e) Consultation.--The Independent Board shall consult risk 
assessment experts who are employed by the United States Geological 
Survey of the Department of the Interior (or its designated successor 
agency), the National Oceanic and Atmospheric Administration of the 
Department of Commerce (or its designated successor agency), the 
National Academy of Sciences, and similar public and private scientific 
groups to ensure that natural disaster risk models and the geographic 
rating territories used in developing and approving the actuarial rates 
under this section are accurate.

``SEC. 310. TRUST ACCOUNTS.

    ``(a) Reinsurance Coverage Trust Account.--
            ``(1) Establishment.--The Corporation shall establish and 
        maintain a Reinsurance Coverage Trust Account (hereafter in 
        this section referred to as the `reinsurance account') to hold 
        funds in trust generated through the reinsurance coverage 
        described in this title.
            ``(2) Account deposits.--Except for the amount set aside 
        for the Mitigation Account under section 403(b), the Board 
        shall deposit in the reinsurance account premiums paid by 
        private insurers, reinsurers, State insurance and reinsurance 
        programs, other interested entities that have purchased the 
        reinsurance coverage policy described in this title, plus any 
        interest income accrued on those premiums.
            ``(3) Payment of claims.--From amounts in the reinsurance 
        account, the Corporation shall pay qualifying claims to 
        entities that have purchased the reinsurance coverage.
    ``(b) Investments.--
            ``(1) General authority.--The Board shall invest as the 
        Board considers appropriate, in the primary account and the 
        reinsurance account such amounts as are not required to meet 
        current financial commitments.
            ``(2) Deposits.--Any income generated from the investments 
        described in paragraph (1) shall be deposited by the Board, as 
        appropriate, into the primary account or the reinsurance 
        account.
    ``(c) Federal Loans.--
            ``(1) Lending authority.--To the extent that the 
        accumulated assets of the trust accounts described in 
        subsection (a) or funds raised by issuing obligations in the 
        private market pursuant to section 301(e)(3)(C), are 
        insufficient to pay claims and expenses resulting from the 
        primary insurance coverages or the reinsurance coverage, the 
        Secretary of the Treasury shall provide direct loans from the 
        Private Loss Account described in section 402 in sufficient 
        amounts to cover that shortfall in accordance with this 
        subsection.
            ``(2) Conditions.--The following conditions shall apply to 
        each Federal loan provided to the Corporation under this 
        subsection:
                    ``(A) Financial capacity.--The aggregate amount of 
                all outstanding loans to the Corporation at any given 
                time shall not exceed the financial capacity of the 
                Corporation to repay those loans not later than 20 
                years after receiving the loans.
                    ``(B) No subsidy cost.--All loans authorized by 
                this subsection shall be made under such terms and 
                conditions as are necessary to ensure that, at the time 
                the loans are made, there is no subsidy cost to the 
                Federal Government for purposes of the Federal Credit 
                Reform Act of 1990.
                    ``(C) Loan subject to appropriations.--All loans 
                are subject to the availability of funds pursuant to 
                appropriations Acts.
            ``(3) Repayment.--
                    ``(A) In general.--In a manner consistent with 
                paragraph (2), the Secretary of the Treasury shall 
                recoup--
                            ``(i) any amounts that the Corporation 
                        borrows from the Federal Government under this 
                        subsection; and
                            ``(ii) interest on the borrowed funds.
                    ``(B) Interest rates.--The rate of interest on any 
                loan made to the Corporation under this subsection 
                shall be at a nonsubsidized rate of interest 
                established by the Secretary of the Treasury, taking 
                into consideration the current average market yield on 
                outstanding marketable obligations of the United States 
                of comparable maturities.
                    ``(C) Reinsurance repayment terms.--The Corporation 
                shall require, under contractual terms and conditions 
                with eligible entities (as defined in sections 306 and 
                307), that those eligible entities that receive 
                payments for qualifying claims under section 306 and 
                307 that consist of funds loaned from the Federal 
                Government or from private sources under this 
                subsection shall--
                            ``(i) continue to purchase the reinsurance 
                        coverage under sections 306 and 307 at levels 
                        that are at least equivalent to the levels of 
                        coverage in effect before the receipt of such 
                        payments until the loans made to the 
                        Corporation, including interest, are fully 
                        repaid by the Corporation pursuant to 
                        subparagraph (A); or
                            ``(ii) fully repay the portion of the loans 
                        made to the Corporation, including interest, 
                        within a reasonable period established by the 
                        Corporation.
            ``(4) Mitigation payments.--The failure of the Corporation 
        to pay natural disaster hazard mitigation funds and deposit 
        those funds in the Mitigation Account as provided in section 
        403 shall render the Corporation ineligible to obtain Federal 
        loans under this subsection.

``SEC. 311. NO FEDERAL FUNDS.

    ``Except as provided for in section 310(c), no Federal funds shall 
be authorized or appropriated to fund any activity of the Corporation.

``SEC. 312. GAO AUDITS.

    ``(a) Audits.--Not later than 1 year after the Corporation 
commences the issuance of reinsurance coverage, and once every 3 years 
thereafter, during the period that the Corporation provides reinsurance 
coverages, the Comptroller General of the United States shall audit 
activities of the Corporation and the Independent Board of Actuaries 
established under section 309 to ensure that both entities are 
complying with the provisions of this title.
    ``(b) Submission to Congress.--Upon completion of each audit 
conducted under subsection (a), the Comptroller General of the United 
States shall submit to Congress a report on the results of the 
audit.''.

 SEC. 8. NATURAL DISASTER PROTECTION FUND.

    The Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 et 
seq.), as amended by section 7, is further amended by adding at the end 
the following new title:

              ``TITLE IV--NATURAL DISASTER PROTECTION FUND

``SEC. 401. ESTABLISHMENT.

    ``(a) The Fund.--There is established within the Treasury of the 
United States a trust fund to be known as the Natural Disaster 
Protection Fund (referred to in this title as the `Fund'), consisting 
of such amounts as may be appropriated or credited to the Fund, as 
provided in this title.
    ``(b) Accounts.--There is established in the Fund the following 
accounts:
            ``(1) Private loss account.--A Private Loss Account, as 
        described in section 402.
            ``(2) Mitigation account.--A Mitigation Account, as 
        described in section 403.
    ``(c) No Commingling.--The amounts in the accounts established in 
subsection (b) shall be kept separate. The Secretary of the Treasury 
shall not permit borrowing of moneys among the accounts.

``SEC. 402. PRIVATE LOSS ACCOUNT.

    ``Funds in the Private Loss Account established in section 
401(b)(1) shall be used by the Secretary of the Treasury to provide 
direct Federal loans to cover shortfalls in the reinsurance account 
described in section 306(b), subject to the lending authority, 
conditions, and repayment terms of section 306(d).

``SEC. 403. MITIGATION ACCOUNT.

    ``(a) Purpose of the Account.--The Mitigation Account established 
in section 401(b)(2) shall support the natural disaster hazard 
mitigation efforts described in title II.
    ``(b) Mitigation Set-Aside.--
            ``(1) In general.--The Corporation shall pay a percent of 
        the annual net premiums collected for the primary insurance 
        coverages described in title II and the reinsurance coverage 
        described in title III for natural disaster hazard mitigation 
        purposes.
            ``(2) Precise percentage.--
                    ``(A) In general.--The percent amount described in 
                paragraph (1) shall be a percentage amount that totals 
                on an annual basis $200,000,000.
                    ``(B) Adjustment.--For any calendar year after 
                1999, the dollar amount specified in subparagraph (A) 
                shall be adjusted by the percentage change in the 
                Consumer Price Index for the preceding calendar year.
    ``(c) Deposits.--The Director of the Agency shall transfer and 
credit on an annual basis to the Mitigation Account amounts received 
from--
            ``(1) the amounts set aside of the annual premiums 
        described in subsection (b); and
            ``(2) appropriations provided for prenatural disaster 
        hazard mitigation activities conducted under the Robert T. 
        Stafford Disaster Relief and Emergency Assistance Act (42 
        U.S.C. 5121 et seq.).
    ``(d) Authorization.--For the purposes of subsection (c)(2) only, 
there is authorized to be appropriated to the Mitigation Account for 
fiscal year 2000, and annually thereafter, an amount equal to the 
amounts provided annually from the percent set aside of premiums 
received pursuant to subsection (b).''.
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