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[House Report 106-526]
[From the U.S. Government Publishing Office]

106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     106-526

=======================================================================

 
             HOMEOWNERS' INSURANCE AVAILABILITY ACT OF 2000

                                _______
                                

 March 15, 2000.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. Leach, from the Committee on Banking and Financial Services, 
                        submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                         [To accompany H.R. 21]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Banking and Financial Services, to whom 
was referred the bill (H.R. 21) to establish a Federal program 
to provide reinsurance for State disaster insurance programs, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.
    The amendment is as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Homeowners' 
Insurance Availability Act of 2000''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title.
Sec. 2. Congressional findings.
Sec. 3. Program authority.
Sec. 4. Qualified lines of coverage.
Sec. 5. Covered perils.
Sec. 6. Contracts for reinsurance coverage for eligible State programs.
Sec. 7. Auction of contracts for reinsurance coverage.
Sec. 8. Anti-redlining requirement.
Sec. 9. Minimum level of retained losses and maximum Federal liability.
Sec. 10. Disaster Reinsurance Fund.
Sec. 11. National Commission on Catastrophe Risks and Insurance Loss 
Costs.
Sec. 12. Definitions.
Sec. 13. Regulations.
Sec. 14. Termination.
Sec. 15. Annual study of cost and availability of disaster insurance 
and program need.
Sec. 16. GAO study of hurricane related flooding.

SEC. 2. CONGRESSIONAL FINDINGS.

  The Congress finds that--
          (1) the rising costs resulting from natural disasters have 
        placed a strain on homeowners' insurance markets in many areas, 
        jeopardizing the ability of many consumers to adequately insure 
        their homes and possessions;
          (2) the lack of sufficient insurance capacity threatens to 
        increase the number of uninsured homeowners, which, in turn, 
        increases the risk of mortgage defaults and the strain on the 
        Nation's banking system;
          (3) some States have intervened to ensure the continued 
        availability of homeowners' insurance for all residents;
          (4) it is appropriate that efforts to improve insurance 
        availability be designed and implemented at the State level;
          (5) 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;
          (6) limited Federal reinsurance 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;
          (7) it is necessary to provide, on a temporary basis, a 
        Federal reinsurance program that will promote stability in the 
        homeowners' insurance market in the short term and encourage 
        the growth of reinsurance capacity by the private and capital 
        markets as soon as practicable;
          (8) such a Federal reinsurance program should not remain in 
        existence longer than necessary for the private entities or the 
        capital markets, or both, to provide adequate reinsurance 
        capacity to address the current homeowners' insurance market 
        dislocations caused by various disasters; and
          (9) any Federal reinsurance program must be founded upon 
        sound actuarial principles and priced in a manner that 
        minimizes the potential impact on the Treasury.

SEC. 3. PROGRAM AUTHORITY.

  (a) In General.--The Secretary of the Treasury shall carry out a 
program under this Act to make reinsurance coverage available through--
          (1) contracts for reinsurance coverage under section 6, which 
        shall be made available for purchase only by eligible State 
        programs; and
          (2) contracts for reinsurance coverage under section 7, which 
        shall be made available for purchase by purchasers under 
        section 7(a)(1) only through auctions under section 7(a).
  (b) Purpose.--The program shall be designed to make reinsurance 
coverage under this Act 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 Act, the 
Secretary 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 of the Federal 
        Government;
          (3) shall, in the case of any contract under section 6 for an 
        eligible State program, 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 7 for 
        purchase at auction, provide coverage based solely on insured 
        losses within the region established pursuant to section 7(a) 
        for which the auction is held.

SEC. 4. 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. 5. 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 tsunamis;
                  (C) tropical cyclones having maximum sustained winds 
                of at least 74 miles per hour, including hurricanes and 
                typhoons;
                  (D) tornadoes; or
                  (E) volcanic eruptions; and
          (2) in the case only of a contract under section 6, insured 
        or reinsured by the eligible State program purchasing the 
        contract.
The Secretary shall, by regulation, define the natural disaster perils 
under paragraph (1).

SEC. 6. 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 Act 
only if the State entity authorized to make such determinations 
certifies to the Secretary that 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--
                          (i) 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; and
                          (ii) is authorized by State law; or
                  (B) reinsurance program that is designed to improve 
                private insurance markets that 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) Operation.--The program shall meet the following 
        requirements:
                  (A) A majority of the members of the governing body 
                of the program shall be public officials.
                  (B) The State shall have a financial interest in the 
                program, which shall not include a program authorized 
                by State law or regulation that requires insurers to 
                pool resources to provide property insurance coverage 
                for covered perils.
          (3) Tax status.--The program shall be structured and carried 
        out in a manner so that the program is exempt from all Federal 
        taxation.
          (4) Coverage.--The program shall cover only a single peril.
          (5) Earnings.--The program may not provide for, nor shall 
        have ever made, any redistribution of any part of any net 
        profits of the program to any insurer that participates in the 
        program.
          (6) 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''.
          (7) 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 unless the 
                        elimination of such activity in an existing 
                        program would negatively impact the eligibility 
                        of the program to purchase a contract for 
                        reinsurance coverage under this Act pursuant to 
                        paragraph (3);
                          (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 rate making principles, 
                        anticipated administrative expenses, and loss 
                        and loss-adjustment expenses.
                  (B) Applicability.--This paragraph shall apply--
                          (i) before the expiration of the 2-year 
                        period beginning on the date of the enactment 
                        of this Act, only to State programs which, 
                        after January 1, 1999, commence offering 
                        insurance or reinsurance coverage described in 
                        subparagraph (A) or (B), respectively, of 
                        paragraph (1); and
                          (ii) after the expiration of such period, to 
                        all State programs.
          (8) Other qualifications.--
                  (A) In general.--The State program shall (for the 
                year for which the coverage is in effect) comply with 
                regulations that shall be issued under this paragraph 
                by the Secretary, in consultation with the National 
                Commission on Catastrophe Risks and Insurance Loss 
                Costs established under section 11. 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 or reinsurance coverage, as 
                        applicable, made available through the State 
                        program not supplant coverage that is otherwise 
                        reasonably available and affordable in the 
                        private market;
                          (iii) the State program provide adequate 
                        insurance or reinsurance protection, as 
                        applicable, for the peril covered, which shall 
                        include a range of deductibles and premium 
                        costs that reflect the applicable risk to 
                        eligible properties;
                          (iv) insurance or reinsurance coverage, as 
                        applicable, provided by the State program is 
                        made available on a nondiscriminatory basis to 
                        all qualifying residents;
                          (v) any new construction, substantial 
                        rehabilitation, and renovation insured or 
                        reinsured by the program complies with 
                        applicable State or local government building, 
                        fire, and safety codes;
                          (vi) the State, or appropriate local 
                        governments within the State, have in effect 
                        and enforce nationally recognized model 
                        building, fire, and safety codes and consensus-
                        based standards that offer disaster resistance 
                        that is substantially equivalent or greater 
                        than the resistance under any requirements for 
                        floods, earthquakes, or wind resistance issued 
                        by the Federal Emergency Management Agency;
                          (vii) the State has taken actions to 
                        establish an insurance rate structure that 
                        takes into account measures to mitigate 
                        insurance losses;
                          (viii) there are in effect, in such State, 
                        laws or regulations sufficient to prohibit 
                        price gouging, during the term of reinsurance 
                        coverage under this Act for the State program, 
                        in any disaster area located within the State; 
                        and
                          (ix) the State program complies with such 
                        other requirements that the Secretary considers 
                        necessary to carry out the purposes of this 
                        Act.
  (b) Terms of Contracts.--Each contract under this section for 
reinsurance coverage under this Act shall be subject to the following 
terms and conditions:
          (1) Maturity.--The term of the contract shall not exceed 1 
        year or such other term as the Secretary may determine.
          (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.--For each event of a covered 
        peril, the contract shall make a payment for the event 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 the event, 
        exceeds the amount of retained losses provided under the 
        contract (pursuant to section 9(a)) purchased by the eligible 
        State program.
          (4) Multiple events.--The contract shall cover any eligible 
        losses from one or more covered events that may occur during 
        the term of the contract and shall provide that if multiple 
        events occur, the retained losses requirement under paragraph 
        (3) shall apply to each event.
          (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 provided.
          (6) Pricing.--
                  (A) Determination.--The price of reinsurance coverage 
                under the contract shall be an amount established by 
                the Secretary as follows:
                          (i) Recommendations.--The Secretary shall 
                        take into consideration the recommendations of 
                        the Commission in establishing the price, but 
                        the price may not be less than the amount 
                        recommended by the Commission.
                          (ii) Fairness to taxpayers.--The price shall 
                        be established at a level that is designed to 
                        return to the Federal Government fair 
                        compensation for the risks and costs 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 expected 
                        annualized cost of all claims, loss adjustment 
                        expenses, and all administrative costs of 
                        reinsurance coverage offered under this 
                        section.
                  (B) Components.--The price 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). In establishing risk loads 
                        under this clause, the Secretary shall take 
                        into consideration comparable private risk 
                        loads.
                          (iii) Administrative costs.--A sum sufficient 
                        to provide for the operation of the Commission 
                        and the administrative expenses incurred by the 
                        Secretary in carrying out this Act.
          (7) Information.--The contract shall contain a condition 
        providing that the Commission may require the State program 
        that is covered under the contract to submit to the Commission 
        all information on the State program relevant to the duties of 
        the Commission, as determined by the Secretary.
          (8) Additional contract option.--The contract shall provide 
        that the purchaser of the contract may, during the term of such 
        original contract, purchase additional contracts from among 
        those offered by the Secretary at the beginning of the term, 
        subject to the limitations under section 9, at the prices at 
        which such contracts were offered at the beginning of the term, 
        prorated based upon the remaining term as determined by the 
        Secretary. Such additional contracts shall provide coverage 
        beginning on a date 15 days after the date of purchase but 
        shall not provide coverage for losses for an event that has 
        already occurred.
          (9) Others.--The contract shall contain such other terms as 
        the Secretary considers necessary to carry out this Act and to 
        ensure the long-term financial integrity of the program under 
        this Act.
  (c) Private Sector Right To Participate.--
          (1) Establishment of competitive procedure.--The Secretary 
        shall establish, by regulation, a competitive procedure under 
        this subsection that provides qualified entities an 
        opportunity, on a basis consistent with the contract cycle 
        established under this Act by the Secretary, to offer to 
        provide, in lieu of reinsurance coverage under this section, 
        reinsurance coverage that is substantially similar to coverage 
        otherwise made available under this section.
          (2) Competitive procedure.--Under the procedure established 
        under this subsection--
                  (A) the Secretary shall establish criteria for 
                private insurers, reinsurers, and capital market 
                companies, and consortia of such entities to be treated 
                as qualified entities for purposes of this subsection, 
                which criteria shall require such an entity to have at 
                all times capital sufficient to satisfy the terms of 
                the reinsurance contracts and shall include such other 
                industry and credit rating standards as the Secretary 
                considers appropriate;
                  (B) not less than 30 days before the beginning of 
                each contract cycle during which any reinsurance 
                coverage under this section is to be made available, 
                the Secretary may request proposals and shall publish 
                in the Federal Register the rates and terms for 
                contracts for reinsurance coverage under this section 
                that are to be made available during such contract 
                cycle;
                  (C) the Secretary shall provide qualified entities a 
                period of not less than 10 days (which shall terminate 
                not less than 20 days before the beginning of the 
                contract cycle) to submit to the Secretary a written 
                expression of interest in providing reinsurance 
                coverage in lieu of the coverage otherwise to be made 
                available under this section;
                  (D) the Secretary shall provide any qualified entity 
                submitting an expression of interest during the period 
                referred to in subparagraph (C) a period of not less 
                than 20 days (which shall terminate before the 
                beginning of the contract cycle) to submit to the 
                Secretary an offer to provide, in lieu of the 
                reinsurance coverage otherwise to be made available 
                under this section, coverage that is substantially 
                similar to such coverage;
                  (E) if the Secretary determines that an offer 
                submitted during the period referred to in subparagraph 
                (D) is a bona fide offer to provide reinsurance 
                coverage during the contract cycle at rates and terms 
                that are substantially similar to the rates and terms 
                for reinsurance coverage otherwise to be provided under 
                this section by the Secretary, the Secretary shall 
                accept the offer (if still outstanding) and, 
                notwithstanding any other provision of this Act, 
                provide for such entity to make reinsurance coverage 
                available in accordance with the offer; and
                  (F) if the Secretary accepts an offer pursuant to 
                subparagraph (E) to make reinsurance coverage 
                available, notwithstanding any other provision of this 
                Act, the Secretary shall reduce, to an equivalent 
                extent, the amount of reinsurance coverage available 
                under this section during the contract cycle to which 
                the offer relates, unless and until the Secretary 
                determines that the entity is not complying with the 
                terms of the accepted offer.

SEC. 7. AUCTION OF CONTRACTS FOR REINSURANCE COVERAGE.

  (a) Auction Program Requirements.--The Secretary shall carry out a 
program to auction contracts for reinsurance coverage under this Act 
made available pursuant to section 3(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 Secretary 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. In determining the boundaries for such 
        regions, the Secretary shall consider which areas have greater 
        risks of losses from covered perils and which areas have lesser 
        risks of losses from covered perils, and shall attempt not to 
        combine those different types of areas. Auctions for each 
        region shall be conducted not less often than annually.
          (3) Reserve price.--In auctioning contracts under this 
        section for reinsurance coverage, the Secretary shall set, for 
        each contract, a reserve price that is the minimum price at 
        which the contract may be sold, based upon the recommendations 
        of the Commission. 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 Commission.
                  (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 Commission and the 
                administrative expenses incurred by the Secretary in 
                carrying out this section.
                  (D) Mitigation.--An adjustment based on an actuarial 
                analysis 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) Price gouging protections.--The auction program may 
        provide reinsurance coverage for losses incurred only for 
        property located in a State for which the State entity 
        authorized to make such determinations has certified to the 
        Secretary 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.
          (5) Mitigation requirements.--
                  (A) In general.--The auction program shall require 
                each purchaser of a contract that is not an eligible 
                State program, as a condition of such purchase, to 
                contribute an amount, that the Secretary (in 
                consultation with the Director of the Federal Emergency 
                Management Agency) shall establish and which shall not 
                exceed 5 percent of the price paid for the contract, to 
                communities that--
                          (i) are located in the State in which the 
                        reinsurance coverage under the contract is 
                        provided (or in the case of multiple States, 
                        among such States, as determined by the 
                        Secretary);
                          (ii) are designated by the Director of the 
                        Federal Emergency Management Agency and the 
                        appropriate emergency management agency for the 
                        State as Project Impact communities (for 
                        purposes of the pre-disaster mitigation program 
                        of such Agency); and
                          (iii) are participating in such programs or 
                        initiatives as the Secretary may require that 
                        provide incentives for construction of 
                        structures and communities that are resistant 
                        to damage from covered perils, which shall 
                        include the Building Code Effectiveness Grading 
                        Schedule of the Insurance Services Office.
                  (B) Use of contributions.--Amounts contributed to 
                communities pursuant to the requirement under 
                subparagraph (A) shall be used only--
                          (i) for activities to reduce losses from 
                        covered perils to properties covered under the 
                        reinsurance contract purchased under the 
                        auction program that are located in such 
                        communities; and
                          (ii) in accordance with such requirements as 
                        the Secretary, in consultation with the 
                        Director of the Federal Emergency Management 
                        Agency and appropriate State agencies, shall 
                        establish to ensure cost-effective use of such 
                        amounts.
                  (C) Allocation.--The Secretary, in consultation with 
                the Director of the Federal Emergency Management 
                Agency, shall establish requirements for allocation of 
                contributions among communities eligible under 
                subparagraph (A) to receive such contributions.
          (6) Other requirements.--The Secretary may establish such 
        other requirements for the auction program as the Secretary 
        considers necessary to carry out this Act.
  (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 or such other term as the Secretary may 
        determine.
          (2) Transferability.--The contract shall at all times be 
        fully transferable, assignable, and divisible.
          (3) Threshold of coverage.--The contract 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 Secretary determines that the insurance industry 
        will, as a result of a single event of a covered peril, incur 
        losses within the coverage area for the region established 
        under subsection (a)(2) for which the contract was auctioned 
        that are covered by one or more lines of insurance under 
        section 5 in an aggregate amount, for such event, greater than 
        the level of retained losses specified in section 9.
          (4) Multiple events.--The contract shall contain the 
        provisions described in section 6(b)(4).
          (5) Additional contract option.--The contract shall contain 
        the provisions described in section 6(b)(8).
          (6) Submission of information.--The contract shall include 
        terms that--
                  (A) require the purchaser to notify the Secretary of 
                any sale, transfer, assignment, or division of the 
                contract or any interest in the contract, identify the 
                interest involved, and identify the price paid or 
                compensation provided; and
                  (B) authorize the disclosures required under 
                subsection (c)(2).
          (7) Others.--The contract shall contain such other terms as 
        the Secretary considers necessary to carry out this Act and to 
        ensure the long-term financial integrity of the program under 
        this Act.
  (c) GAO Audit.--
          (1) In general.--For each fiscal year, the Comptroller 
        General of the United States shall conduct an audit of prices 
        for contracts made available under the auction program under 
        this section during such fiscal year that determines--
                  (A) the reserve prices established for such 
                contracts;
                  (B) the prices paid for such contracts that are 
                purchased;
                  (C) the prices paid, or compensation provided, in any 
                sales, transfers, assignments, or divisions of any such 
                contracts (or any interests in such contracts) in the 
                secondary market or to any third party; and
                  (D) pursuant to the information obtained under 
                subparagraphs (A) through (C), the appropriate reserve 
                prices for such contracts that are to be made available 
                in the succeeding fiscal year.
          (2) Use of information.--The Secretary shall provide any 
        information referred to in subsection (b)(6) that is obtained 
        by the Secretary to the Comptroller General, the Director of 
        the Congressional Budget Office, and the Director of the Office 
        of Management and Budget, and shall make such information 
        publicly available. The Secretary, the Director of the 
        Congressional Budget Office, the Director of the Office of 
        Management and Budget shall each take such information into 
        consideration in preparing any budget, report, estimate, or 
        recommendation to the extent it relates to the auction program 
        under this section, and in any determinations relating to the 
        Budget of the United States or the concurrent resolution on the 
        budget (as such term is defined in section 3 of the 
        Congressional Budget Act of 1974). The Secretary shall take 
        such information into consideration in establishing reserve 
        prices for contracts made available under this section.

SEC. 8. ANTI-REDLINING REQUIREMENT.

  Notwithstanding sections 6(a) and 7(a), the Secretary may not make a 
contract for reinsurance coverage under this Act available for purchase 
unless the purchaser certifies to the Secretary--
          (1) in the case of a contract under section 6, that--
                  (A) no insurer (or affiliate of such insurer) 
                participating in the State-operated program of such 
                purchaser has been adjudicated in any Federal court, or 
                has entered, after the date of the enactment of this 
                Act, into a consent decree filed in a Federal court or 
                into a settlement agreement, premised upon a violation 
                of the Fair Housing Act for the activities involved in 
                making insurance coverage available; and
                  (B) if such insurer (or affiliate) has entered into 
                any such consent decree or settlement agreement, the 
                insurer (or affiliate) is not in violation of the 
                decree or settlement agreement as determined by a court 
                of competent jurisdiction or the agency with which the 
                decree or agreement was entered into; and
          (2) in the case of a contract under section 7, that--
                  (A)(i) in the case of a contract purchased by an 
                insurer or reinsurer, the insurer or reinsurer (or 
                affiliate of such insurer or reinsurer) has not been 
                adjudicated in any Federal court, and has not entered, 
                after the date of the enactment of this Act, into a 
                consent decree filed in a Federal court or into a 
                settlement agreement, premised upon a violation of the 
                Fair Housing Act for the activities involved in making 
                insurance coverage available; or
                  (ii) in the case of a contract purchased by a State 
                program, no insurer (or affiliate of such insurer) 
                participating in the State program has been adjudicated 
                in any Federal court, or has entered, after the date of 
                the enactment of this Act, into a consent decree filed 
                in a Federal court or into a settlement agreement, 
                premised upon a violation of the Fair Housing Act for 
                the activities involved in making insurance coverage 
                available; and
                  (B) if such an insurer or reinsurer (or affiliate of 
                such an insurer or reinsurer) has entered into any such 
                consent decree or settlement agreement, the insurer or 
                reinsurer (or affiliate) is not in violation of the 
                decree or settlement agreement as determined by a court 
                of competent jurisdiction or the agency with which the 
                decree or agreement was entered into.

SEC. 9. MINIMUM LEVEL OF RETAINED LOSSES AND MAXIMUM FEDERAL LIABILITY.

  (a) Available Levels of Retained Losses.--In making reinsurance 
coverage available under this Act, the Secretary 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 6(b)(3) and 7(b)(3) for payment of eligible losses) in 
various amounts, as the Secretary, in consultation with the Commission, 
determines appropriate and subject to the requirements under subsection 
(b).
  (b) Minimum Level of Retained Losses.--
          (1) Contracts for state programs.--Subject to paragraphs (3) 
        and (4) and notwithstanding any other provision of this Act, a 
        contract for reinsurance coverage under section 6 for an 
        eligible State program that offers insurance or reinsurance 
        coverage described in subparagraph (A) or (B), respectively, of 
        section 6(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) an amount between $2,000,000,000 and 
                        $5,000,000,000, that is determined by the 
                        Secretary in accordance with the requirement 
                        under section 3(c)(1);
                          (ii) the claims-paying capacity of the 
                        eligible State program, as determined by the 
                        Secretary; and
                          (iii) an amount, determined by the Secretary 
                        in consultation with the Commission, that is in 
                        the range between the amount equal to the 
                        eligible loss projected to be incurred once 
                        every 100 years from a single event in the 
                        State and the amount equal to the eligible loss 
                        projected to be incurred once every 250 years 
                        from such an event.
                  (B) Transition rule for existing 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 the 
                        enactment of this Act and the claims-paying 
                        capacity of which is greater than the amount 
                        determined under subparagraph (A)(i) 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 Secretary 
                        providing a schedule for increasing the claims-
                        paying capacity of the State program to the 
                        amount determined for the State under 
                        subparagraph (A)(iii) over a period not to 
                        exceed 5 years. The Secretary may extend the 5-
                        year period for not more than 2 additional one-
                        year periods if the Secretary determines that 
                        losses incurred by the State program as a 
                        result of covered perils create excessive 
                        hardship on the State program. The Secretary 
                        shall consult with the appropriate officials of 
                        the State program regarding the required 
                        schedule and any potential one-year extensions.
                  (C) Transition rule for new programs.--
                          (i) 100-year event.--The Secretary may 
                        provide that, in the case of an eligible State 
                        program that, after January 1, 1999, commences 
                        offering insurance or reinsurance coverage, 
                        during the 5-year period beginning on the date 
                        that reinsurance coverage under section 6 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 Secretary determines that 
                        the claims-paying capacity of an eligible State 
                        program has been reduced because of payment for 
                        losses due to an event, the Secretary may 
                        reduce the minimum level of retained losses for 
                        the State commensurate with the current 
                        capacity of the State program, as determined by 
                        the Secretary, but in no case may such minimum 
                        level be less than the amount determined under 
                        subparagraph (A)(i).
                          (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 6 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 
                6(a)(1) shall be determined by the Secretary, in 
                consultation with the Commission, taking into 
                consideration the claims-paying capacity as determined 
                by the State program, 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 paragraphs (3) and (4) and 
        notwithstanding any other provision of this Act, a contract for 
        reinsurance coverage may not be made available or sold under 
        section 7 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) an amount between $2,000,000,000 and 
                $5,000,000,000, that is determined by the Secretary in 
                accordance with the requirement under section 3(c)(1); 
                and
                  (B) an amount, determined by the Secretary in 
                consultation with the Commission, that is in the range 
                between the amount equal to the eligible loss projected 
                to be incurred once every 100 years from a single event 
                in the region and the amount equal to the eligible loss 
                projected to be incurred once every 250 years from such 
                an event.
          (3) Initial adjustment based on private market.--The 
        Secretary may, before making contracts for reinsurance coverage 
        under this Act initially available under section 6 or 7, raise 
        the minimum level of retained losses from the amount required 
        under paragraph (1) for an eligible State program or under 
        paragraph (2) for a region to ensure, as determined by the 
        Secretary, that such contracts comply with the principle under 
        section 3(c)(1).
          (4) Annual adjustment.--The Secretary 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 Secretary--
                  (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 Secretary considers 
                appropriate.
        The Secretary shall consider the minimum level of retained 
        losses requirements in paragraphs (1) and (2) as minimum 
        requirements only and shall have full authority, effective on 
        the date of the enactment of this Act, to establish levels of 
        required minimum retained losses in any amount greater than the 
        amounts specified in such paragraphs. In making any 
        determination under this paragraph in the minimum level of 
        retained losses, the Secretary 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 Secretary after the Secretary has 
        provided interested parties an opportunity to submit to the 
        Commission market information relevant to such determination 
        and has provided the Commission with an opportunity to advise 
        the Secretary regarding such information and determination.
          (5) Optional annual inflationary or exposure adjustment.--The 
        Secretary 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 or growth in exposures, 
whichever is greater. Any such raise shall be made in accordance with 
an inflation index or exposure index, as appropriate, that the 
Secretary determines to be appropriate. The first such raise may be 
made one year after contracts for reinsurance coverage under this Act 
are first made available for purchase.
  (c) Maximum Federal Liability.--
          (1) In general.--Notwithstanding any other provision of law, 
        the Secretary may sell only contracts for reinsurance coverage 
        under this Act in various amounts which comply with the 
        following requirements:
                  (A) Estimate of aggregate liability.--The aggregate 
                liability for payment of claims under all such 
                contracts in any single year is unlikely to exceed 
                $25,000,000,000 (as such amount is adjusted under 
                paragraph (2)).
                  (B) Eligible loss coverage sold.--Eligible losses 
                covered by all contracts sold within a State or region 
                during a 12-month period do not exceed the difference 
                between the following amounts (each of which shall be 
                determined by the Secretary in consultation with the 
                Commission):
                          (i) The amount equal to the eligible loss 
                        projected to be incurred once every 500 years 
                        from a single event in the State or region.
                          (ii) The amount equal to the eligible loss 
                        projected to be incurred once every 100 years 
                        from a single event in the State or region.
          (2) Annual adjustments.--The Secretary shall annually adjust 
        the amount under paragraph (1)(A) (as it may have been 
        previously adjusted) to provide for inflation in accordance 
        with an inflation index that the Secretary determines to be 
        appropriate.
  (d) Limitation on Percentage of Risk in Excess of Retained Losses.--
          (1) In general.--The Secretary may not make available for 
        purchase contracts for reinsurance coverage under this Act that 
        would pay out more than 50 percent of eligible losses in excess 
        of retained losses--
                  (A) in the case of a contract under section 6 for an 
                eligible State program, for such State; and
                  (B) in the case of a contract made available through 
                a regional auction under section 7, 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 in excess of retained losses multiplied by the 
        percentage under paragraph (1).

SEC. 10. DISASTER REINSURANCE FUND.

  (a) Establishment.--There is established within the Treasury of the 
United States a fund to be known as the Disaster Reinsurance Fund (in 
this section referred to as the ``Fund'').
  (b) Credits.--The Fund shall be credited with--
          (1) amounts received annually from the sale of contracts for 
        reinsurance coverage under this Act;
          (2) any amounts borrowed under subsection (d);
          (3) any amounts earned on investments of the Fund pursuant to 
        subsection (e); and
          (4) such other amounts as may be credited to the Fund.
  (c) Uses.--Amounts in the Fund shall be available to the Secretary 
only for the following purposes:
          (1) Contract payments.--For payments to covered purchasers 
        under contracts for reinsurance coverage for eligible losses 
        under such contracts.
          (2) Commission costs.--To pay for the operating costs of the 
        Commission.
          (3) Administrative expenses.--To pay for the administrative 
        expenses incurred by the Secretary in carrying out the 
        reinsurance program under this Act.
          (4) Termination.--Upon termination under section 14, as 
        provided in such section.
  (d) Borrowing.--
          (1) Authority.--To the extent that the amounts in the Fund 
        are insufficient to pay claims and expenses under subsection 
        (c), the Secretary may issue such obligations of the Fund as 
        may be necessary to cover the insufficiency and shall purchase 
        any such obligations issued.
          (2) Public debt transaction.--For the purpose of purchasing 
        any such obligations, the Secretary may use as a public debt 
        transaction the proceeds from the sale of any securities issued 
        under chapter 31 of title 31, United States Code, and the 
        purposes for which securities are issued under such chapter are 
        hereby extended to include any purchase by the Secretary of 
        such obligations under this subsection.
          (3) Characteristics of obligations.--Obligations issued under 
        this subsection shall be in such forms and denominations, bear 
        such maturities, bear interest at such rate, and be subject to 
        such other terms and conditions, as the Secretary shall 
        determine.
          (4) Treatment.--All redemptions, purchases, and sales by the 
        Secretary of obligations under this subsection shall be treated 
        as public debt transactions of the United States.
          (5) Repayment.--Any obligations issued under this subsection 
        shall be repaid, including interest, from the Fund and shall be 
        recouped from premiums charged for reinsurance coverage 
        provided under this Act.
  (e) Investment.--If the Secretary determines that the amounts in the 
Fund are in excess of current needs, the Secretary may invest such 
amounts as the Secretary considers advisable in obligations issued or 
guaranteed by the United States.
  (f) Prohibition of Federal Funds.--Except for amounts made available 
pursuant to subsection (d) and section 11(h), no Federal funds shall be 
authorized or appropriated for the Fund or for carrying out the 
reinsurance program under this Act.

SEC. 11. NATIONAL COMMISSION ON CATASTROPHE RISKS AND INSURANCE LOSS 
                    COSTS.

  (a) Establishment.--The Secretary shall establish a commission to be 
known as the National Commission on Catastrophe Risks and Insurance 
Loss Costs.
  (b) Duties.--The Commission shall meet for the sole purpose of 
advising the Secretary regarding the estimated loss costs associated 
with the contracts for reinsurance coverage available under this Act 
and carrying out the functions specified in this Act.
  (c) Members.--The Commission shall consist of not more than 5 
members, who shall be appointed by the Secretary and shall be broadly 
representative of the public interest. Members shall have no personal, 
professional, or financial interest at stake in the deliberations of 
the Commission. The membership of the Commission shall at all times 
include at least 1 representative of a nationally recognized consumer 
organization.
  (d) Treatment of Non-Federal Members.--Each member of the Commission 
who is not otherwise employed by the Federal Government shall be 
considered a special Government employee for purposes of sections 202 
and 208 of title 18, United States Code.
  (e) Experts and Consultants.--The Commission may procure temporary 
and intermittent services under section 3109(b) of title 5, United 
States Code, but at a rate not in excess of the daily equivalent of the 
annual rate of basic pay payable for level V of the Executive Schedule, 
for each day during which the individual procured is performing such 
services for the Commission.
  (f) Compensation.--Each member of the Commission who is not an 
officer or employee of the Federal Government shall be compensated at a 
rate of basic pay payable for level V of the Executive Schedule, for 
each day (including travel time) during which such member is engaged in 
the performance of the duties of the Commission. All members of the 
Commission who are officers or employees of the United States shall 
serve without compensation in addition to that received for their 
services as officers or employees of the United States.
  (g) Obtaining Data.--The Commission and the Secretary may solicit 
loss exposure data and such other information either deems necessary to 
carry out its responsibilities from governmental agencies and bodies 
and organizations that act as statistical agents for the insurance 
industry. The Commission and the Secretary shall take such actions as 
are necessary to ensure that information that either deems is 
confidential or proprietary is disclosed only to authorized individuals 
working for the Commission or the Secretary. No company which refuses 
to provide information requested by the Commission or the Secretary may 
participate in the program for reinsurance coverage authorized under 
this Act, nor may any State insurance or reinsurance program 
participate if any governmental agency within that State has refused to 
provide information requested by the Commission or the Secretary.
  (h) Funding.--
          (1) Authorization of appropriations.--There are authorized to 
        be appropriated--
                  (A) $1,000,000 for fiscal year 2000 for the initial 
                expenses in establishing the Commission and the initial 
                activities of the Commission that cannot timely be 
                covered by amounts obtained pursuant to sections 
                6(b)(6)(B)(iii) and 7(a)(3)(C), as determined by the 
                Secretary;
                  (B) such additional sums as may be necessary to carry 
                out subsequent activities of the Commission;
                  (C) $1,000,000 for fiscal year 2000 for the initial 
                expenses of the Secretary in carrying out the program 
                authorized under section 3; and
                  (D) such additional sums as may be necessary to carry 
                out subsequent activities of the Secretary under this 
                Act.
          (2) Offset.--The Secretary shall provide, to the maximum 
        extent practicable, that an amount equal to any amount 
        appropriated under paragraph (1) is obtained from purchasers of 
        reinsurance coverage under this Act and deposited in the Fund 
        established under section 10. Such amounts shall be obtained by 
        inclusion of a provision for the Secretary's and the 
        Commission's expenses incorporated into the pricing of the 
        contracts for such reinsurance coverage, pursuant to sections 
        6(b)(6)(B)(iii) and 7(a)(3)(C).
  (i) Termination.--The Commission shall terminate upon the effective 
date of the repeal under section 14(c).

SEC. 12. DEFINITIONS.

  For purposes of this Act, the following definitions shall apply:
          (1) Commission.--The term ``Commission'' means the National 
        Commission on Catastrophe Risks and Insurance Loss Costs 
        established under section 11.
          (2) Covered perils.--The term ``covered perils'' means the 
        natural disaster perils under section 5.
          (3) Covered purchaser.--The term ``covered purchaser'' 
        means--
                  (A) with respect to reinsurance coverage made 
                available under a contract under section 6, 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 7, the 
                purchaser of the contract auctioned under such section 
                or any subsequent holder or holders of the contract.
          (4) Disaster area.--The term ``disaster area'' means a 
        geographical area, with respect to which--
                  (A) a covered peril specified in section 5 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.
          (5) Eligible losses.--The term ``eligible losses'' means 
        losses in excess of the sustained and retained losses, as 
        defined by the Secretary after consultation with the 
        Commission.
          (6) Eligible state program.--The term ``eligible State 
        program'' means a State program that, pursuant to section 6(a), 
        is eligible to purchase reinsurance coverage made available 
        through contracts under section 6.
          (7) Price gouging.--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.
          (8) Qualified lines.--The term ``qualified lines'' means 
        lines of insurance coverage for which losses are covered under 
        section 4 by reinsurance coverage under this Act.
          (9) Reinsurance coverage.--The term ``reinsurance coverage 
        under this Act'' includes coverage under contracts made 
        available under sections 6 and 7.
          (10) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.
          (11) State.--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. 13. REGULATIONS.

  The Secretary shall issue any regulations necessary to carry out the 
program for reinsurance coverage under this Act.

SEC. 14. TERMINATION.

  (a) In General.--Except as provided in subsection (b), the Secretary 
may not provide any reinsurance coverage under this Act covering any 
period after the expiration of the 10-year period beginning on the date 
of the enactment of this Act.
  (b) Extension.--If upon the expiration of the period under subsection 
(a) the Secretary, in consultation with the Commission, determines that 
continuation of the program for reinsurance coverage under this Act is 
necessary to carry out the purpose of this Act under section 3(b) 
because of insufficient growth of capacity in the private homeowners' 
insurance market, the Secretary shall continue to provide reinsurance 
coverage under this Act until the expiration of the 5-year period 
beginning upon the expiration of the period under subsection (a).
  (c) Repeal.--Effective upon the date that reinsurance coverage under 
this Act is no longer available or in force pursuant to subsection (a) 
or (b), this Act (except for this section) is repealed.
  (d) Deficit Reduction.--The Secretary shall cover into the General 
Fund of the Treasury any amounts remaining in the Fund under section 10 
upon the repeal of this Act.

SEC. 15. ANNUAL STUDY OF COST AND AVAILABILITY OF DISASTER INSURANCE 
                    AND PROGRAM NEED.

  (a) In General.--The Secretary shall, on an annual basis, conduct a 
study and submit to the Congress a report on the cost and availability 
of homeowners' insurance for losses resulting from catastrophic natural 
disasters covered by the reinsurance program under this Act.
  (b) Contents.--Each annual study under this section shall determine 
and identify, on an aggregate basis--
          (1) for each State or region, the capacity of the private 
        homeowners' insurance market with respect to coverage for 
        losses from catastrophic natural disasters;
          (2) for each State or region, the percentage of homeowners 
        who have such coverage, the disasters covered, and the average 
        cost of such coverage;
          (3) for each State or region, the progress that private 
        reinsurers and capital markets have made in providing 
        reinsurance for such homeowners' insurance;
          (4) for each State or region, the effects of the Federal 
        reinsurance program under this Act on the availability and 
        affordability of such insurance; and
          (5) the appropriate time for termination of the Federal 
        reinsurance program under this Act.
  (c) Timing.--Each annual report under this section shall be submitted 
not later than March 30 of the year after the year for which the study 
was conducted.
  (d) Commencement of Reporting Requirement.--The Secretary shall first 
submit an annual report under this section 2 years after the date of 
the enactment of this Act.

SEC. 16. GAO STUDY OF HURRICANE RELATED FLOODING.

  (a) In General.--The Comptroller General of the United States shall 
conduct a study of the availability and adequacy of flood insurance 
coverage for losses to residences and other properties caused by 
hurricane-related flooding.
  (b) Contents.--The study under this section shall determine and 
analyze--
          (1) the frequency and severity of hurricane-related flooding 
        during the last 20 years in comparison with flooding that is 
        not hurricane-related;
          (2) the differences between the risks of flood-related losses 
        to properties located within the 100-year floodplain and those 
        located outside of such floodplain;
          (3) the extent to which insurance coverage referred to in 
        subsection (a) is available for properties not located within 
        the 100-year floodplain;
          (4) the advantages and disadvantages of making such coverage 
        for such properties available under the national flood 
        insurance program;
          (5) appropriate methods for establishing premiums for 
        insurance coverage under such program for such properties that, 
        based on accepted actuarial and rate making principles, cover 
        the full costs of providing such coverage;
          (6) appropriate eligibility criteria for making flood 
        insurance coverage under such program available for properties 
        that are not located within the 100-year floodplain or within a 
        community participating in the national flood insurance 
        program;
          (7) the appropriateness of the existing deductibles for all 
        properties eligible for insurance coverage under the national 
        flood insurance program, including the standard and variable 
        deductibles for pre-FIRM and post-FIRM properties, and whether 
        a broader range of deductibles should be established;
          (8) income levels of policyholders of insurance made 
        available under the national flood insurance program whose 
        properties are pre-FIRM subsidized properties; and
          (9) the number of homes that are not primary residences that 
        are insured under the national flood insurance program and are 
        pre-FIRM subsidized properties.
  (c) Consultation With FEMA.--In conducting the study under this 
section, the Comptroller General shall consult with the Director of the 
Federal Emergency Management Agency.
  (d) Report.--The Comptroller General shall complete the study under 
this section and submit a report to the Congress regarding the findings 
of the study, not later than 5 months after the date of the enactment 
of this Act.

                     EXPLANATION OF THE LEGISLATION

    H.R. 21, the ``Homeowners' Insurance Availability Act of 
1999'' creates a voluntary temporary Federal reinsurance \1\ 
backstop to efforts by states and the private market to make 
catastrophic insurance for homeowners living in disaster-prone 
regions of the country more available.
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    \1\ Reinsurance is a risk transfer mechanism that traditionally has 
come in the form of insurance for insurance companies. In the property 
casualty business, in particular, the more risk an insurance company 
accumulates, the more capital it needs and the more volatile its 
earnings become, and the more the need to transfer risk. For example, 
in a typical excess of loss reinsurance contract, the reinsurer agrees 
to indemnify an insurance company for all or part of losses in excess 
of a fixed dollar amount called an attachment point. Once the 
attachment point, or trigger, is reached, losses would be covered by 
reinsurance purchased by the primary insurance company.
---------------------------------------------------------------------------

                         FINDINGS AND PURPOSES

    Major catastrophes, including Hurricane Andrew (1992), 
Hurricane Iniki (1992), the Northridge Earthquake (1994), and 
others more recently have led to a lack of available 
homeowners' insurance coverage in risk-prone areas across the 
country. Testimony before the Committee in the 106th Congress 
has shown evidence of such availability problems in coastal 
regions prone to hurricane losses as well as areas at risk to 
seismic activity in the Midwest, West Coast and Pacific 
Northwest.
    In several states, including Florida, California and 
Hawaii, state governments have intervened to prevent a near 
total collapse in private insurance markets in the wake of 
natural disasters. According to the California Insurance 
Department, following the California Northridge earthquake in 
1994, 95% of the homeowners' insurance market in the state 
would not provide new coverage. The Hawaii and Florida markets 
were similarly affected following catastrophes in 1992. In 
response, Florida created the Florida Catastrophe Reinsurance 
Fund in 1993, followed soon thereafter by the Hawaii Hurricane 
Relief Fund (1994) in Hawaii and the California Earthquake 
Authority (1996) in California. These programs stabilized local 
insurance markets and provided a source of coverage for 
homeowners who could otherwise not obtain it. All are capable 
of paying loss claims from events of some severity, but cannot 
be reasonably expected to handle the worst case events that are 
likely to occur infrequently.
    In California, for example, the state earthquake authority 
has purchased some of the largest private reinsurance contracts 
in history, costing more than $350 million out of $394 million 
in premiums collected last year to purchase approximately $2.5 
billion in private reinsurance. Nevertheless, the state program 
has access to only $7.5 billion for payment of claims even 
though the program's total liability is $163 billion in 
potential losses according to testimony before the California 
State Senate Insurance Committee in October 1999. In the event 
a natural disaster exceeds the capacity of a state's insurance 
program, homeowners would receive only partial claims for 
losses, bankrupting the state insurance fund, damaging state 
real estate and insurance industries, and ultimately 
endangering the health of local economies.
    Many other risk-prone states, such as Texas, Louisiana, 
North Carolina, Virginia, New Jersey, New York, Maryland, 
Delaware, Rhode Island, Connecticut and Massachusetts, as well 
as Tennessee, Missouri, Arkansas, Illinois, Indiana, Washington 
and Oregon do not have state insurance programs similar to 
those in California, Hawaii and Florida. In some of these 
areas, however, applications to state FAIR (Fair Access 
Insurance Requirements) plans and beach plans (so-called 
markets of last resort for homeowners' insurance which 
generally provide less coverage at a greater price) increased 
dramatically during the last half of the 1990s (California 
+309%, Louisiana +741%, Massachusetts +66%, New York +31%, 
Mississippi +75%, Florida +533, South Carolina +213%). Even 
with state intervention, a worst-case catastrophe would likely 
cause considerable insolvencies among private insurers. No 
matter where a worst-case disaster may occur, it is reasonable 
to expect that under-protected states and unprotected 
homeowners will look to the Federal government for the sort of 
emergency supplemental relief that history has shown they are 
likely to receive.
    Despite some improvements since the mid-1990s, information 
presented to the Committee indicates that homeowners' insurance 
availability problems continue to exist. According to the Swiss 
RE Group, recognized as one of the world's leading private 
market reinsurers, natural catastrophes made 1998 the third-
worst year on record for catastrophe insurers and reinsurers 
worldwide. As a result, some in the industry have begun to 
reduce their catastrophic capacity for certain markets and 
certain perils. In addition, the Insurance Services Office, a 
non-profit corporation that makes available advisory rating, 
statistical, actuarial and related services to U.S. property/
casualty insurers, estimates that a catastrophe costing the 
insurance industry between $50 and $100 billion could result in 
the insolvency of up to 36 percent of all insurers, depending 
on where the event occurs, and leave consumers with unfunded 
claims of up to $56 billion. According to U.S. RE Group, a 
recognized reinsurance broker, ``roughly $24 billion of 
aggregate catastrophe excess-of-loss reinsurance is being 
provided currently to insurers across the United States. This 
represents at best 10 to 15 percent of the worst case scenario. 
The global reinsurance market does not have sufficient capital 
to meet U.S. catastrophe coverage requirements.''
    Should the recent trend of larger losses from natural 
disaster continue in the future, together with limited 
insurance capacity for large-scale events in the private 
marketplace, the consequences could be serious for the Federal 
government. Between FY1977 and FY1993, the Federal government 
spent $87 billion for post-disaster recovery assistance 
according to the Senate bipartisan Task Force on Funding 
Disaster Relief. Since FY1993, the Federal Emergency Management 
Agency (FEMA) alone, not including the Small Business 
Administration or the Departments of Agriculture or Commerce, 
spent more than $22 billion on disaster relief.
    Forecasters who have testified before the Committee predict 
that the East and Gulf Coasts are entering what is likely to be 
an even more damaging period of frequent storms. According to 
U.S. RE Group, a Category 5 hurricane (wind speeds of 155 miles 
per hour or more) could cost more than $110 billion if it hit 
the New England coastline. The most costly hurricane in recent 
history, Hurricane Andrew, caused $16.5 billion in insured 
losses concentrated south of Miami. If Hurricane Andrew had 
blown through Miami, only 20 miles north, the losses would have 
approached $50 billion. Considering that 75% of the U.S. 
population will be living within 100 miles of a U.S. coastline 
by the year 2010, according to Department of Commerce 
estimates, these potential events could cause even further 
erosion in the insurance safety net.

                          LEGISLATIVE HISTORY

    Early in the 104th Congress, in an effort to address the 
rising Federal costs of natural disasters and the growing lack 
of available homeowners' insurance in vulnerable areas, 
Representative Bill Emerson (R-MO), Senator Ted Stevens (R-AL), 
Representative Norman Mineta (D-CA), Senator Daniel Inouye (D-
HI) and more than 220 Members of Congress sponsored 
comprehensive natural disaster protection legislation. That 
legislation ultimately did not proceed to markup, in part 
because the bill's all-encompassing approach made it difficult 
to achieve consensus.
    On the first day of the 105th Congress, Representative Rick 
Lazio (R-NY), the Chairman of the Subcommittee on Housing and 
Community Opportunity, joined with Representatives Bill 
McCollum (R-FL) and Vic Fazio (D-CA) to introduce H.R. 219, the 
``Homeowners' Insurance Availability Act of 1997.'' The 
legislation was originally designed to complement only state 
efforts to address rising natural disaster costs and the 
growing lack of available homeowners' insurance with minimal 
Federal involvement to encourage the resuscitation of the 
industry. The Subcommittee on Housing and Community Opportunity 
held hearings on the legislation on June 25, 1997, and August 
25, 1997. On February 4, 1998, H.R. 219 was marked up and 
passed the Housing Subcommittee by a vote of 16 to 6. The full 
Committee heard testimony on the legislation on April 23, 1998, 
including testimony from U.S. Department of Treasury Deputy 
Secretary Lawrence Summers. In his testimony, Deputy Secretary 
Summers stated that there is an ``urgent need for moving 
forward on a timely basis [with Federal disaster reinsurance 
legislation, and that] we see great promise in [H.R. 219] as a 
means of addressing many of the problems related to the 
availability and price of insurance and reinsurance for 
disaster risks.'' He went on to note that the capital market 
solutions to natural disaster exposure are ``in a relatively 
early stage of development, [and] clearly, a serious problem 
remains in the interim.'' He concluded that ``[p]rogress on 
this issue has been too long in coming [and that] we all share 
a clear recognition of the urgent need to move forward on a 
timely basis.'' H.R. 219 was marked up in full Committee and 
was favorably reported to the House by a vote of 33-12 on July 
15, 1998.
    On the first day of the 106th Congress, Subcommittee 
Chairman Lazio joined with Committee Chairman James A. Leach 
(R-IA), Ranking Member John J. LaFalce (D-NY), Vice Chairman 
Bill McCollum joined and 43 other House Members to introduce 
H.R. 21, the ``Homeowners' Insurance Availability Act of 1998'' 
as it passed the Committee as H.R. 219 on July 15, 1998. The 
Subcommittee on Housing and Community Opportunity held hearings 
on the legislation on April 28, 1999, and July 12, 1999. The 
full Committee heard testimony on the legislation on July 30, 
1999, including testimony from U.S. Department of Treasury 
Deputy Secretary Stuart Eizenstat. In his testimony, Deputy 
Secretary Eizenstat stated that H.R. 21 ``constructively and 
creatively responds to the difficulty faced by both state funds 
and private entities in purchasing reinsurance against their 
large, but low-probability losses on homeowners' insurance'' 
and that a ``well-designed reinsurance program for homeowners'' 
losses could help provide the foundation for communities, 
individuals, and the private markets on which they depend to 
make a sound recovery in financial terms'' in the aftermath of 
a natural disaster. H.R. 21 was marked up in full Committee on 
November 9 and 10, 1999, and was favorably reported to the 
House by a vote of 34-18 on November 10, 1999.

                  BACKGROUND AND NEED FOR LEGISLATION

    During the 106th Congress, three hearings were held on H.R. 
21, two at Subcommittee and one before the full Committee.
    Deputy Treasury Secretary Stuart Eizenstat stated in 
testimony that H.R. 21 is a ``positive step forward,'' that the 
legislation ``constructively and creatively responds to the 
difficulty faced by both state funds and private entities in 
purchasing reinsurance against their large, but low-probability 
losses on homeowners' insurance,'' and that the bill is a 
``sound foundation for progress.''
    Dr. William M. Gray, Professor of Atmospheric Science at 
Colorado State University, stated in testimony that ``trends in 
global oceanic and atmospheric observations during recent years 
indicate that we are entering (or reverting to) a multi-decadal 
period of increased intense or `major' hurricane activity,'' 
and that ``the cost of U.S. hurricane-spawned destruction will 
most certainly rise to unprecedented magnitudes.''
    Mr. W. Cloyce Anders, Regional Director of the Volunteer 
Firemen's Insurance Services, Inc. in North Carolina and 
testifying on behalf of the Independent Insurance Agents of 
America stated that ``insurance companies who have done 
business in North Carolina for decades are no longer willing to 
write windstorm coverage to meet existing demand,'' regardless 
of the price of the coverage. Mr. Anders also noted that the 
availability condition is not ``limited to beach communities 
and the affluent. In North Carolina, many insurance companies 
will not write hurricane coverage and many others will not 
write property coverage of any kind for any home which is 
located east of Interstate 95 [which is] as much as 150 miles 
from the Atlantic Ocean. The [North Carolina Insurance 
Underwriting Association, a market of last resort] accepts 
applications from residents in 18 counties. The vast bulk of 
the applications come from middle class families that live up 
to an hour's drive from the coast.''
    Mr. Arthur Sterbcow, President, Latter and Blum, in New 
Orleans, LA and testifying on behalf of the National 
Association of Realtors stated that ``the inability to obtain 
affordable homeowners' insurance is a serious threat to the 
residential real estate market.'' He noted that ``a strong 
housing market is a linchpin of a healthy economy, generating 
jobs, wages, tax revenues and a demand for goods and services 
[and in] order to maintain a strong economic climate, we must 
safeguard the vitality of residential real estate.''
    Ms. Susanne Murphy, Deputy Insurance Commissioner with the 
State of Florida testified that if Hurricane Andrew in 1992 had 
``shifted just one degree to the north, slamming into downtown 
Miami or Fort Lauderdale, it would have left insured losses of 
not $16 billion, but more than $50 billion. The reserves of all 
the insurers would not have carried the day; untold thousands 
of homeowner claims would have gone unpaid; banks would have 
been stuck with abandoned mortgages and would have stopped 
making new loans; the state's home-building industry would have 
come to a screeching halt; and property values would have 
plummeted.''
    Dr. Jack E. Nicholson, Chief Operating Officer of the 
Florida Hurricane Catastrophe Fund, testified that 
``[w]orldwide reinsurance capacity was severely impacted 
following HurricaneAndrew. Aggregate reinsurance limits were 
only available for $200 million or less per company and the cost many 
times exceeded 25% to 30% of the coverage. The terms of reinsurance 
contracts were also tightened resulting in less coverage.'' He went on 
to note that ``the experience of Hurricane Andrew taught us an 
important lesson and exposed the limitations of relying solely on the 
private reinsurance market for catastrophic coverage.''
    Mr. Roger Joslin, Chairman of the Board of State Farm Fire 
and Casualty Company, testified that ``insured losses from 
major natural catastrophes in several regions of the country 
such as California, the Southeast including but not limited to 
Florida, and the Midwestern earthquake zone, could reach as 
high as $75 billion to $100 billion. Events of this magnitude 
far exceed the claims paying capacity of most private insurers 
and all existing state funds.''
    Mr. Ronald Hanna, Deputy Commissioner of the Mississippi 
Insurance Department, testified that the ``Gulf Coast is a very 
volatile insurance market. Many companies are continually 
changing their underwriting strategies. This cycle creates a 
disruptive market and reflects the underlying issues of 
property companies unable to commit to a consistent pattern of 
controlled growth. The Mississippi Windstorm Underwriting 
Association, a market of last resort for residents unable to 
obtain traditional insurance coverage, has more than doubled in 
size since 1993.'' He noted that ``several years ago, when a 
series of natural disasters occurred both here and abroad, 
there was great concern about shrinking reinsurance markets and 
the escalating prices primary insurance companies had to pay 
for reinsurance coverage. There is no question that a series of 
future catastrophes could once again affect the availability 
and affordability of reinsurance.''
    Mr. Robert W. Pike, Executive Vice President, Secretary and 
General Counsel of Allstate Insurance Company, testified that 
Allstate claims resulting from Hurricane Andrew ``exceeded all 
of the premiums we collected in Florida over 50 years and 
consumed 42% of our nationwide surplus.'' He went on to note 
that ``Allstate buys more private reinsurance than any property 
insurance company in the United States. We want to buy more 
reinsurance, but after five years of trying, we still cannot 
find coverage in sufficient quantities and at prices which make 
it a practical means for managing our worst-case risks.''

                          PURPOSE AND SUMMARY

A. Overview

    H.R. 21, the ``Homeowners' Insurance Availability Act of 
1999'' requires the Department of Treasury to offer voluntary, 
single peril (hurricane, earthquake, tornado or volcano), 
multiple event Federal reinsurance contracts for (1) direct 
sale to eligible state-operated insurance and reinsurance 
programs (existing and future); and (2) auction by region to 
private market participants as well as state-operated programs 
for coverage of residential losses reported within three years 
of a qualifying natural disaster. Qualifying private market 
entities are granted the opportunity to offer state-operated 
insurance programs substantially similar reinsurance coverage 
in lieu of coverage offered by the Treasury.
    In the event Federal reinsurance under a particular 
contract is exhausted due to payment for event losses, the 
purchaser has an opportunity to purchase additional contracts 
at identical terms prorated based upon the remaining term of 
the original contract, but which do not become effective until 
15 days after the date of purchase.
    Reinsurance coverage offered by the Federal government 
would cover only a percentage of losses above a deductible, or 
trigger, set by state or region by the Secretary of the 
Treasury in consultation with the National Commission on 
Catastrophe Risks and Insurance Loss Costs established in the 
legislation. It is intended that these trigger levels are the 
minimum required levels and that Treasury may set the trigger 
as high as necessary to achieve program goals.
    Minimum trigger levels are as follows:

------------------------------------------------------------------------
           State Programs                      Regional Auctions
------------------------------------------------------------------------
Triggers must be at least the         Triggers must be at least the
 greater of:                           greater of:
    1. A range between $2 billion        1. A range between $2 billion
     and $5 billion in residential        and $5 billion in residential
     losses, or                           losses, or
    2. State program claims-paying       2. A range between an amount
     capacity, or                         sufficient to cover
    3. A range between an amount          residential losses resulting
     sufficient to cover residential      from an event that has a
     losses resulting from an event       likelihood of occurring once
     that has a likelihood of             every 100 years and once every
     occurring once every 100 years       250 years.
     and once every 250 years.
------------------------------------------------------------------------

    For existing State programs with claims paying capacity 
below the one-in-one-hundred-year event, the Secretary would 
have authority to set interim trigger levels over a five year 
period to permit the program to achieve the required level of 
claims-paying capacity. If necessary, the Secretary could 
provide two additional one-year extensions should the State 
sustain significant unforeseen losses from covered claims.
    For state programs, Treasury may reduce the required 
minimum deductible if a state's claims-paying capacity has been 
reduced from a natural disaster. Such reduction is allowed only 
for a period of up to five years, after which the state program 
must return to its original deductible level. Additionally, the 
Secretary has the discretion, in consultation with the National 
Commission on Catastrophic Risks and Insurance Loss Costs, to 
set trigger levels below $2 billion for new state programs for 
those states that have a one in 100 year event that is less 
than $2 billion in residential losses and at a level sufficient 
to cover eligible losses. However, such state programs are 
required to transition to a level at least as high as $2 
billion over a period of five years.
    In establishing program trigger levels, the Treasury is 
prohibited from offering Federal coverage at levels that would 
compete or displace the private insurance or 
reinsurancemarkets. Once the trigger level has been exceeded (i.e., a 
state program or the insurance industry by region pays out losses equal 
to the deductible level), Federal reinsurance pays 50 cents for every 
dollar of eligible losses above the deductible level.
    Annual Federal liability is restricted by limitations on 
the expected annual payment for coverage of $25 billion or less 
and by capping the amount of Federal reinsurance sold by state 
and by auction region through formula. The limitation on 
estimated payments is accomplished in Section 8(c)(A) by 
establishing a ``soft'' cap on the amount of Federal 
reinsurance that may be sold by requiring that expected 
payments on all outstanding contracts not exceed $25 billion in 
any one year. That estimate is made by Treasury as advised by 
the Commission (which would likely contract with outside 
expects for additional analysis).
    Further protection against liability is accomplished 
through Section 8(c)(B) by establishing a ``hard'' cap on what 
may be sold by state and by auction region through formula. 
Simply, Treasury calculates the difference between the one in 
500 year-event and the one in 100 year-event for each state and 
for each regional auction. That figure is the amount that may 
be sold to each above the trigger levels. To illustrate:

          The 1/500 year-event for State A is $20 billion and 
        the 1/100 year-event for State A is $12 billion. The 
        difference between the two estimates, $20 billion minus 
        $12 billion, is $8 billion. Assuming State A purchases 
        the entire amount of coverage it is allowed ($8 
        billion), if State A suffers a $20 billion loss, it 
        collects on its entire contract and receives $4 billion 
        after accounting for the required 50% copay rate (50% 
        of $8 billion is $4 billion).

    Participating state programs and private market entities 
pay premiums established by the Secretary based upon the 
recommendations of the Commission of at least twice the 
actuarial risk of the coverage to ensure that the program would 
be cost neutral. Auction participants competitively bid for 
contracts above the minimum premium established by Treasury 
that includes the above minimum requirement as well as a 
component taking into account mitigation efforts in the 
particular region. Such premiums are designed to provide for 
program self-sufficiency. Private market purchasers must pay an 
additional amount determined by the Secretary in consultation 
with the Director of the Federal Emergency Management Agency 
(FEMA) of up to five percent of the contract purchase price to 
designated communities for mitigation activities. The Committee 
expects the Treasury, in consultation with FEMA, to develop 
through regulations the process in which the mitigation funds 
are held in independent escrow until the designated community 
submits an approvable plan for use of the funds.
    H.R. 21 imposes reasonable consumer safeguards as a 
condition for State participation in the federal reinsurance 
program. It instructs the Secretary to develop regulations to 
insure that state programs have public members on their board 
of directors. Insurance policies covering the peril insured by 
the program must be generally unavailable elsewhere in the 
private market. Insurance policies available from state 
programs should be reasonably available and affordable to 
consumers and made available on a nondiscriminatory basis. 
States and localities covered by a state program must implement 
mitigation measures, such as effective building fire and safety 
codes, for all new construction, substantial rehabilitation and 
substantial renovation insured by the program and insurance 
policies must be priced to reflect these mitigation efforts.
    Two years after enactment and annually thereafter 
throughout the life of the program, Treasury must conduct and 
submit to Congress a study on the cost and availability of 
catastrophic homeowners' insurance, including an identification 
of an appropriate time for program termination.
    In addition, the General Accounting Office, in consultation 
with FEMA, is required to submit to Congress a study of the 
availability and adequacy of flood insurance coverage for 
losses to residences and other properties caused by hurricane-
related flooding.
    The program sunsets after 10 years unless Treasury 
determines there has been insufficient growth in private market 
capacity. In such a case, Treasury may extend the program for 
up to five additional years. Any revenue remaining in the 
program is transferred into the General Fund of the Treasury 
for purposes of deficit reduction.

B. Minimal Federal complement to State and private sector efforts

    Paramount among the Committee's concerns has been 
developing a solution to a very real and urgent need for 
available catastrophic homeowners' insurance without excessive 
or unnecessary Federal involvement. The Committee believes such 
balance has been achieved in H.R. 21 by establishing 
prohibitions against offering Federal coverage at levels that 
would compete or displace the private sector, by requiring that 
program participants either self-insure or purchase private 
reinsurance for an amount equal to the total of Federal 
coverage purchased, and by terminating the Federal program 
after 10 years unless the Secretary determines that there has 
been insufficient growth in private market capacity, in which 
case, the program may be extended for a period of up to five 
years.
    Section 3(c) of the bill provides that the contracts of 
Federal reinsurance provided under the bill for either state 
programs under Section 6, or as auctioned by Treasury under 
Section 7, not displace or compete with insurance, reinsurance 
or capital markets, but instead provide catastrophe capacity 
above the levels the private sector already provides.
    As an additional protection against unnecessary Federal 
involvement with state-operated programs, Section 6(c) requires 
the Secretary to give private market reinsurance entities a 
``right of first refusal'' in Federal reinsurance offered for 
direct sale to state-operated programs. If qualifying private 
market entities are willing to offer coverage at rates and 
terms that would be substantially similar to coverage offered 
by the Federal governmentas approved by the Secretary, Treasury 
may not offer such coverage during the relevant contract cycle.
    Section 9 of the Committee bill requires that the stated 
retained losses at which the Federal reinsurance attaches or 
triggers are to be understood as minimum levels only. Section 
9(b)(4) provides that the Secretary shall adjust the attachment 
points based on a number of criteria, including an assessment 
of capacity to retain catastrophe risk in the private 
insurance, reinsurance and capital markets or in the state 
programs, and the requirement that the Federal program not 
displace or compete with those markets. The Committee expects 
that the Secretary would first determine the private market's 
capacity to retain risk and then set the attachment points 
above those minimums, consistent with the analysis of private 
market capacity.
    In Section 9(d) of the Committee bill, Treasury is 
restricted from offering Federal coverage for more than 50% of 
the risk of insured losses in excess of minimum retained 
losses. More simply, the Federal reinsurance will pay only 50 
cents for every dollar in eligible losses. The Committee agreed 
to this limitation at the request of the Administration and in 
recognition of the need to avoid discouraging the development 
of private market capacity to absorb catastrophic losses. The 
Committee believes that the risk-sharing/co-payment requirement 
will, in fact, encourage and accelerate the development of 
private market financing mechanisms.
    Additionally, the Committee approved an amendment to sunset 
the Federal program after 10 years unless Treasury determines 
there has been insufficient growth in private market capacity. 
In such a case, Treasury may extend the program for up to five 
additional years. The Committee included this provision to 
clearly establish that the most effective and efficient 
mechanisms for protecting against catastrophic loss ultimately 
reside in the private market. It is intended that the temporary 
Federal presence envisioned in H.R. 21 simply provide for 
continuity and relative calm through private market disruption, 
and in no way replace or compete with the private sector.

C. States with less risk exposure

    The Committee would note that while the legislation 
requires Treasury to conduct no less than six regional auctions 
of Federal reinsurance contracts across the country, the 
Committee does not intend to require that each and every state 
be included in one region or another. In particular, for those 
few states in the northern Great Plains, including Nebraska, 
Montana, North Dakota and South Dakota, among others, that 
suffer from relatively small risk of hurricane, earthquake or 
volcano exposure, the Committee would not expect that Treasury 
would determine such states necessarily be included in the 
regional auction component of the legislation. In addition, in 
Section 7(a)(2) the Secretary is directed to attempt to create 
regions of similar risk, and not combine states at less risk of 
losses to covered perils with states at higher risk.
    Finally, the legislation includes a provision providing the 
Secretary discretion to allow new state-operated insurance 
programs five years to reach a minimum trigger level of $2 
billion if, according to the National Commission on Catastrophe 
Risks and Insurance Loss Costs, an event likely to occur in the 
state once every 100 years causes losses which are less than $2 
billion. It should be noted that in considering such a 
reduction in minimum triggers as set forth in the legislation, 
the Secretary should not displace or otherwise compete with 
reinsurance coverage available in the private reinsurance 
market. The purpose of the provision is to assure that all 
states are treated fairly and equitably by the Federal program, 
considering differences in the frequency and severity of 
natural catastrophes among states as well as the relative size 
and financial capacity of the local insurance and reinsurance 
markets

D. Transferability of reinsurance contracts

    The Committee strongly believes that Federal reinsurance 
contracts should be fully transferable, assignable and 
divisible so that a secondary market for these instruments will 
develop. This secondary market should allow a more efficient 
distribution of reinsurance contracts, particularly among 
insurers too small to bid in the primary auction. It will also 
guide the Secretary in gauging the true value of federal 
contracts and setting the reserve prices for future auctions.
    It is the Committee's intent for this provision to be 
broadly interpreted. In section 7(b)(2), the words ``at all 
times'' mean that a contract holder may transfer ownership of 
any or all of a contract to another owner either before or 
after any catastrophic loss event. It is to be understood that 
``transferable'' means that the new owner(s) of a contract 
accede to the same rights under the contract, as acquired by 
and vested in the original owner. It is further understood that 
``assignable'' provides that an owner of a contract may 
transfer all or any part of its interest or rights in a 
contract over to another. It is still further understood that 
``divisible'' allows for any division, partition or 
apportionment of contracts as may be agreed upon by the buyer 
and seller.

E. Additional background and explanation

    Pursuant to an amendment adopted by the Committee, H.R. 21 
would require, as a condition for an insurer entering into a 
reinsurance contract under the legislation, that the purchasing 
insurer certify that, neither it nor any of its affiliates have 
either (i) been adjudicated in any federal court under the Fair 
Housing Act and, (ii) subsequent to the date of enactment, 
violated any consent decree or settlement agreement (as 
determined by a court of competent jurisdiction or the agency 
with which the decree or agreement was entered into) premised 
upon a violation of the Fair Housing Act. A similar 
certification requirement would apply with respect to State 
contracts under the legislation for insurers participating in 
State-operated programs.
    With regard to this amendment, the Committee takes no 
position regarding the legitimacy or appropriateness of 
judicial or administrative applications of the Fair Housing Act 
tothe business of insurance. The Committee notes that other 
Committees have expressed adverse views about such applications of the 
statute, and have determined that the Department of Housing and Urban 
Development's pursuit of regulatory authority over the property 
insurance industry through the Fair Housing Act is not within the ambit 
of the law.\2\ This Committee intends that this legislation have no 
legal significance with respect to determinations regarding the scope 
and proper application of the Fair Housing Act.
---------------------------------------------------------------------------
    \2\ See, e.g., S. Rep. No. 106-161, at 54 (1999) (``the Committee 
remains concerned that [the Department of Housing and Urban 
Development] continues to pursue regulatory authority over the property 
insurance industry through the Fair Housing Act. This activity is not 
within the ambit of the law.''). See also H.R. Rep. 106-286, at 34 
(1999); S. Rep. No. 105-216, at 49-50 (1998); H.R. 105-610, at 39 
(1998); S. Rep. No. 105-53, at 42-43 (1997); H.R. Rep. 105-175, at 43 
(1997) (similar statements).
---------------------------------------------------------------------------
    Pursuant to an amendment adopted by the Committee in a 
previous version of the bill, Section 10(h) of the Committee 
bill authorizes the Commission and Treasury to solicit loss 
exposure data, and such other information deemed necessary to 
carry out the program responsibilities under this Act, from 
governmental agencies and bodies and organizations that act as 
statistical agents for the insurance industry. It is 
anticipated that the data will be solicited from statistical 
agents, which collect data on the insurance industry, such as 
the Insurance Services Office, the National Association of 
Independent Insurers and the American Association of Insurance 
Services. These data are maintained in aggregate form to 
preserve individual company confidentiality. The Committee 
recognizes that individual company loss data and related 
information constitute trade secrets and their disclosure is 
prohibited by law. Section 10(h) of the bill contains language 
intended to protect even the aggregate data to be solicited 
from statistical agents by specifically requiring the Secretary 
and the Commission to take such steps as are necessary to 
ensure that the information remains confidential and is not 
disclosed to any one other than authorized individuals working 
for the Commission or Treasury.
    Section 10(h) also provides that if a company or a state 
refuses to provide information requested by the Commission or 
Treasury, it shall be ineligible to participate in the programs 
authorized by the Act. It is anticipated that this section 
would be enforced in situations where a statistical agent, 
which has collected industry information and provided it in an 
aggregated form to the Commission of the Treasury, notifies 
either of these bodies that a company or other entity had 
refused to provide the needed information for transmission, in 
an aggregate form, to the Commission or Treasury.

                                hearings

    The Subcommittee on Housing and community Opportunity held 
two hearings on the ``Homeowners' Insurance Availability Act of 
1999.''
    The first hearing was held on Wednesday, April 28, 1999, in 
Room 2128 Rayburn House Office Building. Testifying before the 
Subcommittee were: Dr. Bill Gray, Ph.D., Professor of 
Atmospheric Science, Colorado State University, CO; Mr. W. 
Cloyce Anders, President and Regional Director, Volunteer 
Firemen's Insurance Service of North Carolina, Raleigh, NC on 
behalf of the Independent Insurance Agents of America; Mr. 
Roger M. Singer, Senior Vice President and General Counsel of 
the CGU Insurance Companies, Boston, MA; and Mr. Arthur 
Sterbcow, President, Latter and Blum, New Orleans, LA on behalf 
of the National Association of Realtors.
    The second hearing was held on Monday, July 12, 1999, at 
Hillsborough County Aviation Authority at the Tampa 
International Airport in Tampa, Florida. Testifying before the 
Subcommittee were: Ms. Susanne Murphy, Deputy Insurance 
Commissioner, Department of Insurance, State of Florida; The 
Honorable Leslie Waters, Vice-Chairman, Committee on Insurance, 
Florida State House of Representatives; Mr. Rade Musulin, Vice-
President, Florida Farm Bureau Insurance Company; Mr. Jack 
Nicholson, Chief Operating Officer, Florida Hurricane 
Catastrophe Fund; Mr. Larry Gispert, Director of Emergency 
Management, Hillsborough County; and Ms. Pamela Duncan, 
Director, Department of Community Affairs' Office of 
Legislative Affairs, State of Florida.
    The Committee on Banking and Financial Services held one 
hearing on July 30, 1999, in Room 2128 Rayburn House Office 
Building. Testifying before the Committee were: The Honorable 
Stuart E. Eizenstat, Deputy Secretary, U.S. Department of 
Treasury; Mr. Roger Joslin, Chairman of the Board, State Farm 
Fire and Casualty Co., Bloomington, Illinois; Mr. Ronald E. 
Hanna, Deputy Commissioner, Mississippi Insurance Department; 
Mr. Frank Nutter, President, Reinsurance Association of America 
Mr. Don Beery, Vice President of Eustis Insurance Inc., New 
Orleans, Louisiana on behalf of The Independent Insurance 
Agents of America; Ms. Mary Fran Myers, Co-Director, Natural 
Hazards Research and Applications Information Center, 
University of Colorado; Mr. Travis Plunkett, Legislative 
Director, Consumer Federation of America on behalf of Mr. J. 
Robert Hunter, Director of Insurance, Consumer Federation of 
America; Mr. Jack Weber, President, Home Insurance Federation 
of America; Mr. Robert W. Pike, Executive Vice-President, 
Administration, Allstate Insurance Company, Northbrook, 
Illinois; Mr. Darryl D. Hansen, Chairman, President and CEO, 
Guide One Insurance Group, West Des Moines, Iowa on behalf of 
The National Association of Independent Insurers; Mr. Tom 
Miller, Director of Economic Policy Studies, Competitive 
Enterprise Institute; Ms. Barbara Connery, Member of the North 
Carolina Association of Realtors on behalf of the National 
Association of Realtors; and Mr. Scott A. Gilliam, Assistant 
Secretary, Director of Government Relations, The Cincinnati 
Insurance Companies.

Committee consideration and votes (rule XI, clause 2(l)(2)(B))

    The Committee met in open session to markup H.R. 21, 
``Homeowners' Insurance Act of 1999'' on November 9 and 10, 
1999. The Committee considered, as original text for purposes 
of amendments, a Committee Print, which incorporated H.R. 21 as 
introduced.
    During the markup, the Committee approved 11 amendments, 
including a managers amendment by voice vote. The Committee 
also defeated 5 amendments by voice vote. The Committee 
approved 1 amendment by recorded vote. The Committee defeated 9 
amendments by recorded vote. Pursuant to the provisions of 
clause 2(l)(2)(B) of rule XI of the House of Representatives, 
the results of each rollcall vote and the motion to report, 
together with the names of those voting for and those against 
are printed below:
            Rollcall No. 1
    Date: November 9, 1999.
    Measure: Homeowners' Insurance Availability Act of 1999.
    Motion by: Mr. Lazio.
    Description of Motion: Caps reinsurance liability at $25 
billion.
    Results: Defeated: Ayes 18, Nays 27.
        YEAS                          NAYS
Mr. Leach                           Mr. McCollum
Mrs. Roukema                        Mr. Campbell
Mr. Bereuter                        Dr. Paul
Mr. Baker                           Dr. Weldon
Mr. Lazio                           Mr. Riley
Mr. Bachus                          Mr. Hill
Mr. Royce                           Mr. LaFalce
Mr. Lucas                           Mr. Vento
Mr. Barr                            Mr. Frank
Mrs. Kelly                          Mr. Sanders
Mr. Cook                            Mrs. Maloney
Mr. LaTourette                      Mr. Gutierrez
Mr. Jones                           Mr. Watt
Mr. Ose                             Mr. Ackerman
Mr. Sweeney                         Mr. Bentsen
Mrs. Biggert                        Mr. Maloney
Mr. Green                           Ms. Hooley
Mr. Toomey                          Mr. Weygand
                                    Mr. Sherman
                                    Mr. Sandlin
                                    Mr. Meeks
                                    Mr. Goode
                                    Ms. Schakowsky
                                    Mr. Moore
                                    Mr. Gonzalez
                                    Mr. Capuano
                                    Mr. Forbes
            Rollcall No. 2
    Date: November 9, 1999.
    Measure: Homeowners' Insurance Availability Act of 1999.
    Motion by: Mr. Hill.
    Description of Motion: Removes fire ensuing from an 
earthquake from the list of covered perils.
    Results: Defeated: Ayes 13, Nays 23.
        YEAS                          NAYS
Mr. Bereuter                        Mr. Leach
Mr. Bachus                          Mr. McCollum
Mr. Royce                           Mrs. Roukema
Mr. Barr                            Mr. Baker
Dr. Paul                            Mr. Lazio
Mr. Hill                            Mr. Campbell
Mr. Ose                             Mr. Lucas
Mr. Green                           Mrs. Kelly
Mr. Toomey                          Dr. Weldon
Mr. LaFalce                         Mr. Cook
Ms. Schakowsky                      Mr. Riley
Mr. Moore                           Mr. Jones
Mr. Gonzalez                        Mrs. Biggert
                                    Mr. Gutierrez
                                    Mr. Watt
                                    Mr. Maloney
                                    Ms. Hooley
                                    Mr. Weygand
                                    Mr. Sherman
                                    Mr. Sandlin
                                    Mr. Goode
                                    Mr. Capuano
                                    Mr. Forbes
            Rollcall No. 3
    Date: November 9, 1999.
    Measure: Homeowners' Insurance Availability Act of 1999.
    Motion by: Mr. Vento.
    Description of Motion: Requires the purchasers of a 
contract to contribute an amount that is not less than 10% of 
the contract price to state agencies to implement disaster 
prevention measures and to ensure the enforcement of any codes 
or standards that offer disaster resistance at least as strong 
as that issued by the Federal Emergency Management Agency 
(FEMA).
    Results: Defeated: Ayes 15, Nays 20.
        YEAS                          NAYS
Dr. Paul                            Mr. Leach
Mr. Hill                            Mr. McCollum
Mr. Toomey                          Mrs. Roukema
Mr. LaFalce                         Mr. Baker
Mr. Vento                           Mr. Lazio
Mr. Sanders                         Mr. Campbell
Mrs. Maloney                        Mr. Royce
Mr. Watt                            Mr. Lucas
Ms. Hooley                          Mr. Barr
Mr. Weygand                         Mrs. Kelly
Mr. Sherman                         Dr. Weldon
Mr. Inslee                          Mr. Ryun
Ms. Schakowsky                      Mr. Cook
Mr. Moore                           Mr. Riley
Mr. Capuano                         Mr. Ryan
                                    Mr. Ose
                                    Mr. Sweeney
                                    Mr. Terry
                                    Mr. Green
                                    Mr. Bentsen
            Rollcall No. 4
    Date: November 9, 1999.
    Measure: Homeowners' Insurance Availability Act of 1999.
    Motion by: Mr. Capuano.
    Description of Motion: Requires insurance companies that 
participate in the program to meet the insurance needs of the 
communities they serve.
    Results: Defeated: Ayes 22, Nays 22.
        YEAS                          NAYS
Mr. Campbell                        Mr. Leach
Mr. LaFalce                         Mr. McCollum
Mr. Vento                           Mrs. Roukema
Mr. Frank                           Mr. Baker
Mr. Kanjorski                       Mr. Lazio
Mr. Sanders                         Mr. Castle
Mrs. Maloney                        Mr. Royce
Mr. Gutierrez                       Mr. Ney
Ms. Velazquez                       Mrs. Kelly
Mr. Watt                            Dr. Weldon
Mr. Ackerman                        Mr. Ryun
Mr. Bentsen                         Mr. Cook
Ms. Hooley                          Mr. Riley
Ms. Carson                          Mr. Ryan
Mr. Sandlin                         Mr. Ose
Mr. Meeks                           Mr. Sweeney
Mr. Inslee                          Mrs. Biggert
Ms. Schakowsky                      Mr. Terry
Mr. Moore                           Mr. Toomey
Mrs. Jones                          Mr. Maloney
Mr. Capuano                         Mr. Sherman
Mr. Forbes                          Mr. Goode
            Rollcall No. 5
    Date: November 9, 1999.
    Measure: Homeowners' Insurance Availability Act of 1999.
    Motion by: Mr. Royce.
    Description of Motion: Deletes entire section 6 of the 
bill. Section 6 provides for the direct purchase of federal 
reinsurance contracts by eligible state funds.
    Results: Defeated: Ayes: 19, Nays 22.
        YEAS                          NAYS
Mr. Bachus                          Mr. Leach
Mr. Castle                          Mr. McCollum
Mr. Royce                           Mr. Bereuter
Mr. Metcalf                         Mr. Baker
Mr. Barr                            Mr. Lazio
Dr. Paul                            Mr. King
Mr. Ryun                            Mr. Campbell
Mr. Hill                            Mrs. Kelly
Mr. Ryan                            Mr. Cook
Mr. Ose                             Mr. Riley
Mr. Toomey                          Mrs. Biggert
Mr. LaFalce                         Mr. Terry
Mr. Vento                           Mr. Bentsen
Mr. Kanjorski                       Mr. Maloney
Mrs. Maloney                        Ms. Hooley
Mr. Watt                            Mr. Weygand
Mr. Meeks                           Mr. Sherman
Ms. Schakowsky                      Mr. Sandlin
Mr. Capuano                         Mr. Goode
                                    Mr. Inslee
                                    Mr. Moore
                                    Mr. Forbes
            Rollcall No. 6
    Date: November 10, 1999.
    Measure: Homeowners' Insurance Availability Act of 1999.
    Motion by: Dr. Paul.
    Description of Measure: Adds a ``market pricing of 
premiums'' requirement to the eligibility section for 
participation in the new federal program.
    Results: Defeated: Ayes 13, Nays 22.
        YEAS                          NAYS
Mr. Bachus                          Mr. Leach
Mr. Castle                          Mr. McCollum
Mr. Royce                           Mr. Bereuter
Mr. Barr                            Mr. Baker
Dr. Paul                            Mr. Lazio
Mr. Ryun                            Mr. King
Mr. Ryan                            Mr. Campbell
Mr. Toomey                          Mr. Lucas
Mr. LaFalce                         Mr. Ney
Mr. Frank                           Mrs. Kelly
Mr. Kanjorski                       Dr. Weldon
Mr. Sanders                         Mr. Riley
Mr. Moore                           Mrs. Biggert
                                    Mr. Terry
                                    Mr. Green
                                    Ms. Waters
                                    Mr. Watt
                                    Ms. Hooley
                                    Mr. Sherman
                                    Ms. Schakowsky
                                    Mr. Capuano
                                    Mr. Forbes
            Rollcall No. 7
    Date: November 10, 1999.
    Measure: Homeowners' Insurance Availability Act of 1999.
    Motion by: Mr. Hill.
    Description of Measure: Requires that 80 percent of 
coverage from the reinsurance authorized in this legislation be 
applied towards underwriting new businesses.
    Results: Defeated: Ayes 8, Nays 19.
        YEAS                          NAYS
Mr. Royce                           Mr. Leach
Mr. Barr                            Mr. McCollum
Mr. Hill                            Mrs. Roukema
Mr. Toomey                          Mr. Bereuter
Mr. LaFalce                         Mr. Baker
Ms. Schakowsky                      Mr. Lazio
Mr. Moore                           Mr. Campbell
Mr. Gonzalez                        Mr. Lucas
                                    Mr. Ryun
                                    Mr. Sweeney
                                    Mrs. Biggert
                                    Mr. Green
                                    Mr. Bentsen
                                    Mr. Maloney
                                    Ms. Hooley
                                    Mr. Weygand
                                    Mr. Goode
                                    Mr. Capuano
                                    Mr. Forbes
            Rollcall No. 8
    Date: November 10, 1999.
    Measure: Homeowners' Insurance Availability Act of 1999.
    Motion by: Mr. Capuano.
    Description of Measure: Requires, as a condition for an 
insurance company entering into a contract for federal natural 
disaster reinsurance, to compile and submit information on 
insurance applicants' and insurance policyholders' race, 
gender, and other information to make it possible to compare 
the availability and affordability of insurance coverage in a 
Metropolitan Statistical Area.
    Results: Defeated: Ayes 13, Nays 20.
        YEAS                          NAYS
Mr. LaFalce                         Mr. Leach
Ms. Waters                          Mr. McCollum
Mr. Sanders                         Mrs. Roukema
Ms. Velazquez                       Mr. Bereuter
Mr. Watt                            Mr. Baker
Mr. Bentsen                         Mr. Lazio
Ms. Hooley                          Mr. Campbell
Mr. Weygand                         Mr. Royce
Mr. Inslee                          Mr. Lucas
Ms. Schakowsky                      Mr. Barr
Mr. Moore                           Mrs. Kelly
Mr. Gonzalez                        Dr. Weldon
Mr. Capuano                         Mr. Cook
                                    Mr. Sweeney
                                    Mrs. Biggert
                                    Mr. Green
                                    Mr. Toomey
                                    Mr. Maloney
                                    Mr. Goode
                                    Mr. Forbes
            Rollcall No. 9
    Date: November 10, 1999.
    Measure: Homeowners' Insurance Availability Act of 1999.
    Motion by: Mr. Capuano.
    Description of Measure: Prohibits Treasury from making 
reinsurance contracts available for purchase to state-operated 
programs or through regional auction if participating insurers 
or reinsurers have been found in violation of the Fair Housing 
Act either through adjudication or through a consent decree.
    Results: Passed: Ayes 25, Nays 22.
        YEAS                          NAYS
Mr. Campbell                        Mr. Leach
Mr. LaFalce                         Mr. McCollum
Mr. Vento                           Mrs. Roukema
Mr. Kanjorski                       Mr. Bereuter
Ms. Waters                          Mr. Baker
Mr. Sanders                         Mr. Lazio
Mrs. Maloney                        Mr. Castle
Mr. Gutierrez                       Mr. King
Ms. Velazquez                       Mr. Royce
Mr. Watt                            Mr. Lucas
Mr. Ackerman                        Mr. Barr
Mr. Bentsen                         Mrs. Kelly
Mr. Maloney                         Dr. Weldon
Ms. Hooley                          Mr. Ryun
Ms. Carson                          Mr. Cook
Mr. Weygand                         Mr. Riley
Mr. Sandlin                         Mr. Ryan
Mr. Meeks                           Mr. Sweeney
Mr. Mascara                         Mrs. Biggert
Ms. Schakowsky                      Mr. Green
Mr. Moore                           Mr. Toomey
Mr. Gonzalez                        Mr. Goode
Mrs. Jones
Mr. Capuano
Mr. Forbes
            Rollcall No. 10
    Date: November 10, 1999.
    Measure: Homeowners' Insurance Availability Act of 1999.
    Motion by: Messrs. Sanders, Royce, and Hill.
    Description: (Substitutes Amendment) Strikes entire 
legislation, and in its place, requires the Department of the 
Treasury to conduct a study on the availability and 
affordability of homeowners' insurance for natural disasters 
including an analysis of legislative proposals and 
recommendations.
    Results: Defeated: Ayes 23, Nays 31.
        YEAS                          NAYS
Mr. Bachus                          Mr. Leach
Mr. Castle                          Mr. McCollum
Mr. Royce                           Mrs. Roukema
Mr. Barr                            Mr. Bereuter
Dr. Paul                            Mr. Baker
Mr. Ryun                            Mr. Lazio
Mr. Hill                            Mr. King
Mr. Ryan                            Mr. Campbell
Mr. Toomey                          Mr. Lucas
Mr. LaFalce                         Mr. Ney
Mr. Vento                           Mrs. Kelly
Mr. Frank                           Dr. Weldon
Mr. Kanjorski                       Mr. Cook
Ms. Waters                          Mr. Riley
Mr. Sanders                         Mr. Jones
Mrs. Maloney                        Mr. Sweeney
Mr. Gutierrez                       Mrs. Biggert
Mr. Watt                            Mr. Terry
Mr. Inslee                          Mr. Green
Ms. Schakowsky                      Mr. Ackerman
Mr. Gonzalez                        Mr. Bentsen
Mrs. Jones                          Mr. Maloney
Mr. Capuano                         Ms. Hooley
                                    Mr. Weygand
                                    Mr. Sherman
                                    Mr. Sandlin
                                    Mr. Meeks
                                    Mr. Goode
                                    Mr. Mascara
                                    Mr. Moore
                                    Mr. Forbes
    After the Committee Print, as amended, was adopted by voice 
vote, H.R. 21 was called up for Committee consideration. A 
motion to strike everything after the enacting clause in H.R. 
21 and insert in lieu thereof the Committee Print was approved 
by voice vote. A motion to adopt H.R. 21 and favorably report 
the bill, as amended, to the House was approved by a recorded 
vote of 34 Ayes and 18 Nays on November 10, 1999.
        YEAS                          NAYS
Mr. Leach                           Mr. Bachus
Mr. McCollum                        Mr. Castle
Mrs. Roukema                        Mr. Royce
Mr. Bereuter                        Mr. Barr
Mr. Baker                           Dr. Paul
Mr. Lazio                           Mr. Ryun
Mr. King                            Mr. Hill
Mr. Campbell                        Mr. Toomey
Mr. Ney                             Mr. LaFalce
Mrs. Kelly                          Mr. Frank
Dr. Weldon                          Mr. Kanjorski
Mr. Cook                            Ms. Waters
Mr. Riley                           Mr. Sanders
Mr. Jones                           Ms. Carson
Mr. Ryan                            Mr. Inslee
Mr. Sweeney                         Ms. Schakowsky
Mrs. Biggert                        Mr. Gonzalez
Mr. Terry                           Mrs. Jones
Mr. Green
Mr. Vento
Mrs. Maloney
Mr. Watt
Mr. Ackerman
Mr. Bentsen
Mr. Maloney
Ms. Hooley
Mr. Weygand
Mr. Sherman
Mr. Meeks
Mr. Goode
Mr. Mascara
Mr. Moore
Mr. Capuano
Mr. Forbes

                      Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    No findings and recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI (and clause 4(c)(2) of rule X) of 
the Rules of the House of Representatives.

                        Constitutional Authority

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the constitutional authority 
for Congress to enact this legislation is derived from the 
general welfare clause (Article I, Sec. 8).

               New Budget Authority and Tax Expenditures

    Clause 2(l)(3)(B) of rule XI of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority for increased tax 
expenditures.

    Congressional Budget Office Costs Estimate and Unfunded Mandate 
                                Analysis

    The cost estimate pursuant to clause 3(c)(3) of rule XIII 
of the Rules of the House of Representatives and section 402 of 
the Congressional Budget Act of 1974 is attached herewith:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, February 9, 2000.
Hon. James A. Leach,
Chairman, Committee on Banking and Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 21, the 
Homeowners' Insurance Availability Act of 1999.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Megan 
Carroll.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 21--Homeowners' Insurance Availability Act of 1999

                                Summary

    The purpose of H.R. 21 is to increase the availability and 
affordability of homeowners' insurance for natural disasters by 
creating a federal disaster reinsurance program. Reinsurance is 
insurance for insurers; it allows insurers to transfer risk to 
other entities. H.R. 21 would require the Secretary of the 
Treasury to offer reinsurance to eligible state-sponsored 
insurance organizations and private parties (such as insurance 
companies). The reinsurance program would expire in 10 years 
unless the Secretary determined that continuation of the 
program was necessary, in which case the Secretary could extend 
the program for five additional years.
    While the budgetary impact of this 10- to 15-year 
legislation is uncertain, CBO estimates that enacting the bill 
would probably increase direct spending over the 2000-2010 
period on an expected value basis. Over the 10- to 15-year life 
of this program, we expect that federal payments for disaster 
insurance claims would exceed the premiums collected from state 
programs and private insurance companies for providing disaster 
reinsurance. Because the bill would affect direct spending, 
pay-as-you-go procedures would apply.
    Two factors make the budgetary impact of H.R. 21 highly 
uncertain. First, under this bill the Secretary of the Treasury 
would have considerable discretion to implement the program. 
Because of that discretion, it is not possible to determine the 
total amount of reinsurance coverage that might be sold, and 
thus the potential liability for disaster coverage that the 
Treasury might face. Although the bill would direct the 
Secretary to attempt to limit the government's total liability 
to $25 billion annually, there would be no enforcement of this 
limitation. Second, because the frequency and severity of 
future catastrophic events are exceedingly difficult to 
estimate, it is unlikely that the federal government would be 
able to establish prices for disaster reinsurance that would 
fully cover the potential future costs of these financial 
obligations.
    H.R. 21 also would affect discretionary spending. The 
reinsurance program might reduce discretionary spending by 
eliminating the need for some potential future federal payments 
to homeowners for disaster assistance, but probably not by 
enough to offset the large payments for which the federal 
government could be liable. H.R. 21 would authorize the 
appropriation of $2 million in fiscal year 2000 and additional 
sums necessary to cover the costs of establishing and operating 
an advisory commission and the Secretary's initial 
administrative expenses. Assuming the appropriation of the 
necessary amounts, CBO estimates that implementing these and 
other provisions of the bill would increase discretionary 
spending by $1 million in each of fiscal years 2000 and 2001 
and by less than $500,000 annually in the remaining years of 
the program.
    H.R. 21 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA). 
Any costs incurred by state governments would result from the 
voluntary purchase of the federal disaster reinsurance that 
would be established by this bill.
            Description of the bill's major provisions
    Under H.R. 21, the Secretary of the Treasury would offer to 
sell reinsurance both to eligible state insurance organizations 
and private parties (such as insurance companies). Private 
parties could bid for reinsurance through annual auctions 
conducted in at least six regions of the country to be defined 
by the Secretary. Reinsurance would cover damage to residential 
property from earthquakes, fire, tsunami, cyclones (including 
hurricanes and typhoons), tornadoes, and volcanic eruptions, 
but only if the total damage within the state or region exceeds 
certain thresholds. in general, the reinsurance would cover 
relatively rare and very damaging natural catastrophes.
    The reinsurance would cover only a single peril and last 
for a term determined by the Secretary. All payments would be 
made from the reinsurance trust fund established under the 
bill. If accumulated sales receipts and investment income are 
insufficient to pay claims and expenses, H.R. 21 would 
authorize the Secretary to borrow such sums as would be 
necessary to cover any shortfall. The bill would require the 
Secretary to repay any borrowing with receipts from future 
sales of reinsurance contracts.
    H.R. 21 contains several provisions intended to control 
federal spending under the reinsurance program. These 
provisions would:
          Establish a goal of limiting the federal government's 
        maximum liability to pay reinsurance claims;
          Define thresholds for minimum insured losses that 
        must be sustained in each state or region before 
        contract holders could receive payments; and
          Require prices for reinsurance to include risk loads.
            Maximum Federal liability to pay reinsurance claims
    Two provisions in the bill attempt to limit the 
government's liability to pay reinsurance claims. First, 
section 9 would set a goal of limiting the aggregate liability 
under all reinsurance sold in any single year to $25 billion. 
The bill would not, however, provide a means to enforce the 
goal. Second, section 9 would establish an upper limit on the 
amount of reinsurance that could be sold, and therefore, would 
limit potential payments. For each state or region, the amount 
of eligible losses that could be reinsured would be limited to 
half of the difference between the Secretary's estimates of 
losses projected from a one-in-500-year event and those 
projected from a one-in-100-year event. Regardless of the 
uncertainty the Secretary would face in making these estimates, 
whatever levels he or she sets under this provision would 
define an upper limit on reinsurance payments in each state or 
region.
            Minimum insured loss thresholds
    Under H.R. 21, payments for reinsurance coverage would 
begin once certain thresholds of insured losses, determined by 
the Secretary of the Treasury, have been reached. In the case 
of reinsurance sold directly to eligible state-sponsored 
disaster insurance organizations, the threshold would equal the 
greatest of (1) an amount between $2 billion and $5 billion (as 
specified by the Secretary), (2) the claims-paying capacity of 
the organization, or (3) an amount within the range defined by 
the Secretary's estimates of insured losses from a one-in-100-
year event and a one-in-250-year event. The Secretary would 
specify one of these thresholds in each state or region where 
reinsurance is sold. In general, the highest of these three 
thresholds would apply, but the Secretary could set a lower 
threshold under certain circumstances.
    For contracts sold at regional auctions, federal payments 
on reinsurance contracts would begin once aggregate losses to 
the insurance industry in the region where the auction took 
place exceed the greater of an amount between $2 billion and $5 
billion (as specified by the Secretary) or an amount between 
the Secretary's estimate of losses projected from a one-in-100-
year event and a one-in-250-year event. Under certain 
conditions, the Secretary could adjust the damage threshold 
established for each region.
            Adding risk loads to the price of reinsurance
    H.R. 21 would establish the National Commission on 
Catastrophe Risks and Insurance Losses to perform actuarial 
analyses and recommend prices for reinsurance to the Secretary. 
Prices would include a risk-based price, a risk load at least 
equal to the risk-based price, and an amount to cover 
administrative costs. The risk-based price would reflect the 
estimate of the average annual payout of the reinsurance 
contract, taking into account the estimated probabilities of 
catastrophic events of the relevant sizes. In private disaster 
reinsurance markets, a risk load is an amount added to the 
risk-based price to compensate the reinsurer for the 
variability of payments in any given year around the long-run 
average, and for the uncertainty surrounding available 
estimates of the average annual payout itself. H.R. 21 would 
require a minimum risk load for each contract of at least 100 
percent of its risk-based price.
            Cost to the Federal Government
    CBO estimates that enacting H.R. 21 probably would increase 
direct spending over the 10- to 15-year life of the program. We 
cannot quantify the amount nor the timing of this expected 
additional spending.
    Assuming appropriation of the necessary amounts, 
implementing the bill would increase discretionary spending by 
$1 million in each of fiscal years 2000 and 2001 and by less 
than $500,000 annually over the remaining years of the program. 
Other discretionary federal payments for disaster assistance 
might be reduced somewhat as a result of enacting H.R. 21, but 
probably not by enough to offset the large payments for which 
the federal government could be liable.
            Direct spending (including offsetting receipts)
    Over the life of the program, CBO estimates that enacting 
the bill would likely result in a net increase in direct 
spending. Because of the lack of historical data on which to 
base actuarial estimates of losses from catastrophic events and 
the potential for political and consumer pressures to keep 
reinsurance coverage affordable, CBO expects that reinsurance 
probably would be priced too low. CBO also expects that 
authorizing the Secretary to require lower loss thresholds in 
the first several years of the program and conducting the 
program on a regional basis would increase the probability that 
the contracts would yield one or more payments during the 
program's lifetime.
    Likelihood That Reinsurance Would Be Priced Too Low.--If 
the Secretary had all relevant information needed to price 
reinsurance to break even, the expected cost of the program 
would be zero, or it would generate net receipts, even though 
the actual cost could be higher or lower depending on the 
random occurrence of covered events. The actuarial estimates of 
catastrophe risk that would be used under the bill as the basis 
for setting minimum prices, however, do not provide sufficient 
information to accurately price contracts.
    Actuarial estimates of catastrophic risk are backward-
looking, based on available historical data. Because 
catastrophic events are infrequent, historical data used by 
models that estimate losses from these events, are very 
limited. Thus, CBO has little confidence in he accuracy of 
actuarial estimates of catastrophe losses that would be used to 
set prices for reinsurance.
    Private reinsurers respond to the uncertainty surrounding 
actuarial estimates of losses by including substantial ``risk 
loads'' in their prices, in part to account for the likelihood 
that available historical data do not fully capture current 
catastrophe risks. Risk loads observed in private transactions 
for disaster reinsurance against infrequent events, similar to 
those that would be covered under H.R. 21, are typically four 
to six times but sometimes exceed 10 times actuarially expected 
losses. Although beliefs about the inaccuracy of actuarial 
estimates are not the only factors driving such high risk 
loads, evidence suggests that the additional compensation that 
private reinsurers require for taking on catastrophic risk is 
much larger than 100-percent risk load required as a minimum in 
the bill.
    Moreover, consumer and political pressures probably would 
create a strong incentive to keep reinsurance prices low to 
address the perceived price and availability problems in the 
market for homeowners' insurance. Similarly, although bidding 
could drive the prices of contracts sold at auctions to their 
true break-even value even if their minimum prices were set too 
low, CBO cannot be confident that the contracts would attract 
sufficient demand to drive up their prices.
    Finally, even if the government were just as likely to set 
some contract prices too high as too low, the implications for 
the budget would not be symmetric. This is because low contract 
prices would encourage sales while high contract prices would 
discourage sales. Because the government would tend to sell 
more reinsurance at a loss than at a gain, the result would be 
a net loss.
    Likelihood of Reinsurance Payments.--Although the Secretary 
would have the authority to set lower thresholds for minimum 
insured losses during the first few years of the program, 
payments under H.R. 21 generally would cover only insured 
losses that exceed those expected from a one-in-100-year event. 
It is possible, however, that the claims-paying capacity of 
state disaster insurance organizations may fall well short of 
this level. Since the Secretary would be authorized to lower 
the loss thresholds required for payouts from thestate 
contracts in the first five to seven years of the program if claims-
paying capacities are too low, reinsurance sold to state organizations 
during that time would be likely to cover events that occur more 
frequently than once every 100 years.
    In addition, the annual probability of a one-in-100-year 
event may be more than 1 percent, either because the historical 
data underlying the estimates of the frequency of events are 
inadequate or because the timing of such events is affected by 
cyclical factors. Furthermore, by dividing the nation into at 
least six regions, the bill could increase the probability that 
the federal government would make reinsurance payments. Events 
with an annual probability of 1 percent or more annual 
probability would have at least 60 chances to occur over the 
life of the program--one per year in each of the six or more 
regions created. For these reasons, CBO believes that there is 
a significant probability of one or more payments during the 
program's lifetime.
            Spending subject to appropriation
    The bill would authorize additional discretionary spending 
in 2000 and 2001. The reinsurance program also could lead to a 
reduction in the demand for some discretionary spending in 
future years, but CBO cannot estimate the timing or magnitude 
of any such impact. Any reduction in discretionary spending 
would depend on future appropriation actions.
    Estimated Discretionary Costs.--H.R. 21 would authorize the 
appropriation of $2 million in 2000 and such sums as may be 
necessary in later years to establish and operate the federal 
advisory commission and to cover the Secretary's administrative 
expenses. Assuming appropriation of the authorized amounts, CBO 
estimates that these activities would cost $1 million in each 
of fiscal years 2000 and 2001, but would not significantly 
affect federal spending thereafter.
    H.R. 21 also would direct the General Accounting Office 
(GAO) to perform an annual audit of the auctions for disaster 
reinsurance contracts established under the bill and to prepare 
a study on the availability and cost of insurance against 
flooding resulting from hurricanes. Based on information from 
GAO, CBO estimates that the cost of these activities would be 
less than $500,000 in any given year.
    Potential Discretionary Savings.--Implementing the 
reinsurance program established under the bill could reduce the 
need for future appropriations to the Federal Emergency 
Management Agency (FEMA) to provide disaster relief to 
homeowners for two reasons. First, the program would help 
private insurers manage more catastrophe risk at less cost. If 
insurers translate this lower risk into either lower premiums 
or more generous policies for homeowners, the amount of private 
disaster coverage could expand and fewer homeowners may need 
assistance from FEMA in the event of a catastrophe. CBO cannot 
estimate the likelihood or magnitude of any such savings 
because we cannot predict the extent that homeowners coverage 
might expand or how any such expansion might reduce spending by 
FEMA.
    Second, H.R. 21 would increase funding for programs to 
mitigate natural disasters in the communities where reinsurance 
is sold. This emphasis on mitigation might reduce homeowners' 
need for disaster assistance in the future, but CBO cannot 
estimate the timing or size of any such savings. Though recent 
studies have provided evidence that certain mitigation efforts 
can be effective, the magnitude of any such savings to the 
federal government remains speculative.
    The homeowners' disaster reinsurance program established 
under H.R. 21 would not affect federal spending for other 
disaster assistance programs, such as catastrophic crop 
insurance, the Emergency Conservation Program, the Small 
Business Administration's disaster loan program, and FEMA's 
public assistance program to replace and repair damages to 
bridges, roads, and other infrastructure. These programs 
benefit individuals or organizations that would not be affected 
by the homeowner reinsurance offered under H.R. 21.
            Pay-as-you-go considerations
    The Balanced Budget and Emergency Deficit Control Act 
specifies pay-as-you-go procedures for legislation affecting 
direct spending or receipts. CBO expects that enacting H.R. 21 
would increase direct spending, but we cannot estimate the 
magnitude or timing of such spending.
            Estimated impact on state, local, and tribal governments
    H.R. 21 contains no intergovernmental mandates as defined 
in UMRA and would benefit states that choose to participate in 
the reinsurance program established by this bill. Eligible 
state-sponsored insurance organizations could purchase federal 
reinsurance at an established price or at regional auctions. 
Other state insurance organizations could purchase federal 
reinsurance only at regional auctions. Purchasing the federal 
reinsurance would transfer some of the risk associated with 
large-scale natural disasters to the federal government. Any 
costs incurred by state governments would result from voluntary 
participation in this program.
            Estimated impact on the private sector
    This bill would impose no new private-sector mandates as 
defined in UMRA.
    Estimate prepared by: Federal Costs: Mega Carroll, Perry 
Beider, Timothy VandenBerg, Kim Kowalewski, and David 
Torregrosa. Impact on State, Local, and Tribal Governments: 
Shelley Finlayson. Impact on the Private Sector: Jean Wooster.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      Advisory Committee Statement

    No advisory committees within the meaning of Section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                    Congressional Accountability Act

    The reporting requirement under Section 102(b)(3) of the 
Congressional Accountability Act (P.L. 104-1) is inapplicable 
because this legislation does not relate to terms and 
conditions of employment or access to public services or 
accommodations.

                           Section-by-Section

    Section 1: Title cited as ``Homeowners' Insurance 
Availability Act of 1999''.
    Section 2: Congressional Findings that rising costs from 
natural disasters have placed a strain on the homeowners' 
insurance market impacting the ability of consumers to 
adequately insure their homes, and that it is necessary to 
provide, on a temporary basis, a Federal reinsurance programs 
that will promote stability in the private homeowners' 
insurance market in the short term and encourage the growth of 
reinsurance capacity by the private and capital markets as soon 
as possible.
    Section 3: Program Authority to the Secretary of Treasury 
to provide a Federal reinsurance program through reinsurance 
contracts to eligible purchasers under section 6 (state 
programs) and section 7 (regional contracts) so long as the 
private sector is not displaced.
    Section 4: Qualified Lines of Coverage provide specifically 
for residential property losses to homes, condominiums, 
cooperatives and contents of apartment buildings.
    Section 5: Covered Perils include (i) earthquakes, (ii) 
perils ensuing from earthquakes (fire and tsunami), (iii) 
tropical cyclones (including hurricanes and typhoons) where the 
maximum sustained winds are equal to or greater than 74 miles 
per hour, (iv) tornadoes, and (v) volcanic eruptions.
    Section 6: Contracts for Reinsurance Coverage for Eligible 
State Programs are made available to state-operated insurance 
and reinsurance programs if the state program covers 
residential losses; is structured to be exempt from Federal 
taxation; covers a single peril; does not provide for profit to 
any insurer; and, includes a mitigation investment of not less 
than 10% of the program's net investment income (5% if the 
Secretary determines, pursuant to a request from the state 
insurance commissioner, that a 10% requirement would jeopardize 
the actuarial soundness of the state program). For state 
programs beginning after January 1, 1999 (all other state 
programs two years after date of enactment) state programs must 
not cross-subsidize between separate property and casualty 
lines unless the elimination of such activity for an existing 
program would negatively impact program eligibility under 
section 6(a)(2); must provide that for coverage under the 
program, premium rates must be, at a minimum, sufficient to 
cover the full actuarial costs of such coverage; and, must 
provide authorization to the State insurance commissioner to 
terminate the state program when it is no longer necessary to 
ensure availability of homeowners' insurance.
    The state programs shall certify to the Secretary and 
follow regulations promulgated by the Secretary, in 
consultation with the National Commission. The regulations 
shall include requirements that state programs have public 
members on its board of directors or advisory board; ensure 
that state coverage does not supplant the private insurance 
market; provide adequate deductibles; provide a non-
discriminatory clause; provide that new construction meet 
applicable building, fire, and safety codes; ensure consistency 
with the Federal Emergency Management Agency guidelines; 
programs take into account mitigation efforts; and other 
requirements considered necessary by the Secretary.
    Terms of the contracts may not exceed one year or other 
term determined by the Secretary, with claim payments only to 
eligible state programs and a payout at the occurrence and 
level where disaster costs exceed the retained losses noted in 
Section 8.
    The contract shall cover eligible losses from multiple 
events during the term of the contract. Qualified losses 
include only property covered under the contract that is 
reported to the state program within a 3 year period from the 
natural disaster event. Pricing is established by the 
Secretary, in consultation with the National Independent 
Commission on Catastrophe Risks and Insurance Loss Costs, 
established at a level designed to fairly compensate taxpayers 
for the risks borne, taking into consideration the 
developmental stage of models and private market capacity, and 
designed to provide for program self-sufficiency. The price of 
the contracts shall consist of a risk-based price not less than 
the anticipated payout of the contract according to the 
Commission's actuarial analysis and recommendations, a risk 
load at least equal to the risk-based price and administrative 
costs. The contract shall provide purchasers an opportunity to 
purchase additional contracts for identical coverage for the 
remaining term of the initial contract if the coverage under 
the initial contract is exhausted to become effective 15 days 
after the date of purchase.
    Section 6(c) requires the Secretary to give private market 
reinsurance entities a ``right of first refusal'' in Federal 
reinsurance offered for direct sale to state-operated programs. 
If qualifying private market entities are willing to offer 
coverage at rates and terms that would be substantially similar 
to coverage offered by the Federal government as approved by 
the Secretary, Treasury may not offer such coverage during the 
relevant contract cycle.
    Section 7: Auction of Contracts for Reinsurance Coverage 
shall be carried out by Treasury to provide for auctioning of 
contracts to private insurers, reinsurers and state insurance 
and reinsurance programs. Auctions shall provide for coverage 
on a regional basis, in no less than six, with separate regions 
including all or part of Florida, and all or part of 
California. The Secretary is directed to attempt to create 
regions of similar risk, and not combine state at less risk of 
losses to covered perils with states at higher risk.
    In auctioning the contracts, Treasury shall set a reserve 
price as the lowest base price of the contract based on the 
Commission's recommendations to include a risk-based price not 
less than the anticipated payout of the contract according to 
the Commission's actuarial analysis and recommendations, a risk 
load at least equal to the risk-based price and administrative 
costs also taking into account administrative costs and 
mitigation efforts.
    Each contract purchaser, other than state-operated 
programs, are required to provide an additional amount of up to 
5% of the contract purchase price for mitigation activities to 
communities located located within the covered state.
    Terms of the contract may not exceed one year or other term 
determined by the Secretary, are fully transferable and 
divisible, cover eligible losses from multiple events during 
the term of the contract, provide for payment above the minimum 
level of retained losses by region as specified in section 8, 
provide purchasers an opportunity to purchase additional 
contracts for identical coverage for the remaining term of the 
initial contract if the coverage under the initial contract is 
exhausted to become effective 15 days after the date of 
purchase, and require the purchaser to notify the Secretary of 
any resale, transfer, assignment or division and the subsequent 
compensation paid.
    GAO is required to conduct an audit of prices for contracts 
made available under the auction program.
    Section 8: Anti-Redlining Requirement prohibits the 
Secretary from making Federal reinsurance contracts available 
for purchase unless the purchaser certifies that the insurer or 
reinsurer has not been adjudicated in a Federal court premised 
upon a violation of the Fair Housing Act.
    Section 9: Minimum Level of Retained Losses and Maximum 
Federal Liability require minimum levels of retained losses for 
state programs at a level that is not less than the greater of 
an amount between $2 billion and $5 billion in residential 
losses, the current claims paying capacity or an amount that is 
within a range between an amount that equal to a loss 
associated with an event occurring once in 100 years and once 
in 250 years. In cases of existing state programs that have a 
claims paying capacity greater than $2 billion but less than an 
amount equal to a loss associated with a one in 100 year event, 
the state shall provide a written agreement to transition an 
increase of retained losses during a five year period, with an 
extension for 2 additional one year periods.
    For state programs created after January 1, 1999, the 
Secretary, in consultation with the National Commission on 
Catastrophe Risks and Insurance Loss Costs, may establish 
minimum retained loss levels below $2 billion in an amount 
equal to losses associated with a one in 100 year event, except 
adjustments shall be made for a five year period to increase to 
the minimum level of $2 billion.
    In cases where a state program experiences an accumulation 
of events that exceed the claims paying capacity in that state, 
the Secretary may reduce retained loss triggers, but not less 
than $2 billion, so long as the retained loss levels are 
increased within 5 years.
    Auction contracts will not be available through any region 
unless the auction conducted sustains a cumulative amount of 
losses greater than an amount between $2 billion and $5 billion 
or an amount that is within a range between an amount that 
equal to a loss associated with an event occurring once in 100 
years and once in 250 years
    Treasury may annually raise the minimum level of retained 
losses for state programs or regions to reflect the growth in a 
state program's claims paying capacity or the growth of 
capacity in the private market.
    The claims paying capacity is defined by taking into 
consideration the claims paying capacity as determined by the 
state program; retained losses to private insurers 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.
    In all cases, the Secretary may sell no more contracts than 
would likely accumulate in excess of an annual liability of $25 
billion. States or regions may annually purchase no more than 
an amount that is greater than the difference between losses 
likely to occur from a one in 500 year event and losses from a 
one in 100 year event.
    Treasury may not make available for purchase reinsurance 
contracts that would pay out more than 50 percent of eligible 
losses under contract for state programs or by region.
    Section 10: Disaster Reinsurance Fund is established within 
the Treasury Department to accept proceeds from the sale of 
contracts, borrowed funds, investments or other amounts.
    Section 11: National Commission of Catastrophe Risks and 
Insurance Loss Costs is established with the sole purpose of 
advising the Secretary regarding estimating the loss costs 
associated with reinsurance contracts under the Act. The Act 
provides an appropriation of $1 million for Commission startup 
costs and $1 million for program operations, with cost offsets 
derived from contract proceeds. Five (5) members are to be 
appointed to the Commission, by the Secretary. Commission 
members will have no personal, professional, or financial 
interest at stake in the deliberations of the Commission. At 
least one member shall represent a nationally recognized 
consumer organization.
    Section 12: Definitions to provide definitions for certain 
terms in the Act.
    Section 13: Regulation.
    Section 14: Termination is required of this Act after 10 
years from enactment. In the event that the Secretary, in 
consultation with the Commission, determines that there is 
insufficient growth of capacity in the private homeowners' 
insurance market, this Act may be extended for an additional 
five year term.
    Section 15: Annual Study of Cost and Availability of 
Disaster Insurance and Program Need is required of the 
Secretary on an annual basis reporting the cost and 
availability of homeowners' insurance for losses resulting from 
catastrophic natural disasters. The first report shall be due 
two years after the date of enactment.
    Section 16: GAO Study of Hurricane Related Flooding is 
required on the availability and adequacy of flood insurance 
coverage for residential losses and other properties caused by 
hurricane-related flooding to be submitted to Congress not 
later than 5 months from the date of enactment.

                Changes In Existing Law Made By The Bill

    This bill does not contain changes to existing law and 
therefore no comparative print of how this bill affects current 
law is included, pursuant to clause 3 of rule XIII of the Rules 
of the House of Representatives.

                            DISSENTING VIEWS

    Mr. Chairman, I regrettably must express my dissenting 
comments on H.R. 21, the ``Homeowners' Insurance Availability 
Act of 1999.'' This is a complicated legislative proposal on 
which Members of good will on both sides of the aisle disagree. 
I believe the division of opinion among members is a product of 
legitimate differences on whether there is a catastrophic 
insurance availability crisis and whether there should be a 
federal role in providing reinsurance.
    I agree with the Chairman that an implicit liability 
already exists for the federal government should a catastrophic 
disaster strike a vital area of our nation. To the extent this 
bill would make that liability explicit and introduce private 
dollars in the form of premiums to assist in a federal relief 
effort, I applaud the approach. However, the fundamental 
question is whether H.R. 21 is truly a federal backstop or 
whether it would interfere with and subsidize existing private 
insurance markets. I have come to the conclusion that there is 
more independent evidence that the latter is true.
    A 1999 Wharton School Catastrophe Risk Management Study 
analyzing the capacity of the U.S. property insurance 
industry's ability to pay for a catastrophe concluded that 
surpluses among the primary insurers alone could pay at least 
98.6% of a $20 billion loss. For a catastrophe of $100 billion, 
the industry could pay for at least 92.8% of that loss. The 
report concludes that the gaps in catastrophic risk financing 
are presently not sufficient to justify federal government 
intervention in private insurance markets in the form of 
catastrophe reinsurance. Furthermore, according to A.M. Best, 
the insurance industry surplus stands at $332.3 billion, an 
increase from 77% since 1994 after the insurance industry 
suffered losses from Hurricane Andrew and the Northridge 
Earthquake. The policy holder surplus from the top three 
homeowners insurers (State Farm, Allstate, and Farmers 
Insurance) currently stands at $69.7 billion, more than 
doubling their surpluses over the last 6 years. These same 
three companies are still making a sizable profit. In 1997, 
they netted $9.5 billion and in 1998, they netted $10 billion. 
Putting aside the resources available among primary insurers, 
the reinsurance industry believes they have the capacity to 
handle a $20 billion loss in any region of the country. These 
capacity figures demonstrate that a 1 in 100 year catastrophic 
event is well within the range of the private sector to insure. 
If a federal backstop is needed, we should be focusing on the 1 
in 500 or 1 in 1,000 year event.
    Aside from the issue of the existing private sector 
capacity, I believe the approach in H.R. 21 is flawed because 
it fails to erect adequate safeguards for the disaster premiums 
it would collect. Throughout our nation's history, the Congress 
and the Executive Branch have demonstrated a propensity for 
funding short term spending priorities at the expense of long 
term commitments it has already made.
    Congress should focus more attention on alternative 
proposals including, but not limited to, removing barriers in 
current accounting and tax laws that prohibit insurers from 
setting money aside for future catastrophic events. Such 
legislation has been introduced and referred to the House Ways 
and Means Committee. I encourage the House Ways and Means 
Committee to complete its review of this proposal so at a 
minimum both approaches can be debated on the house floor.
    H.R. 21 could increase the federal government's liability 
by as much as $25 billion annually. That is almost as much as 
the federal government spends annually on programs operated by 
the U.S. Department of Housing and Urban Development. Members 
need to have a full understanding of their options before they 
commit taxpayer funds to H.R. 21's venture. H.R. 21 has drawn 
opposition from countless taxpayer groups, environmental 
groups, consumer groups, the reinsurance industry, and many in 
the property and casualty industry. The Congressional Budget 
Office has expressed concerns about the underpricing of these 
federal reinsurance contracts by as much as one-third what 
private reinsurers would charge. Furthermore, Congress does not 
have the benefit of the National Association of Insurance 
Commissioners' opinion. In my home state of Delaware, the 
Delaware Insurance Commissioner's office was unable to render 
an opinion of the proposal. Clearly, there is not sufficient 
consensus to justify this $25 billion federal expenditure.
    Mr. Chairman, you have always shown tremendous regard for 
fairness in the legislative process. As H.R. 21 moves forward, 
I hope you will continue to provide an opportunity for Members 
of your caucus and the Democratic Caucus to express their 
concerns about this bill.

                                                 Michael N. Castle.

                   DISSENTING VIEWS OF HON. RON PAUL

    The sponsors of the bill have brought to light problems 
some people have acquiring disaster insurance. There are 
several causes and different approaches to a solution. HR 2749, 
Policyholder Disaster Protection Act of 1999, which establishes 
tax-deferred catastrophe reserves, is probably the best 
federal, governmental approach. HR 21 is not only unnecessary 
but would contribute to rather than solve the alleged problem 
of insufficient reinsurance capacity.
    ``There is currently an overabundance of reinsurance in the 
U.S. * * * The capacity or reinsurance has risen and insurance 
companies can now purchase traditional catastrophe excess 
coverage above $500 million per event [Nov. 1998], as compared 
to $200 million in 1992,'' testified Franklin W. Nutter, 
Reinsurance Association of America, at the July 30, 1999 
hearing. ``The cost of catastrophe reinsurance is very low and 
has in fact dropped for five years in a row * * * Paragon's 
[Risk Management Services] report concludes that global 
catastrophe pricing remains under pressure as capacity exceeds 
demands in all regions.''
    ``This `capacity gap' [scarcity of private reinsurance to 
cover worst-case disasters] can best be described as an 
affordability problem. In simplest terms, the cost of capital--
which governs the price of private reinsurance--is considerably 
higher than the premiums that can be collected from homeowners 
based on the actuarial probability of loss. As a result, there 
is a limit to how much reinsurance that primary insurers can 
realistically purchase,'' concurred Jack F. Weber, Home 
Insurance Federation of America. ``In the case of mortgage 
markets, this fear of catastrophic loss is kept in check 
because of support from the U.S. government in the form of 
credit guarantees [which ultimately] keeps the system operating 
at maximum efficiency.''
    Since there are several causes for the lack of adequate 
availability of insurance in some areas, I tried to address one 
cause for the lack of availability of insurance that may have 
been overlooked when drafting the bill. Roger Joslin, State 
Farm Fire and Casualty Company, testified at the July 30, 1999 
hearing, ``One factor discouraging companies from writing in 
these [high risk `break the bank'] areas is politically 
motivated rate suppression.'' My amendment addressed the 
``politically motivated rate suppression'' reason for the lack 
of availability insurance that concerns many of our 
constituents.
    I offered an amendment adding a requirement to eligibility 
concerning the market pricing of premiums such that no state 
would be eligible if it requires prior approval of the amount 
of premiums charged for insurance coverage. The amendment aimed 
to lessen the incentives to ``politicize'' the process and 
increase the incentives to offer disaster insurance to our 
constituents.
    More importantly, federal reinsurance fails to address 
underlying regulatory and tax policies that have limited the 
amount of coverage that can be offered and underwritten by 
natural disaster insurers in the private market. This initial 
government intervention in the price market is the cause of 
much of the problem, and it is what must be addressed.
    Florida, for example, restricts the premium rates that 
insurers may charge for homeowners insurance. Though perhaps 
intended to benefit consumers living in disaster-prone areas, 
this type of governmental rate regulation often discourages 
insurers from offering greater coverage to potential 
policyholders. Federal reinsurance would only help states 
disguise some of the consequences of such adverse regulatory 
policies. Congress should, of course, recognize Constitutional 
restraints and not interfere in state regulation of insurance.
    It should also resist the impulse to relieve these same 
states from the consequences of their own misguided regulation. 
Federal tax policies have likewise added to the funding 
problems for private insurers covering natural disaster risks. 
Federal tax policy ignores the nature of disasters as long-term 
risks. Currently, all insurer income in excess of annual 
expenses is considered profit and is subject to federal income 
tax. This undermines the ability of insurers to set aside money 
for that very rainy day when a hurricane causes unusually 
costly damages.
    By subsidizing insurance in high risk areas, the bill would 
have unintended consequences both environmental and human. High 
risk areas are often in environmentally fragile areas which 
would be put in greater environmental jeopardy under this bill 
than under a free market. The human toll could be great: since 
people judge the risks they will take using insurance rates as 
a guide, the distortion of this pricing system would have the 
effect of encouraging families to remain in or move to high 
risk areas and add a marginal disincentive to move to or remain 
in lower risk areas; thus, when the next natural disaster hits, 
more people will be put in danger and the casualties will 
likely be higher. A situation which will undoubtedly be used to 
justify the next ``round'' of intervention!
    A better solution to the problem that government 
intervention caused would be to reduce or remove the initial 
artificial intervention in the market. Encouraging the further 
growth and development of the private insurance markets would, 
in the end, be the best way to address the problems currently 
facing homeowners in disaster-prone areas. To improve the 
private market for disaster insurance, one must alleviate or 
eliminate the governmental regulatory intervention distorting 
the conditions under which private insurers must operate.
    A new federal reinsurance program would move us in the 
wrong direction. Such a new federal regulatory intervention 
would only distort the market further and excerbate the 
problems presented by natural disasters.

                                                          Ron Paul.

                                

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