I

104TH CONGRESS

1ST SESSION H. R. 1517

To amend title XII of the National Housing Act to establish a national

property reinsurance program to ensure the availability and affordability

of property insurance in underserved areas.

IN THE HOUSE OF REPRESENTATIVES

APRIL 7, 1995

Ms. WATERS introduced the following bill; which was referred to the

Committee on Banking and Financial Services

A BILL

To amend title XII of the National Housing Act to establish

a national property reinsurance program to ensure the

availability and affordability of property insurance in underserved areas.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘National Property

5 Reinsurance Act’’.

6 SEC. 2. PROGRAM AUTHORITY.

7 Section 1201(b) of the National Housing Act (12

8 U.S.C. 1749bbb(b)) is amended—
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1 (1) in the matter preceding paragraph (1)—

2 (A) by striking ‘‘November 30, 1983, and’’

3 and inserting ‘‘September 30, 1999,’’; and

4 (B) by striking ‘‘September 30, 1985’’ and

5 inserting ‘‘September 30, 1999’’; and

6 (2) in paragraph (1)—

7 (A) by striking ‘‘1223(b)’’ and inserting

8 ‘‘1222(f)’’; and

9 (B) by striking ‘‘September 30, 1985’’ and

10 inserting ‘‘September 30, 2000’’.

11 SEC. 3. STATEWIDE PLANS TO ASSURE FAIR ACCESS TO IN12 SURANCE REQUIREMENTS.

13 (a) TARGETING OF UNDERSERVED AREAS.—The

14 first sentence of section 1211(b) of the National Housing

15 Act (12 U.S.C. 1749bbb–3(b)) is amended by inserting

16 ‘‘and underserved areas designated under subsection (d)’’

17 before the period at the end.

18 (b) DETERMINATION OF UNDERSERVED AREAS.—

19 Section 1211 of the National Housing Act (12 U.S.C.

20 1749bbb–3) is amended by adding at the end the following

21 new subsection:

22 ‘‘(d) DESIGNATION OF UNDERSERVED AREAS.—For

23 purposes of this section, the Director shall designate areas

24 in each State in which property insurance coverage of the

25 type that may be reinsured under part B is not available
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1 or affordable (or not sufficiently available or affordable)

2 for residences or business and commercial properties.

3 Such areas shall include urban and rural areas that his4 torically have been subject to a lack of availability or af5 fordability of such insurance. In designating such areas

6 for a State, the Director shall consult with the Board

7 under section 1202, the relevant State insurance authority

8 for the State that supervises the plan under this part for

9 the State, the governing or advisory board or committee

10 referred to in subsection (c) for the plan in the State, in11 surers and pools in the State, and community and

12 consumer groups in the State. The Director shall from

13 time to time review and, if necessary, revise the designa14 tions of underserved areas under this subsection.’’.

15 (c) STUDIES.—Section 1246(a)(2) of the National

16 Housing Act (12 U.S.C. 1749bbb–16(a)(2)) is amended

17 by inserting ‘‘and underserved areas designated under sec18 tion 1211(d)’’ before the semicolon at the end.

19 SEC. 4. NATIONAL PROPERTY REINSURANCE PROGRAM.

20 Title XII of the National Housing Act (12 U.S.C.

21 1749bbb et seq.) is amended by striking part B and insert22 ing the following new part:
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1 ‘‘PART B—NATIONAL PROPERTY REINSURANCE

2 PROGRAM

3 ‘‘SEC. 1221. NATURE AND AVAILABILITY OF REINSURANCE

4 COVERAGE.

5 ‘‘(a) IN GENERAL.—The Director may establish and

6 carry out a national property reinsurance program under

7 this part. Under such program, the Director may offer to

8 insurers or pools reinsurance against physical loss of prop9 erty or damage to property in any one or more States,

10 subject to the conditions under section 1222.

11 ‘‘(b) AVAILABILITY ONLY IN UNDERSERVED

12 AREAS.—Reinsurance under this part shall be available

13 only with respect to property insurance for property lo14 cated in underserved areas designated under section

15 1211(d).

16 ‘‘(c) ELIGIBILITY OF INSURANCE.—Reinsurance

17 under this part shall be available only with respect to

18 property insurance meeting requirements for reinsurance

19 under this part as the Director shall, by regulation, estab20 lish. Such requirements shall include provisions regard21 ing—

22 ‘‘(1) the type and locational classification of eli23 gible properties that are covered by insurance that

24 may be reinsured, which shall include such residen-
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1 tial properties and business and commercial prop2 erties that the Director considers appropriate;

3 ‘‘(2) the specific types of property loss and

4 damage that are covered by insurance that may be

5 reinsured;

6 ‘‘(3) appropriate premium rates for such insur7 ance, based on generally accepted actuarial prin8 ciples, which provide appropriate loss deductibles, in9 cluding variable deductibles, taking into consider10 ation the existence and extent of measures and ac11 tivities taken to reduce the risk of loss to the in12 sured property for which reinsurance is provided;

13 ‘‘(4) appropriate limits of coverage for each

14 classification of eligible property; and

15 ‘‘(5) any other terms, conditions, or limitations

16 of insurance coverage that the Director considers ap17 propriate to carry out the reinsurance program

18 under this part.

19 ‘‘(d) AVAILABLE LINES.—Reinsurance under this

20 part shall be offered to an insurer or pool only on all of

21 the standard lines of property insurance specified in sub22 paragraphs (A) through (E) of section 1203(a)(13) to23 gether, and any insurer or pool purchasing such reinsur24 ance shall also be eligible to purchase reinsurance on any

25 one or more standard lines of property insurance specified
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1 under paragraphs (F) through (J) of section 1203(a)(13)

2 or that may be designated by regulation pursuant to sub3 paragraph (K) of such section.

4 ‘‘(e) TEMPORARY COVERAGE.—

5 ‘‘(1) AUTHORITY.—Immediately after the en6 actment of the National Property Reinsurance Act,

7 the Director may provide reinsurance coverage under

8 this section in any State on a temporary basis to

9 any insurer or pool that meets the requirements

10 under section 1222(a), on such terms and conditions

11 as may be agreed upon.

12 ‘‘(2) BINDERS.—Coverage under such terms

13 and conditions may be bound with respect to any

14 such insurer or pool by means of a written binder

15 which shall remain in force not more than 12

16 months and shall expire upon the earlier of—

17 ‘‘(A) the termination of such 12-month pe18 riod; or

19 ‘‘(B) the effective date of any reinsurance

20 agreement entered into between the insurer or

21 pool and the Director under section 1223.

22 ‘‘SEC. 1222. REQUIREMENTS FOR REINSURANCE.

23 ‘‘(a) FAIR PLAN PARTICIPATION.—No reinsurance

24 may be offered to any insurer or pool in a State after rein25 surance coverage pursuant to reinsurance agreements
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1 under section 1223 is made available (or in the case of

2 an insurer or pool that enters into a written binder under

3 section 1221(e), after the expiration of the binder) un4 less—

5 ‘‘(1) there is in effect in such State a plan

6 meeting the requirements under part A;

7 ‘‘(2) the insurer or pool is participating in such

8 plan; and

9 ‘‘(3) in the case of an insurer in a State in

10 which a pool has been established pursuant to State

11 law, the insurer is participating in such pool.

12 ‘‘(b) STATE REIMBURSEMENT.—The Director may

13 not offer reinsurance under this part in a State, and such

14 reinsurance shall not be applicable to insurance policies

15 written in the State by an insurer, unless the State has,

16 before the conclusion of the second full regular session of

17 the appropriate State legislative body beginning after the

18 date of the enactment of the National Property Reinsur19 ance Act, adopted appropriate legislation that—

20 ‘‘(1) provides that the State and its political

21 subdivisions, or a governmental corporation or fund

22 established pursuant to State law, shall reimburse

23 the Director for any reinsured losses in the State in

24 any reinsurance agreement year in the amount or
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1 according to such formula as the Director shall pre2 scribe by regulation; and

3 ‘‘(2) is retroactive to the date of the enactment

4 of the National Property Reinsurance Act.

5 ‘‘(c) STATE PROPERTY INSURANCE PROGRAM.—

6 After the expiration of the 30-day period beginning upon

7 notification to the insurer that the Director has made a

8 finding under this subsection, reinsurance under this part

9 shall not be applicable to insurance policies written by an

10 insurer in a State for which the Director finds (after con11 sultation with the State insurance authority) that—

12 ‘‘(1) the State has not adopted a suitable pro13 gram or programs, in addition to plans under part

14 A, to make essential property insurance available

15 without regard to environmental hazards,

16 ‘‘(2) the property insurance industry in the

17 State has not adopted such a program or programs,

18 and

19 ‘‘(3) taking action under this subsection to

20 make reinsurance inapplicable to such insurance

21 policies is necessary to carry out the purposes of this

22 part.

23 ‘‘(d) PARTICIPATION OF INSURERS.—After the expi24 ration of the 30-day period beginning upon notification to

25 the insurer or the applicable State insurance authority
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1 that the Director has made a finding under this sub2 section, reinsurance under this part shall not be applicable

3 to insurance policies written in a State by an insurer that

4 the Director finds (after consultation with the State insur5 ance authority) is not fully participating—

6 ‘‘(1) in the plan in the State,

7 ‘‘(2) where it exists, in a pool, and

8 ‘‘(3) where it exists, in any other program

9 found by the Director to aid in making essential

10 property insurance more readily available in the

11 State;

12 except that the Director may not make any such finding

13 with respect to any insurer unless (A) before making the

14 finding the Director has requested and considered the

15 views of the State insurance authority regarding whether

16 the finding should be made, or (B) the Director has made

17 such a request in writing to the State insurance authority

18 and such authority has failed to respond to the request

19 within a reasonable period of time after receiving the re20 quest.

21 ‘‘(e) MERGER OR WITHDRAWAL OF INSURERS.—Re22 insurance under this part shall not be applicable to insur23 ance policies written in a State by an insurer—

24 ‘‘(1) after such insurer participates in a merger,

25 acquisition, consolidation, or reorganization involving
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1 1 or more insurers having lines of property insur2 ance in the State reinsured under this part and 1 or

3 more insurers with or without such reinsurance, un4 less the surviving company—

5 ‘‘(A) meets the criteria of eligibility for re6 insurance; and

7 ‘‘(B) within 10 days pays any reinsurance

8 premiums due; or

9 ‘‘(2) after receipt by the Director of written no10 tice from the insurer or pool that it is canceling its

11 reinsurance agreement with the Director in the

12 State.

13 ‘‘(f) CONTINUANCE OF EXISTING REINSURANCE

14 POLICIES.—Notwithstanding any other provision of this

15 section, reinsurance pursuant to a policy written before

16 the date of termination or nonrenewal of reinsurance

17 under this section may be continued for the term of the

18 policy, for such time as the insurer annually pays reinsur19 ance premiums in such amounts as are established under

20 section 1223, based on the annual premiums earned on

21 such reinsured policies. For purposes of this subsection,

22 any policy renewed, extended, modified, or otherwise

23 changed, for which any additional premium is charged for

24 such change, shall be considered to be a policy written on

25 the date such change was made.
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1 ‘‘SEC. 1223. REINSURANCE AGREEMENTS, PREMIUMS, AND

2 RETAINED LOSSES.

3 ‘‘(a) IN GENERAL.—Reinsurance made available

4 under this part shall reimburse an insurer or pool for its

5 total proved and approved claims for covered physical loss

6 of property or damage to property during the term of the

7 reinsurance agreement under subsection (b) for the in8 surer or pool (and all direct expenses incurred in connec9 tion therewith, including expenses for processing, verify10 ing, and paying such claims) that are in excess of such

11 losses retained by the insurer or pool in accordance with

12 the regulations issued under subsection (d) and the rein13 surance agreement.

14 ‘‘(b) REINSURANCE AGREEMENTS.—Such reinsur15 ance shall be made available pursuant to a reinsurance

16 agreement, which shall be a contract, agreement, treaty,

17 or other arrangement for reinsurance coverage entered

18 into by the Director with an insurer or pool, in consider19 ation of payment of premiums, fees, or other charges by

20 the insurer or pool.

21 ‘‘(c) PREMIUMS.—The Director shall, by regulation,

22 establish the amount of premiums, fees, or other charges

23 to be charged under a reinsurance agreement, which shall

24 be the amount determined by the Director to be necessary

25 to cover the estimated amount of losses and other costs

26 of providing such reinsurance. The rates of the premiums,
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1 fees, and other charges shall be established based upon

2 generally accepted actuarial principles and shall provide

3 for a minimum of cross-subsidization among classifica4 tions of reinsurance. In any single year, the rates under

5 contracts with insurers or pools throughout the States

6 shall be uniform. The Director may not change any pre7 miums, fees, or other charges except by regulations issued

8 in accordance with section 1247.

9 ‘‘(d) RETAINED LOSSES.—The Director shall, by reg10 ulation, establish the amount of losses that, under each

11 reinsurance agreement, an insurer or pool shall retain be12 fore reinsurance coverage under this part applies to losses

13 of the insurer or pool. Such amount shall be adequate to

14 further the purposes of this part and consistent with the

15 objective of maintaining appropriate financial participa16 tion and risk sharing to the maximum extent practicable

17 on the part of ceding insurers and pools. In establishing

18 such amount the Director shall consult with the Advisory

19 Board.

20 ‘‘(e) OTHER PROVISIONS.—Each reinsurance agree21 ment shall include terms and conditions similar to those

22 generally used in private catastrophe reinsurance con23 tracts, as the Director considers necessary or appropriate

24 to carry out the purposes of this part, and such other

25 terms and conditions as the Director considers necessary
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1 or appropriate. Each reinsurance agreement shall provide

2 that any approved reinsurance claims payable under this

3 part shall be reduced by the amount of any reinsurance

4 collectible from sources other than the reinsurance pro5 gram under this part. In any single year, the terms and

6 conditions under reinsurance contracts with insurers or

7 pools throughout the States shall be uniform. The provi8 sions of section 1341(a) of title 31, United States Code,

9 shall not apply to reinsurance agreements under this sec10 tion.

11 ‘‘(f) CONTRACT TERM.—Each reinsurance agreement

12 shall be for a 12-month term expiring on September 30.

13 ‘‘SEC. 1224. SUITS FOR RECOVERY OF PREMIUMS.

14 ‘‘(a) IN GENERAL.—The Director may bring a suit

15 in the appropriate United States district court to recover

16 from any insurer the amount of any unpaid premiums for

17 reinsurance under this part lawfully payable by such in18 surer to the Director.

19 ‘‘(b) STATUTE OF LIMITATIONS.—

20 ‘‘(1) IN GENERAL.—No action or proceeding

21 shall be brought under subsection (a) or for the re22 covery of any premium paid to the Director in excess

23 of the amount due to the Director, after the expira24 tion of the 5-year period beginning upon the accrual

25 of the right for which the claim is made.
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1 ‘‘(2) FRAUD.—Where an insurer has made or

2 filed with the Director a false or fraudulent annual

3 statement or other document with the intent to

4 evade, in whole or in part, the payment of pre5 miums, a right for which a claim may be made shall

6 not be considered to have accrued for purposes of

7 this subsection until its discovery by the Director.

8 ‘‘SEC. 1225. NATIONAL PROPERTY REINSURANCE FUND.

9 ‘‘(a) ESTABLISHMENT.—To carry out the national

10 property reinsurance program under this part, the Direc11 tor shall establish in the Treasury of the United States

12 a fund to be known as the National Property Reinsurance

13 Fund (in this section referred to as the ‘‘Fund’’), which

14 shall be separate from the National Insurance Develop15 ment Fund established under section 1243. Amounts in

16 the Fund shall be available, to the extent provided in ap17 propriation Acts—

18 ‘‘(1) to make such payments as may, from time

19 to time, be required under reinsurance contracts

20 under this part;

21 ‘‘(2) to pay such administrative expenses as

22 may be necessary or appropriate to carry out this

23 part; and

24 ‘‘(3) to repay to the Secretary of the Treasury

25 any amounts, including interest thereon, as may be
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1 borrowed for the Secretary under section 520(b) for

2 purposes of the national property reinsurance pro3 gram under this part.

4 ‘‘(b) CREDITS.—The Fund shall be credited with—

5 ‘‘(1) reinsurance premiums, fees, and other

6 charges paid or collected in connection with reinsur7 ance provided under this part;

8 ‘‘(2) any amounts appropriated for the Fund;

9 ‘‘(3) interest earned on the investments of the

10 Fund pursuant to subsection (c); and

11 ‘‘(4) amounts borrowed by the Director under

12 section 520(b) and deposited in the Fund.

13 ‘‘(c) INVESTMENT.—If the Director determines that

14 the amounts in the Fund are in excess of amounts needed

15 to carry out the national property reinsurance program

16 under this part, the Director may request the Secretary

17 of the Treasury to invest any excess amounts the Director

18 determines advisable in obligations issued or guaranteed

19 by the United States.

20 ‘‘(d) BUDGET.—An annual business-type budget for

21 the Fund shall be prepared, submitted to the Congress,

22 considered, and acted upon in the manner prescribed by

23 sections 9103 and 9104 of title 31, United States Code,

24 for wholly owned Government corporations.
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1 ‘‘(e) AUTHORIZATION OF APPROPRIATIONS.—There

2 is authorized to be appropriated to the Fund

3 $250,000,000 for fiscal year 1996.’’.

4 SEC. 5. BORROWING AUTHORITY AND TAXATION.

5 (a) BORROWING AUTHORITY.—Section 520(b) of the

6 National Housing Act (12 U.S.C. 1735d(b)) is amended—

7 (1) by striking ‘‘(1)’’;

8 (2) by striking ‘‘, and (2)’’ and inserting ‘‘. The

9 Director of the Federal Emergency Management

10 Agency is authorized to borrow from the Treasury

11 from time to time such amounts as the Director

12 shall determine are necessary’’; and

13 (3) by inserting ‘‘or Director’’ before ‘‘in bor14 rowing’’.

15 (b) TAXATION.—Section 1250 of the National Hous16 ing Act (12 U.S.C. 1749bbb–20) is amended—

17 (1) in subsection (a)—

18 (A) by inserting ‘‘and the National Prop19 erty Reinsurance Fund’’ after ‘‘Fund’’; and

20 (B) by striking ‘‘its reserves, surplus, and

21 income’’ and inserting ‘‘the reserves, surplus,

22 and income of such funds’’; and

23 (2) in subsection (b), by striking ‘‘section

24 1223(a)(1)’’ and inserting ‘‘section 1222(b)’’.
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1 SEC. 6. ADVISORY BOARD.

2 (a) REESTABLISHMENT OF BOARD.—Notwithstand3 ing section 14 of the Federal Advisory Committee Act or

4 any other law, there is hereby reestablished the Advisory

5 Board under section 1202(a) of the National Housing Act.

6 (b) REAPPOINTMENT OF MEMBERS.—Not later than

7 the expiration of the 6-month period beginning on the date

8 of the enactment of this Act, the Director shall appoint

9 members of the Advisory Board referred to in subsection

10 (a) in accordance with the provisions of section 1202(a)

11 of the National Housing Act and, pursuant to paragraph

12 (2) of such section, shall designate a Chairman and Vice

13 Chairman of such Board.

14 (c) MEMBERSHIP.—Section 1202(a)(1) of the Na15 tional Housing Act (12 U.S.C. 1749bbb–1(a)(1)) is

16 amended—

17 (1) in the second sentence, by inserting ‘‘com18 munity and consumer groups,’’ after the last

19 comma; and

20 (2) in the last sentence—

21 (A) by striking ‘‘and’’ after ‘‘Govern22 ment,’’;

23 (B) by striking ‘‘and’’ after ‘‘industry’’ and

24 inserting a comma; and

25 (C) by inserting before the period at the

26 end the following: ‘‘, and not less than 4 shall
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1 be representatives of community and consumer

2 groups’’.

3 (d) TERMINATION.—Section 1202 of the National

4 Housing Act (12 U.S.C. 1749bbb–1) is amended by add5 ing at the end the following new subsection:

6 ‘‘(e) The Board shall terminate upon the date re7 ferred to in section 1201(b)(1) that relates to section

8 1222(f).’’.

9 (e) TECHNICAL CORRECTION.—Section 1202(d) of

10 the National Housing Act (12 U.S.C. 1749bbb–1(d)) is

11 amended by striking ‘‘rate for grade GS–18 of the General

12 Schedule under section 5332’’ and inserting ‘‘maximum

13 rate payable under section 5376’’.

14 SEC. 7. DEFINITIONS.

15 Section 1203(a) of the National Housing Act (12

16 U.S.C. 1749bbb–2(a)) is amended—

17 (1) in paragraph (5)—

18 (A) by striking ‘‘and extended coverage en19 dorsement thereon’’ and inserting ‘‘, extended

20 coverage endorsement thereon, and policies for

21 other allied lines of fire insurance’’; and

22 (B) by striking ‘‘. Such’’ and inserting ‘‘;

23 such’’;

24 (2) by striking paragraph (9) and inserting the

25 following new paragraph:
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1 ‘‘(9) The term ‘reinsurance agreement’ means a

2 reinsurance agreement under section 1223(b).’’;

3 (3) in paragraph (13)(K), by striking ‘‘damage

4 from riot or civil commotion’’ and inserting ‘‘loss of

5 or damage to property,’’; and

6 (4) by striking paragraph (14) and inserting

7 the following new paragraph:

8 ‘‘(14) The term ‘State’ means the States of the

9 United States, the District of Columbia, the Com10 monwealth of Puerto Rico, the Commonwealth of the

11 Northern Mariana Islands, Guam, the Virgin Is12 lands, American Samoa, the Trust Territory of the

13 Pacific Islands, and any other territory or possession

14 of the United States.’’.

15 SEC. 8. CONFORMING AMENDMENTS.

16 (a) NATIONAL INSURANCE DEVELOPMENT FUND.—

17 Section 1243 of the National Housing Act (12 U.S.C.

18 1749bbb–13) is amended—

19 (1) in subsection (a)—

20 (A) in the matter preceding paragraph (1),

21 by striking ‘‘programs authorized under this

22 title’’ and inserting ‘‘insurance program author23 ized under part C’’;

24 (B) in paragraph (1), by striking ‘‘reinsur25 ance and direct insurance contracts under this
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1 title’’ and inserting ‘‘direct insurance contracts

2 under such part’’;

3 (C) in paragraph (2), by inserting ‘‘(not

4 including such expenses for carrying out part

5 B)’’ after ‘‘title’’; and

6 (D) in paragraph (3), by striking ‘‘pro7 grams’’ and inserting ‘‘program’’;

8 (2) in subsection (b)(1)—

9 (A) by striking ‘‘reinsurance and’’ each

10 place it appears; and

11 (B) by striking ‘‘parts B and’’ and insert12 ing ‘‘part’’; and

13 (3) in paragraph (6), by inserting ‘‘for purposes

14 of the program under part C’’ after ‘‘section

15 520(b)’’.

16 (b) REPEAL.—Section 1245 of the National Housing

17 Act (12 U.S.C. 1749bbb–15) is hereby repealed.

18 SEC. 9. REGULATIONS AND EFFECTIVE DATE.

19 The Secretary shall issue regulations pursuant to sec20 tion 1247 of the National Housing Act necessary to carry

21 out the amendments made by this Act. Such regulations

22 shall be issued not later than 6 months after the date of

23 the enactment of this Act and shall provide for the avail24 ability of reinsurance coverage under part B of title XII

25 of such Act (pursuant to reinsurance agreements under
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1 section 1223 of such Act) not later than 12 months after

2 such date of enactment.

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