I

104TH CONGRESS

1ST SESSION H. R. 1731

To provide for a Federal program of insurance against the risk of catastrophic

earthquakes, volcanic eruptions, and hurricanes, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MAY 25, 1995

Mrs. MINK of Hawaii introduced the following bill; which was referred to the

Committee on Banking and Financial Services, and in addition to the

Committee on Science, for a period to be subsequently determined by the

Speaker, in each case for consideration of such provisions as fall within

the jurisdiction of the committee concerned

A BILL

To provide for a Federal program of insurance against the

risk of catastrophic earthquakes, volcanic eruptions, and

hurricanes, and for other purposes.

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

3 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act shall be cited as the

5 ‘‘Earthquake, Volcanic Eruption, and Hurricane Hazards

6 Insurance Act of 1995’’.

7 (b) TABLE OF CONTENTS.—

Sec. 1. Short title and table of contents.

Sec. 2. Findings.
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Sec. 3. Definitions.

TITLE I—PARTICIPATION BY STATES IN ADOPTION OF HAZARD

REDUCTION MEASURES

Sec. 101. Identification of earthquake-prone, volcanic eruption-prone, and hurricane-prone States.

Sec. 102. Earthquake, Volcanic Eruption, and Hurricane Loss Mitigation Advisory Committee.

Sec. 103. Establishment of criteria for loss-reduction measures.

Sec. 104. Self-Sustaining Mitigation Fund.

Sec. 105. State implementation of loss-reduction measures.

Sec. 106. Requirement to purchase primary insurance.

Sec. 107. Effect of noncompliance with State mitigation program.

Sec. 108. Coordination with other programs.

Sec. 109. Report to Congress.

Sec. 110. Regulations.

TITLE II—PRIMARY INSURANCE PROGRAM

Sec. 201. Basic authority and program organization.

Sec. 202. Scope of program.

Sec. 203. Terms and limitations of insurance coverage.

Sec. 204. Establishment of actuarial premium rates.

Sec. 205. Chargeable premium rates.

Sec. 206. Insurance mitigation incentives.

Sec. 207. Earthquake, Volcanic Eruption, and Hurricane Insurance and Reinsurance Advisory Committee.

Sec. 208. Residential Property Insurance Fund.

Sec. 209. Borrowing from Treasury.

TITLE III—NATIONAL EARTHQUAKE, VOLCANIC ERUPTION, AND

HURRICANE EXCESS LOSS REINSURANCE PROGRAM

Sec. 301. Reinsurance program.

Sec. 302. Lines of insurance.

Sec. 303. Rates.

Sec. 304. Reinsurance contracts.

Sec. 305. Reinsurance Fund.

Sec. 306. Borrowing from Treasury.

1 SEC. 2. FINDINGS.

2 The Congress finds that—

3 (1) the catastrophic and unpredictable nature

4 of earthquakes, volcanic eruptions, and hurricanes

5 prevent individual private insurers from offering the

6 necessary insurance against these perils without the

7 participation of the Federal Government;
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1 (2) in the absence of an adequate system for in2 suring against losses from earthquakes, volcanic

3 eruptions, and hurricanes, the Federal Government

4 and State governments will bear excessive and avoid5 able costs of disaster relief and the commerce and

6 economy of the Nation would be seriously desta7 bilized;

8 (3) the existing systems of private insurance,

9 reinsurance, and government disaster relief are inad10 equate and should be improved and better coordi11 nated;

12 (4) a reasonable method of providing insurance

13 against such losses is to create a Federal earth14 quake, volcanic eruption, and hurricane insurance

15 and reinsurance program, to assist in making insur16 ance against such disasters widely available and af17 fordable to the general public; and

18 (5) in providing such insurance, the Federal

19 Government should work constructively with the

20 States and localities to assist and require, if appro21 priate, the development, adoption, and enforcement

22 of hazard reduction measures, including building

23 codes, land-use planning, and strengthening of new

24 and existing structures.
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1 SEC. 3. DEFINITIONS.

2 For purposes of this Act:

3 (1) The term ‘‘additional losses’’ means claim

4 and loss adjustment expense payments for earth5 quake, volcanic eruption, and hurricane coverage is6 sued pursuant to title II that exceed the accumu7 lated amounts in the Residential Property Insurance

8 Fund.

9 (2) The term ‘‘alien insurer’’ means an insurer

10 or reinsurer organized or incorporated in a country

11 other than the United States.

12 (3) The term ‘‘critical facilities vulnerable to

13 hurricanes’’ means schools and structures essential

14 to emergency services necessary for post hurricane

15 recovery (including hospitals, fire and policy facili16 ties, temporary shelters, and emergency operating

17 and preparedness centers) that—

18 (A) have unreinforced masonry bearing

19 walls, tilt-up construction, nonductile concrete

20 frame construction, or other construction, as

21 determined by the Director, that makes them

22 susceptible to damage from hurricanes; and

23 (B) are located in hurricane zones within

24 hurricane-prone States.

25 (4) The term ‘‘Director’’ means the Director of

26 the Federal Emergency Management Agency.
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1 (5) The term ‘‘earthquake’’ means any shaking

2 or trembling of the crust of the earth caused by un3 derground seismic forces or by breaking and shifting

4 of rock beneath the surface.

5 (6) The term ‘‘earthquake, volcanic eruption,

6 and hurricane coverage’’ means insurance issued

7 pursuant to title II.

8 (7) The term ‘‘earthquake-prone State’’ means

9 a State determined by the Director pursuant to sec10 tion 101 to have an exposure to the earthquake

11 peril.

12 (8) The term ‘‘Federal agency’’ means any de13 partment, agency, corporation, or other instrumen14 tality of the executive branch of the Federal Govern15 ment, and includes the Federal National Mortgage

16 Association and the Federal Home Loan Mortgage

17 Corporation.

18 (9) The term ‘‘federally related mortgage loan’’

19 has the meaning given the term in section 3(1) of

20 the Real Estate Settlement Procedures Act of 1974,

21 except that the term does not include any loan de22 scribed in subparagraph (B)(iv) of such section.

23 (10) The term ‘‘fires associated with an earth24 quake’’ means any fire proximately caused by an

25 earthquake.
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1 (11) The term ‘‘fires associated with a volcanic

2 eruption’’ means any fire proximately caused by a

3 volcanic eruption.

4 (12) The term ‘‘hurricane-prone State’’ means

5 a State determined by the Director pursuant to sec6 tion 101 to have an exposure to hurricane peril.

7 (13) The term ‘‘hurricane zone’’ means an area

8 within a State identified and classified by the Direc9 tor under section 101(a) as subject to major hurri10 cane risk.

11 (14) The term ‘‘Insurance and Reinsurance Ad12 visory Committee’’ means the Earthquake, Volcanic

13 Eruption, and Hurricane Insurance and Reinsurance

14 Advisory Committee established under section 207.

15 (15) The term ‘‘Insurance Fund’’ means the

16 Residential Property Insurance Fund established

17 under section 208.

18 (16) The term ‘‘insurance industry’’ means all

19 private insurers and private reinsurers.

20 (17) The term ‘‘large building’’ means any

21 nonresidential structure that has more than 1 story

22 or more than 5,000 square feet per story.

23 (18) The term ‘‘Loss Mitigation Advisory Com24 mittee’’ means the Earthquake, Volcanic Eruption,
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1 and Hurricane Loss Mitigation Advisory Committee

2 established under section 102.

3 (19) The term ‘‘loss-reduction criteria’’ means

4 the criteria for earthquake, volcanic eruption, and

5 hurricane loss mitigation established by the Director

6 under section 103.

7 (20) the term ‘‘Primary Insurance Program’’

8 means the national earthquake, volcanic eruption,

9 and hurricane insurance program under title II.

10 (21) The terms ‘‘private insurer’’ and ‘‘private

11 reinsurer’’ mean any insurer or reinsurer that is (A)

12 licensed or admitted to write property and casualty

13 insurance or reinsurance within a State, or (B) is a

14 branch of an alien insurer or reinsurer that is en15 tered through and licensed by a State to conduct in16 surance or reinsurance business. In the case of an

17 insurance exchange or group of unincorporated un18 derwriters, the term means an underwriting syn19 dicate, notwithstanding the licensed or admitted sta20 tus of the insurance exchange or group of unincor21 porated underwriters.

22 (22) The term ‘‘Reinsurance Fund’’ means the

23 Reinsurance Fund established under section 305.

24 (23) The term ‘‘Reinsurance Program’’ means

25 the national earthquake, volcanic eruption, and hur-
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1 ricane excess loss reinsurance program under title

2 III.

3 (24) The term ‘‘residential property’’ means

4 any (A) 1- to 4-family residential structure (includ5 ing mobile or manufactured homes) and the personal

6 property therein, and (B) personal property of occu7 pants of residential structures (including condomin8 iums, cooperatives, and apartment structures).

9 (25) The term ‘‘residential property insurance

10 coverage’’ means policies, riders, or endorsements of

11 insurance that provide indemnity, in whole or in

12 part, for the loss, destruction, or damage of residen13 tial property and other eligible property as deter14 mined by the Director.

15 (26) The term ‘‘seismically hazardous critical

16 facilities’’ means schools and structures essential to

17 emergency services necessary for post earthquake re18 covery (including hospitals, fire and policy facilities,

19 temporary shelters, and emergency operating and

20 preparedness centers) that—

21 (A) have unreinforced masonry bearing

22 walls, tilt-up construction, or nonductile con23 crete frame construction; and

24 (B) are located in seismic zones within

25 earthquake-prone States.
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1 (27) The term ‘‘Self-Sustaining Mitigation

2 Fund’’ means the Fund established under section

3 104.

4 (28) The term ‘‘seismic zone’’ means an area

5 within a State identified and classified by the Direc6 tor under section 101(a) as subject to major seismic

7 risk.

8 (29) The term ‘‘tsunami’’ means an ocean wave

9 generated by underwater disturbances in the earth’s

10 crust, primarily earthquakes and submarine volcanic

11 eruptions.

12 (30) The term ‘‘volcanic eruption’’ means the

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

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

15 and other natural substances through an opening in

16 the crust of the Earth.

17 (31) The term ‘‘volcanic eruption-prone State’’

18 means a State determined by the Director pursuant

19 to section 101 to have an exposure to the volcanic

20 eruption peril.

21 (32) The term ‘‘volcanic zone’’ means an area

22 within a State identified and classified by the Direc23 tor under section 101(a) as subject to major volcanic

24 eruption risk.
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1 TITLE I—PARTICIPATION BY

2 STATES IN ADOPTION OF HAZ3 ARD REDUCTION MEASURES

4 SEC. 101. IDENTIFICATION OF EARTHQUAKE-PRONE, VOL5 CANIC ERUPTION-PRONE, AND HURRICANE6 PRONE STATES.

7 (a) INITIAL IDENTIFICATION OF STATES.—The Di8 rector, in consultation with the United States Geological

9 Survey, other relevant Federal entities, and seismic, vol10 canic, and meteorological experts in the private sector,

11 shall identify States having an exposure to earthquake

12 perils, States having an exposure to volcanic eruption

13 peril, and States having an exposure to hurricane peril,

14 which shall include any State subject to major or moderate

15 seismic, volcanic eruption, or hurricane risk, as appro16 priate. The Director shall also identify and establish any

17 areas, within such States, that are subject to major seis18 mic, volcanic eruption, or hurricane risk as seismic zones,

19 volcanic zones, or hurricane zones, as appropriate. The Di20 rector shall identify such States and zones before the expi21 ration of the 1-year period beginning on the date of the

22 enactment of the Earthquake, Volcanic Eruption, and

23 Hurricane Hazards Insurance Act of 1995, and shall

24 cause a listing of such States and zones to be published

25 in the Federal Register and in widely circulated local
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1 newspapers in the applicable States before the expiration

2 of such 1-year period.

3 (b) FINAL NOTIFICATION.—Each State identified

4 under subsection (a) shall be considered for purposes of

5 this Act to be an earthquake-prone, volcanic eruption6 prone, or hurricane-prone State, as appropriate, upon the

7 expiration of the 6-month period beginning upon the expi8 ration of the period under subsection (a). The Director

9 shall notify the chief executive officer of each State identi10 fied under subsection (a) in writing, before the expiration

11 of such 6-month period, that the State is an earthquake12 prone, volcanic eruption-prone, or hurricane-prone State,

13 as appropriate, for purposes of this Act.

14 (c) ONGOING IDENTIFICATION AND NOTIFICATION.—

15 Based upon any additional seismic, volcanic, and meteoro16 logical information that from time to time becomes avail17 able, the Director may identify States (not identified

18 under subsection (a)) having an exposure to earthquake,

19 volcanic eruption, or hurricane perils. Any such States

20 shall be considered to be an earthquake-prone, volcanic

21 eruption-prone, or hurricane-prone State, as appropriate,

22 for purposes of this Act upon the notification of the chief

23 executive officer of the State, in writing, of the identifica24 tion of the State as such a State.
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1 (d) APPEAL.—Any State aggrieved by a final deter2 mination as an earthquake-prone, volcanic eruption-prone,

3 or hurricane-prone State pursuant to subsection (b) or (c),

4 may, after exhausting administrative remedies, appeal

5 such determination to any United States district court for

6 a district located within the State, not more than 60 days

7 after receipt of notice of such determination. The scope

8 of review by the court shall be as provided under chapter

9 7 of title 5, United States Code. During the pendency of

10 any such litigation, all determinations of the Director shall

11 be effective and final for the purposes of this title unless

12 stayed by the court for good cause shown.

13 SEC. 102. EARTHQUAKE, VOLCANIC ERUPTION, AND HURRI14 CANE LOSS MITIGATION ADVISORY COMMIT15 TEE.

16 (a) ESTABLISHMENT.—There is established an inde17 pendent advisory committee within the executive branch

18 to be known as the Earthquake, Volcanic Eruption, and

19 Hurricane Loss Mitigation Advisory Committee (in this

20 section referred to as the ‘‘Committee’’). The Committee,

21 its members, and its functions shall be separate from the

22 Insurance and Reinsurance Advisory Committee estab23 lished under section 207. To the extent not contradicted

24 by the provisions of this section, the Committee shall be
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1 subject to the provisions of the Federal Advisory Commit2 tee Act.

3 (b) MEMBERSHIP.—

4 (1) APPOINTED MEMBERS.—The Committee

5 shall be composed of 7 members appointed by the

6 President, by and with the advice and consent of the

7 Senate. The members shall be chosen from among

8 citizens of the United States who are respected ex9 perts in the fields of earthquake, volcanic eruption,

10 and hurricane loss mitigation, who shall include—

11 (A) 1 individual who is employed by a

12 State government as an emergency planner;

13 (B) 1 individual who is knowledgeable re14 garding local community building codes;

15 (C) 1 individual who is employed as a seis16 mic engineer;

17 (D) 1 individual who is employed as an ex18 pert in the field of volcanic eruptions; and

19 (E) 1 individual who is employed as an ex20 pert in the field of hurricanes.

21 (2) EX OFFICIO MEMBER.—Notwithstanding

22 paragraph (1), the Chairman of the Insurance and

23 Reinsurance Advisory Committee under section 207

24 shall serve as an ex officio member of the Committee

25 under this section.
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1 (c) VACANCIES.—A vacancy in the Committee shall

2 be filled in the manner in which the original appointment

3 was made.

4 (d) CHAIRPERSON.—The President shall designate a

5 chairperson of the Committee from among members se6 lected for appointment to the Committee.

7 (e) SELECTION.—Not later than 180 days after the

8 date of the enactment of the Earthquake, Volcanic Erup9 tion, and Hurricane Hazards Insurance Act of 1995, the

10 President shall submit to the Senate nominations for ap11 pointment to the Committee.

12 (f) FUNCTIONS OF THE COMMITTEE.—The Commit13 tee shall review the loss reduction criteria (including the

14 specific loss-reduction measures) established under section

15 103. Not later than 180 days after receiving the draft of

16 the loss-reduction criteria under section 103(a)(3), the

17 Committee shall submit to the Director written comments

18 and recommendations for any changes to the criteria.

19 (g) RESPONSIBILITIES OF DIRECTOR.—The Director

20 shall fully cooperate with the Committee and provide the

21 Committee with access to personnel and information and

22 may request assistance from relevant Federal agencies (in23 cluding the National Institute of Standards and Tech24 nology) as the Committee considers necessary to carry out

25 its functions.
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1 SEC. 103. ESTABLISHMENT OF CRITERIA FOR LOSS-REDUC2 TION MEASURES.

3 (a) DEVELOPMENT OF CRITERIA.—

4 (1) IN GENERAL.—On the basis of research car5 ried out under this title, the Director shall develop

6 comprehensive loss-reduction criteria for State and

7 local land use and management ordinances, building

8 codes, and other loss-reduction measures consistent

9 with the requirements under subsection (b). The Di10 rector shall periodically update such criteria to re11 flect technical advances designed to reduce losses

12 from earthquakes, volcanic eruptions, and hurri13 canes.

14 (2) COORDINATION.—The Director shall de15 velop the loss-reduction criteria in coordination and

16 consistent with the earthquake hazards reduction

17 program under title I of this Act and the Robert T.

18 Stafford Disaster Relief and Emergency Assistance

19 Act (and Executive Order 12699 of January 5,

20 1990). In developing the loss reduction criteria, the

21 Director shall consult other affected Federal entities

22 (including the National Institute of Standards and

23 Technology), the Building Seismic Safety Council,

24 the Interagency Committee on Seismic Safety in

25 Construction, the National Oceanic and Atmospheric

26 Administration, representatives of State and local
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1 governments, regional earthquake, volcanic eruption,

2 and hurricane preparedness organizations, model

3 building code organizations, and insurance industry

4 groups.

5 (3) SUBMISSION OF DRAFT TO ADVISORY COM6 MITTEE.—Not later than the expiration of the 9-

7 month period beginning on the date of the enact8 ment of the Earthquake, Volcanic Eruption, and

9 Hurricane Hazards Insurance Act of 1995, the Di10 rector shall submit a draft of the loss-reduction cri11 teria to the Loss Mitigation Advisory Committee es12 tablished under section 102. Before issuing any final

13 regulations under paragraph (4), the Director shall

14 consider any recommendations made by such Advi15 sory Committee regarding the draft criteria.

16 (4) REGULATIONS.—Not later than the expira17 tion of the 18-month period beginning on the date

18 of the enactment of the Earthquake, Volcanic Erup19 tion, and Hurricane Hazards Insurance Act of 1995,

20 the Director shall issue regulations establishing the

21 loss-reduction criteria under this section, subject to

22 the provisions of subchapter II of chapter 5 of title

23 5, United States Code. In issuing final regulations

24 under this paragraph, the Director shall cause to be

25 published in the Federal Register a description of
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1 any differences between the recommendations of the

2 Loss Mitigation Advisory Committee and the final

3 regulations (including the applicability of loss-reduc4 tion measures to States and localities) developed by

5 the Director. The description shall contain, for each

6 such difference, an explanation of why the rec7 ommendations of the Advisory Committee were not

8 included in the final regulations.

9 (b) CONTENT OF CRITERIA.—The Federal loss-re10 duction criteria established under this section shall include

11 measures for the reduction of losses from future earth12 quakes, volcanic eruptions, and hurricanes, as follows:

13 (1) MANDATORY INCLUSION.—The Director

14 shall include in the loss-reduction criteria the follow15 ing loss-reduction measures:

16 (A) Minimum seismic and hurricane build17 ing standards applicable to new residential

18 property and other buildings located in earth19 quake-prone States and hurricane-prone States.

20 (B) Community-based building codes appli21 cable to new residential property, which shall

22 meet or exceed any minimum provisions relat23 ing to seismic or hurricane hazards contained in

24 (i) the most recent edition of the National

25 Building Code, (ii) the most recent edition of
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1 the Standard Building Code, or (iii) the most

2 recent edition of the Uniform Building Code.

3 (2) DISCRETIONARY INCLUSION.—Consistent

4 with reports submitted to Congress pursuant to sec5 tion 104(a)(2) of the Earthquake Hazards Reduc6 tion Act of 1977 and section 947 of the Cranston7 Gonzalez National Affordable Housing Act, the Di8 rector shall consider and may include in the loss-re9 duction criteria established under this section, any of

10 the following additional loss-reduction measures:

11 (A) Community-based building codes which

12 contain minimum seismic or hurricane provi13 sions (including restrictions on new

14 unreinforced masonry construction) for new res15 idential property that is located in a seismic or

16 hurricane zone, as appropriate, not currently

17 covered by any of the building codes referred to

18 in paragraph (1)(B) but identified by the Direc19 tor as being located in earthquake-prone or hur20 ricane-prone States, as appropriate.

21 (B) Geotechnical techniques to minimize

22 the effects of ground failures for new large

23 buildings in high-risk fault, landslide, site am24 plification, and liquefaction zones identified in

25 earthquake-prone States and, to the extent
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1 practicable and cost-effective, application of the

2 same geotechnical techniques to existing large

3 buildings in the same zones.

4 (C) Measures to control construction of

5 buildings in high-risk fault, landslide, site am6 plification, liquefaction zones, and volcanic

7 zones identified in earthquake-prone or volcanic

8 eruption-prone States.

9 (D) To the extent practicable, retrofitting

10 of seismically hazardous critical facilities and

11 critical facilities vulnerable to hurricanes.

12 (E) Securing of building parapets and ex13 ternal ornamentations of existing buildings lo14 cated in earthquake-prone States or hurricane15 prone States.

16 (F) Bracing of gas water heaters and other

17 measures to reduce the risk of earthquake-in18 duced fires in residential property located in

19 earthquake-prone States.

20 (G) Inspections before transfer of residen21 tial property in earthquake-prone States and

22 hurricane-prone States (and provision to buyers

23 of inspection reports) regarding the adequacy of

24 the anchoring of the residential structure to the

25 foundation, the presence of unbraced or braced
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1 cripple walls for woodframe structures, and the

2 bracing of gas water heaters to the walls for all

3 structures, as appropriate based on risk of

4 damage by earthquakes or hurricanes.

5 (3) RECOMMENDED MEASURES.—The Director

6 may recommend, in the loss-reduction criteria, any

7 of the following earthquake and hurricane prepared8 ness and planning measures:

9 (A) Expanded research and development

10 by the National Institute of Standards and

11 Technology and other government and private

12 sector entities of new cost-effective building

13 technologies for new construction and retro14 fitting of existing buildings.

15 (B) Educational and promotional cam16 paigns to encourage additional voluntary miti17 gation.

18 (C) Reward-based fiscal incentives, such as

19 lower property tax assessments, no reassess20 ments for retrofitting which results in increased

21 property values, or other tax incentives to en22 courage use of state-of-the-art mitigation tech23 nology.

24 (D) State or community-based efforts to

25 assist low- and moderate-income households to
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1 purchase needed earthquake, volcanic eruption,

2 or hurricane insurance and to adopt cost-effec3 tive loss-reduction measures.

4 (E) Improvements in long-term earthquake

5 and hurricane construction practices, including

6 the training and licensing of earthquake and

7 hurricane design professionals as well as public

8 and private building inspectors.

9 (F) Institutional support, training in

10 earthquake and hurricane engineering tech11 nology and other disciplines, and staffing to en12 sure compliance with the community-based

13 building codes.

14 (G) Minimizing damage to public utilities,

15 including sewer, gas, electrical and water sys16 tems, and other lifelines.

17 (c) STANDARD.—Any mitigation measures included

18 in the loss-reduction criteria established under this section

19 shall be practical, cost-effective, workable, and directly re20 lated to the risk of loss from earthquakes, volcanic erup21 tions, or hurricanes in areas where residential property is

22 located.

23 (d) TECHNICAL ASSISTANCE.—The Director, in con24 sultation with the National Institute of Standards and

25 Technology, shall coordinate with and provide technical
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1 assistance to States, interstate, and local officials and

2 agencies to encourage adoption and enforcement of State

3 and local actions that incorporate and support the loss4 reduction measures and preparedness goals developed by

5 the Director under this section.

6 SEC. 104. SELF-SUSTAINING MITIGATION FUND.

7 (a) IN GENERAL.—A percentage of the annual earth8 quake, volcanic eruption, and hurricane insurance and ex9 cess reinsurance premiums collected under the Primary

10 Insurance program under title II, as the Director shall

11 designate, shall be deposited in a separate fund to be

12 known as the Self-Sustaining Mitigation Fund. The per13 centage may not exceed 5 percent, unless the Director de14 termines that the amounts in the Insurance Fund are suf15 ficient to provide for any probable expected losses from

16 future earthquakes, volcanic eruptions, or hurricanes. In17 terest on amounts in the Fund shall be credited to the

18 Fund.

19 (b) USE.—Amounts in the Self-Sustaining Mitigation

20 Fund shall be available, to the extent provided in appro21 priations Acts, to the Director to provide assistance to

22 support the earthquake, volcanic eruption, and hurricane

23 hazard reduction activities, as follows:

24 (1) Assistance to States under section 105(c).
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1 (2) Assistance to provide earthquake, volcanic

2 eruption, and hurricane education pursuant to sub3 section (c).

4 (3) Assistance for research and development

5 supported by the National Institute of Standards

6 and Technology on construction techniques to reduce

7 costs of new construction and retrofitting of existing

8 buildings.

9 (4) Low-interest loans or grants for the retro10 fitting of seismically hazardous critical facilities and

11 critical facilities vulnerable to hurricanes.

12 (c) EDUCATION PROGRAM.—In coordination with the

13 educational programs authorized under title I, the Direc14 tor shall provide assistance under this section to support

15 programs educating the general public on the national di16 mensions of the seismic, volcanic eruption, and hurricane

17 risk and on methods for homeowners to reduce the haz18 ards resulting from future earthquakes and hurricanes.

19 SEC. 105. STATE IMPLEMENTATION OF LOSS-REDUCTION

20 MEASURES.

21 (a) DEFINITION OF COMPLIANCE STATE.—An earth22 quake-prone, volcanic eruption-prone, or hurricane-prone

23 State shall be considered a compliance State for purposes

24 of this title if—
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1 (1) before the expiration of the 2-year period

2 beginning upon the promulgation of final regulations

3 under section 103 establishing loss-reduction cri4 teria—

5 (A) the counties and municipalities located

6 in all seismic, volcanic, and hurricane zones

7 within the State have adopted and are enforcing

8 minimum applicable mitigation measures re9 quired under the loss-reduction criteria; and

10 (B) the chief executive officer of the State

11 has designated an administrative authority to

12 coordinate the development and enforcement of

13 earthquake, volcanic eruption, and hurricane

14 implementation plans for the State, which plans

15 are equivalent to or exceed the loss-reduction

16 criteria; and

17 (2) the State is certified under section 105(b)

18 as a compliance State.

19 (b) DETERMINATION OF COMPLIANCE.—

20 (1) STATE SUBMISSION OF CERTIFICATION.—

21 Before the expiration of the 2-year period referred

22 to in subsection (a)(1), each earthquake-prone, vol23 canic eruption-prone, or hurricane-prone State shall

24 submit a certification to the Director stating wheth25 er the State has substantially adopted and is sub-
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1 stantially enforcing the applicable mitigation meas2 ures under the loss-reduction criteria. In providing

3 such certification, each State may consult with rel4 evant private-sector accreditation and rating organi5 zations approved by the Director. The Director shall

6 issue regulations not later than 18 months after the

7 date of the enactment of the Earthquake, Volcanic

8 Eruption, and Hurricane Hazards Insurance Act of

9 1995 describing the criteria to be used in making

10 and reviewing such State certifications.

11 (2) REVIEW BY DIRECTOR.—The Director shall

12 review each certification submitted under paragraph

13 (1) to determine whether it is an accurate mani14 festation of the submitting State’s substantial com15 pliance with, and enforcement of, the applicable

16 mitigation measures under the loss-reduction cri17 teria. If the Director determines that the State cer18 tification is substantially accurate and the State has

19 adopted and is enforcing the applicable mitigation

20 measures, the Director shall certify the State for

21 purposes of subsection (a). Using the criteria estab22 lished under paragraph (1), the Director shall review

23 the compliance with, and enforcement of, the appli24 cable mitigation measures by each compliance State

25 meeting the requirements of subsection (a) not less
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1 than once every 2 years and shall renew compliance

2 certificates as appropriate.

3 (3) NONCOMPLIANCE STATES.—If an earth4 quake-prone, volcanic eruption-prone, or hurricane5 prone State fails to submit a certification under

6 paragraph (1) or the Director determines under

7 paragraph (1) or (2) that the State has submitted

8 an inaccurate certification, has not adopted or en9 forced minimum applicable mitigation measures, or

10 has failed to have its compliance certification re11 newed, the Director shall certify the State as a non12 compliance State for purposes of this title and shall

13 promptly prepare and publish proposed regulations

14 setting forth the minimum mitigation measures ap15 plicable to the State.

16 (4) REVIEW OF NONCOMPLIANCE.—A State cer17 tified as a noncompliance State pursuant to para18 graph (3) may at any time after such certification

19 request the Director to revoke its noncompliance cer20 tification and to certify the State pursuant to para21 graph (2).

22 (c) ASSISTANCE TO PROMOTE COMPLIANCE.—The

23 Director shall provide assistance to each compliance State

24 from amounts in the Self-Sustaining Mitigation Fund

25 under section 104, to the extent that amounts for such
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1 assistance are made available under appropriations Acts.

2 The amount of such assistance provided to each State

3 shall be based on the State’s need for hazard reduction

4 as measured by the State’s lack of preparedness efforts,

5 the amount of earthquake, volcanic eruption, and hurri6 cane insurance premiums collected in that State under the

7 Primary Insurance Program, and the State’s risk of fu8 ture earthquakes, volcanic eruptions, and hurricanes. Such

9 financial assistance shall be used to support the State’s

10 development and implementation of its mitigation plan, in11 cluding education, enforcement, and mitigation economic

12 incentives, such as low-interest loans for seismic retro13 fitting.

14 SEC. 106. REQUIREMENT TO PURCHASE PRIMARY

15 INSURANCE.

16 (a) CONNECTION TO FEDERALLY RELATED MORT17 GAGE LOANS.—After the expiration of the 2-year period

18 beginning upon the promulgation of final regulations

19 under section 103 establishing loss-reduction criteria, no

20 federally related mortgage loan secured by residential

21 property located in an earthquake-prone, volcanic erup22 tion-prone, or hurricane-prone State may be made, in23 creased, extended, or renewed unless the property securing

24 the loan is covered by earthquake, volcanic eruption, and

25 hurricane insurance coverage available under title II or
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1 equivalent insurance from a private insurer, in the amount

2 required under section 203(a)(6). The Director shall de3 termine, in cooperation with the appropriate Federal agen4 cies, the methods by which such mortgagors shall be re5 quired to present proof that they have obtained an insur6 ance policy consistent with the provisions of this title.

7 (b) EXEMPTION FOR STATE PROPERTIES.—Notwith8 standing the other provisions of this section, earthquake,

9 volcanic eruption, and hurricane insurance coverage shall

10 not be required on any State-owned property that is cov11 ered under a State policy of self-insurance adequate in the

12 determination of the Director. The Director shall publish

13 and periodically revise a list of States to which this sub14 section applies.

15 SEC. 107. EFFECT OF NONCOMPLIANCE WITH STATE MITI16 GATION PROGRAM.

17 Each Federal agency or instrumentality responsible

18 for the supervision, approval, regulation, or insuring any

19 banks, savings and loans associations, or similar institu20 tions shall, by regulation, prohibit such institutions from

21 making, increasing, extending, or renewing a federally re22 lated mortgage loan secured by improved real estate or

23 a mobile home located or to be located in an earthquake24 prone, volcanic eruption-prone, or hurricane-prone State,

25 if—
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1 (1) the State has been determined to be a non2 compliance State pursuant to section 105; and

3 (2) a presale inspection of the property securing

4 the loan—

5 (A) indicates that the property does not

6 meet the minimum mitigation measures applica7 ble to the property under the loss-reduction cri8 teria; or

9 (B) has not been conducted.

10 SEC. 108. COORDINATION WITH OTHER PROGRAMS.

11 In carrying out this Act, the Director shall consult

12 with other departments and agencies of the Federal Gov13 ernment, and with interstate, State, and local agencies

14 having responsibilities regarding earthquakes, volcanic

15 eruptions, and hurricanes to ensure that the programs of

16 such agencies and the Primary Insurance Program under

17 title II are mutually consistent.

18 SEC. 109. REPORT TO CONGRESS.

19 The Director shall submit an annual report under

20 this section to the Congress, within 90 days after the end

21 of each fiscal year. The report shall describe the activities

22 carried out under this title and evaluate any progress

23 achieved in such activities during the preceding fiscal year.
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1 SEC. 110. REGULATIONS.

2 (a) DIRECTOR.—The Director may issue any regula3 tions necessary to carry out this Act, pursuant to the pro4 visions of subchapter II of chapter 5 of title 5, United

5 States Code.

6 (b) FEDERAL AGENCIES.—Each Federal agency or

7 instrumentality responsible for the supervision, approval,

8 regulation, or insuring of banks, savings and loan associa9 tions, or similar institutions, shall, in cooperation with the

10 Director, issue any regulations necessary to implement the

11 responsibilities of such agency under this Act, pursuant

12 to the provisions of subchapter II of chapter 5 of title 5,

13 United States Code.

14 TITLE II—PRIMARY INSURANCE

15 PROGRAM

16 SEC. 201. BASIC AUTHORITY AND PROGRAM ORGANIZA17 TION.

18 (a) ESTABLISHMENT.—To carry out the purposes of

19 this Act, the Director shall establish and carry out a na20 tional earthquake, volcanic eruption, and hurricane insur21 ance program to provide insurance against loss resulting

22 from physical damage to or loss of real property or per23 sonal property related thereto, in the United States, aris24 ing from any earthquake, volcanic eruption, or hurricane,

25 including any fire associated with a volcanic eruption.
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1 (b) IMPLEMENTATION.—In carrying out the Primary

2 Insurance Program under this title, the Director shall ar3 range for participation, on other than a risk-sharing basis,

4 by private insurers, insurance agents and brokers, insur5 ance adjustment organizations, and other persons. The

6 Director may take any actions reasonably necessary and

7 appropriate to carry out this title, including the making

8 of contracts, the employment and compensation of per9 sons, and the acquisition of real and personal property.

10 (c) INSURANCE PRACTICES.—Any actions of the Di11 rector under this title shall be consistent with standard

12 insurance practices and generally accepted accounting, ac13 tuarial, and underwriting principles.

14 (d) SUITS.—Any lawsuits by or against the Director

15 (or employees of the Federal Emergency Management

16 Agency) in connection with activities under this title shall

17 be brought in the district court of the United States with

18 jurisdiction over the action, except that any action by an

19 insurer or reinsurer against the Director (or employees of

20 the Federal Emergency Management Agency) shall be

21 brought in the United States District Court for the

22 District of Columbia.

23 (e) PLAN OF OPERATION.—

24 (1) DEVELOPMENT.—The Director shall de25 velop a plan of operation under this subsection to
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1 ensure the fair, reasonable, and equitable adminis2 tration of the Insurance Fund, the Reinsurance

3 Fund, and other activities under this title and title

4 III.

5 (2) CONTENTS.—The plan of operation shall set

6 forth the specific policy and programmatic details

7 for operating the Primary Insurance Program and

8 the Reinsurance Program, and shall include—

9 (A) all guidelines, criteria, definitions,

10 clarifications, and procedures necessary to carry

11 out this title;

12 (B) procedures for implementing the miti13 gation incentives under section 206; and

14 (C) standards for insurers to retain ex15 pense allowances from premiums collected

16 under this title.

17 (3) STUDY OF LOW-INCOME RATES.—In devel18 oping the plan of operation, the Director shall con19 sider options for charging less than actuarial rates

20 for residential property occupied by low-income pol21 icyholders and may include in the plan any such op22 tion the Director considers necessary, appropriate,

23 and practicable, subject to the requirements under

24 section 205(c).

25 (4) ESTABLISHMENT.—
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1 (A) SUBMISSION OF DRAFT TO ADVISORY

2 COMMITTEE.—Not later than the expiration of

3 the 12-month period beginning on the date of

4 the enactment of the Earthquake, Volcanic

5 Eruption, and Hurricane Hazards Insurance

6 Act of 1995, the Director shall submit a draft

7 of the plan of operation to the Insurance and

8 Reinsurance Advisory Committee established

9 under section 207. Before issuing any proposed

10 regulations under subparagraph (B), the Direc11 tor shall consider any recommendations made

12 by such Advisory Committee regarding the

13 draft plan of operation.

14 (B) PROPOSED REGULATIONS.—Not later

15 than the expiration of the 18-month period be16 ginning on the date of the enactment of the

17 Earthquake, Volcanic Eruption, and Hurricane

18 Hazards Insurance Act of 1995, the Director

19 shall issue proposed regulations establishing the

20 plan of operation under this section, subject to

21 the provisions of subchapter II of chapter 5 of

22 title 5, United States Code. In issuing proposed

23 regulations under this paragraph, the Director

24 shall cause to be published in the Federal Reg25 ister a description of any differences between
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1 the recommendations of the Insurance and Re2 insurance Advisory Committee and the final

3 regulations (including the guidelines, criteria,

4 definitions, clarifications, and procedures under

5 the plan) developed by the Director. The de6 scription shall contain, for each such difference,

7 an explanation of why the recommendations of

8 the Advisory Committee were not included in

9 the proposed regulations.

10 (C) COMMENTS.—After the regulations

11 have been issued under subparagraph (B), the

12 Director shall request comments from the In13 surance and Reinsurance Advisory Committee

14 regarding any changes to the regulations.

15 (D) SUBSEQUENT CHANGES.—Any

16 changes to the plan of operation contained in

17 final regulations shall be made pursuant to reg18 ulations issued in the manner provided in sub19 paragraphs (B) and (C).

20 SEC. 202. SCOPE OF PROGRAM.

21 (a) RESIDENTIAL PROPERTIES.—In carrying out the

22 Primary Insurance Program, the Director shall make

23 earthquake, volcanic eruption, and hurricane coverage

24 available only for residential property. The Director shall

25 make such coverage available in earthquake-prone States,
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1 volcanic eruption-prone States, and hurricane-prone

2 States.

3 (b) ADDITIONAL TYPES OF PROPERTIES.—If, on the

4 basis of studies and investigations undertaken and carried

5 out and information received or exchanged under section

6 204, and such other information as may be necessary, the

7 Director determines that it would be feasible to extend the

8 Primary Insurance Program to cover other properties, the

9 Director may recommend to Congress that earthquake,

10 volcanic eruption, and hurricane coverage under this title

11 be made available to cover any types and classes of—

12 (1) other properties in residential areas;

13 (2) small business properties that are owned or

14 leased and operated by small business concerns;

15 (3) religious properties;

16 (4) agricultural properties;

17 (5) properties occupied by primary nonprofit or18 ganizations; and

19 (6) properties owned by State and local govern20 ments and agencies thereof.

21 SEC. 203. TERMS AND LIMITATIONS OF INSURANCE COV22 ERAGE.

23 (a) TERMS.—Pursuant to the plan of operation es24 tablished under section 201 and after consultation with

25 the Insurance and Reinsurance Advisory Committee, the
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1 Director shall establish, by regulation, the general terms

2 and conditions of insurability for properties eligible for

3 residential property insurance coverage under section 202.

4 Such regulations shall meet the requirements of this sec5 tion and may include—

6 (1) the type and locational classification of such

7 eligible properties;

8 (2) the nature of damage that may be covered

9 by such insurance;

10 (3) appropriate minimum premiums;

11 (4) appropriate loss-deductibles including vari12 able deductibles based on the existence of loss-reduc13 ing measures that affect the risk of loss;

14 (5) appropriate limits on coverage for each clas15 sification of eligible properties;

16 (6) appropriate minimum coverage amounts

17 pursuant to section 106(a) for each classification of

18 eligible properties, which may not be less than the

19 outstanding principal balance of the mortgage loan

20 securing the property or the maximum coverage

21 limit for the property under paragraph (5), which22 ever is less; and

23 (7) any other terms and limitations relating to

24 such residential property insurance coverage that
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1 may be necessary to carry out the purposes of this

2 title.

3 (b) LIMITATIONS.—Earthquake, volcanic eruption,

4 and hurricane coverage under this title shall cover—

5 (1) any damage to covered eligible property

6 proximately caused by—

7 (A) an earthquake, volcanic eruption, or

8 hurricane;

9 (B) a tsunami associated with an earth10 quake, volcanic eruption, or hurricane;

11 (C) a fire associated with a volcanic erup12 tion; and

13 (2) coverage for debris removal and additional

14 living expenses incurred as a result of direct damage

15 to the premises by—

16 (A) earthquake, volcanic eruption, or hur17 ricane;

18 (B) a tsunami associated with an earth19 quake, volcanic eruption, or hurricane; and

20 (C) a fire associated with a volcanic erup21 tion.

22 The coverage shall not include coverage for any fires asso23 ciated with an earthquake.

24 (c) ELIGIBILITY OF COVERAGE.—Any private insurer

25 issuing residential property insurance coverage in any
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1 earthquake-prone, volcanic eruption-prone, or hurricane2 prone State may provide the coverage under this title, on

3 behalf of the Federal Government, to residential property

4 policyholders of the insurer. Any private insurer electing

5 to participate in the Primary Insurance Program shall

6 make coverage available to all residential property policy7 holders of the insurer in earthquake-prone, volcanic erup8 tion-prone, or hurricane-prone States. Any private insurer

9 electing to purchase the excess reinsurance coverage pur10 suant to title III shall make the coverage available, on be11 half of the Federal Government, or at equivalent coverage

12 and rates on their own behalf, to all residential property

13 policyholders of the insurer.

14 SEC. 204. ESTABLISHMENT OF ACTUARIAL PREMIUM

15 RATES.

16 (a) STUDIES AND ESTABLISHMENT OF RATES.—The

17 Director may undertake and carry out such studies and

18 investigations and receive and exchange such information

19 as may be necessary to establish, and shall from time to

20 time establish and prescribe, by regulation, on a State,

21 territorial, or other appropriate basis, actuarial premium

22 rates for types of classes of property eligible for residential

23 property insurance coverage and the terms and conditions

24 under which such rates apply.
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1 (b) ARRANGEMENTS FOR SERVICES.—In carrying out

2 such studies, the Director shall consult with the Loss Miti3 gation Advisory Committee and the Insurance and Rein4 surance Advisory Committee and may enter into contracts,

5 agreements, or other arrangements to utilize the services

6 of the United States Geological Survey and other relevant

7 Federal, State, and local governmental agencies, and other

8 persons.

9 (c) CONSIDERATIONS.—The Director shall establish

10 actuarial rates under this section based on—

11 (1) considerations of the risks involved, includ12 ing—

13 (A) the severity and frequency of earth14 quakes by seismic zone and States in which the

15 insured property is located, including known

16 differences in risks from active faults and

17 known susceptibility to landslide, site amplifi18 cation, and liquefaction;

19 (B) the risk of damage associated with a

20 volcanic eruption by volcanic zone and States in

21 which the insured property is located, including

22 proximity to known lava flows;

23 (C) the severity and frequency of hurri24 canes by hurricane zone and States in which

25 the insured property is located;
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1 (D) the value of the insured property;

2 (E) the age of the structures located on

3 the insured property;

4 (F) the construction type of the structures

5 located on the insured property, including

6 woodframe, masonry, and masonry veneer;

7 (G) the architectural type of the structures

8 located on the insured property, including soft

9 first floor, box construction, and split level;

10 (H) earthquake or hurricane loss-reduction

11 measures, including measures described in sec12 tion 103, followed in the construction or subse13 quent retrofitting of residential property struc14 tures; and

15 (I) any other relevant criteria; and

16 (2) application of accepted actuarial and rate17 making principles that reflect the risks involved, an18 ticipated insurance related administrative and oper19 ating costs and loss and loss-adjustment expense

20 payments, and provide for adequate reserves.

21 (d) LIMITATION.—Any rate classification system

22 used by the Director to establish actuarial rates under this

23 section shall be cost-effective and shall not impose costs

24 for the initial establishment or the subsequent administra-
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1 tion of the rate plan that are disproportionate to the size

2 of the insurance premiums.

3 SEC. 205. CHARGEABLE PREMIUM RATES.

4 (a) ESTABLISHMENT.—On the basis of actuarial

5 rates established under section 204 and such other infor6 mation as may be necessary, the Director shall from time

7 to time, and after consultation with the Loss Mitigation

8 Advisory Committee and the Insurance and Reinsurance

9 Advisory Committee, establish and prescribe, by regula10 tion—

11 (1) chargeable premium rates for any types and

12 classes of properties eligible for earthquake, volcanic

13 eruption, and hurricane coverage; and

14 (2) the terms and conditions under which such

15 rates shall apply.

16 (b) MINIMIZATION OF CROSS-SUBSIDIZATION.—To

17 the maximum extent practicable, such chargeable rates

18 shall be actuarial rates over an extended period of time

19 and shall result in a minimum of cross-subsidization by

20 reasonably reflecting the risk of damaging earthquakes,

21 volcanic eruptions, and hurricanes in total and for each

22 subclassification of policyholders. In setting and adjusting

23 chargeable rates under this section, the Director shall pro24 vide that, over an extended period of time, expected ex25 penditures from the Insurance Fund under section 208(c)
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1 do not exceed expected receipts of the Fund under section

2 208(b).

3 (c) LOW-INCOME RATES AND MITIGATION INCEN4 TIVES.—The Director may, pursuant to the plan of oper5 ation under section 201, establish chargeable rates under

6 this section for (1) residential property occupied by low7 income residents, and (2) residential properties described

8 in section 206(4), that are less than the actuarial rates

9 established under section 204, but only to the extent that

10 such rates do not prevent compliance with the last sen11 tence of subsection (b).

12 SEC. 206. INSURANCE MITIGATION INCENTIVES.

13 In carrying out the Primary Insurance Program

14 under this title pursuant to the plan of operation, the Di15 rector shall provide for the following insurance mitigation

16 incentives:

17 (1) Charging lower deductible amounts for any

18 residential property meeting the seismic and hurri19 cane building standards under the loss-reduction cri20 teria.

21 (2) Requiring under earthquake, volcanic erup22 tion, and hurricane coverage that repairs to residen23 tial property sustaining earthquake damage in ex24 cess of the deductible include, at a minimum, an-
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1 choring the dwelling to the foundation and the addi2 tion of bracing to cripple walls.

3 (3) Requiring under earthquake, volcanic erup4 tion, and hurricane coverage that repairs to residen5 tial property sustaining hurricane damage in excess

6 of the deductible include such structural or other re7 pairs as the Director considers appropriate to miti8 gate against future hurricane damage.

9 (4) Requiring under earthquake, volcanic erup10 tion, and hurricane coverage that residential prop11 erty suffering damage in an amount greater than 50

12 percent of the replacement value of the property

13 shall be rebuilt to at least the minimum standards

14 under the loss-reduction criteria under section 103

15 and applicable to the State.

16 (5) Charging lower premiums or deductible

17 amounts for any residential property located in a

18 seismic zone in an earthquake-prone State, or in a

19 hurricane zone in a hurricane-prone State that

20 passes an earthquake or hurricane inspection that is

21 required as a condition of sale, paid for by the seller,

22 and meets the requirements of section 103(b)(2)(G).

23 (6) Charging lower premiums or deductible

24 amounts for new residential property not con-
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1 structed in volcanic zones in a volcanic eruption2 prone State.

3 SEC. 207. EARTHQUAKE, VOLCANIC ERUPTION, AND HURRI4 CANE INSURANCE AND REINSURANCE ADVI5 SORY COMMITTEE.

6 (a) ESTABLISHMENT.—There is established an inde7 pendent advisory committee within the executive branch

8 to be known as the Earthquake, Volcanic Eruption, and

9 Hurricane Insurance and Reinsurance Advisory Commit10 tee (in this section referred to as the ‘‘Committee’’). The

11 Committee, its members, and its functions shall be sepa12 rate from the Loss Mitigation Advisory Committee estab13 lished under section 102. To the extent not contradicted

14 by the provisions of this section, the Committee shall be

15 subject to the provisions of the Federal Advisory Commit16 tee Act.

17 (b) MEMBERSHIP.—

18 (1) APPOINTED MEMBERS.—The Committee

19 shall be composed of 5 members appointed by the

20 President, by and with the advice and consent of the

21 Senate. The members shall be chosen from among

22 citizens of the United States and shall include—

23 (A) 2 individuals who represent the inter24 ests of private insurers;
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1 (B) 1 individual who represents the inter2 ests of private reinsurers;

3 (C) 1 individual who represents the inter4 ests of insurance agents; and

5 (D) 1 individual who is a State insurance

6 regulator.

7 (2) EX OFFICIO MEMBER.—Notwithstanding

8 paragraph (1), the Chairman of the Loss Mitigation

9 Advisory Committee under section 102 shall serve as

10 an ex officio member of the Committee under this

11 section.

12 (c) VACANCIES.—A vacancy in the Commission shall

13 be filled in the manner in which the original appointment

14 was made.

15 (d) CHAIRMAN.—The President shall designate a

16 chairman of the Committee from among members selected

17 for appointment to the Committee.

18 (e) SELECTION.—Not later than 180 days after the

19 date of the enactment of the Earthquake, Volcanic Erup20 tion, and Hurricane Hazards Insurance Act of 1995, the

21 President shall submit to the Senate nominations for

22 appointment to the Committee.

23 (f) FUNCTIONS OF THE COMMITTEE.—The Commit24 tee shall review the draft plan of operation established

25 under section 201. Within 120 days after receiving the
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1 draft plan of operation, the Committee shall submit to the

2 Director written comments and recommendations for any

3 changes to the plan. After final regulations establishing

4 the plan of operation have been issued, the Committee

5 shall submit a written report not less than once every 180

6 days to the Director and the Congress evaluating the oper7 ation of the Federal earthquake, volcanic eruption, and

8 hurricane insurance and reinsurance programs under this

9 title and making recommendations for any actions relating

10 to such programs. The Committee shall respond as soon

11 as practicable to all requests of the Director made pursu12 ant to subsection (g) or section 201(e)(4)(C).

13 (g) RESPONSIBILITIES OF THE DIRECTOR.—The Di14 rector shall fully cooperate with the Committee and pro15 vide the Committee with access to personnel and informa16 tion as the Committee considers necessary to carry out

17 its functions. The Director shall request comments from

18 the Committee on any questions regarding operation of

19 the Federal earthquake, volcanic eruption, and hurricane

20 insurance and reinsurance programs established under

21 this title.

22 SEC. 208. RESIDENTIAL PROPERTY INSURANCE FUND.

23 (a) ESTABLISHMENT.—There is established in the

24 Treasury of the United States the Residential Property
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1 Insurance Fund for the purpose of carrying out the

2 Primary Insurance Program under this title.

3 (b) CREDITS OF FUND.—The Insurance Fund shall

4 be credited with—

5 (1) insurance premiums received by the Direc6 tor under the Primary Insurance Program (less any

7 amounts credited to the Self-Sustaining Mitigation

8 Fund under section 104) and interest earned on pre9 miums, as provided in subsection (e) of this section;

10 (2) any amounts borrowed under section 209;

11 (3) any amounts appropriated to the Insurance

12 Fund; and

13 (4) any interest earned on amounts invested

14 under subsection (d).

15 (c) USES OF FUND.—Amounts in the Insurance

16 Fund shall be available for—

17 (1) payments for losses and loss adjustment ex18 penses under subsection (f);

19 (2) payments for insurance company expense

20 allowances paid (including agents’ commissions,

21 State premium taxes, and companies’ administration

22 expenses);

23 (3) administrative expenses of the Primary In24 surance Program; and
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1 (4) interest payments on amounts borrowed

2 under section 209 for additional losses, if any.

3 (d) INVESTMENT OF AMOUNTS.—The Director may

4 request the Secretary of Treasury to invest any amount

5 in the Residential Property Insurance Fund in obligations

6 issued or guaranteed by the United States, as the Director

7 considers appropriate.

8 (e) INSURANCE PAYMENTS TO FUND.—Private insur9 ers issuing earthquake, volcanic eruption, and hurricane

10 insurance coverage shall remit the premiums collected, less

11 the insurers’ expense allowances (as provided for in the

12 plan of operation), to the Director on a quarterly basis

13 30 days after the end of the quarter, according to the pro14 cedures prescribed in the plan of operation. Such private

15 insurers shall maintain a separate, interest-bearing ac16 count for the premiums to be submitted to the Director.

17 The interest collected on this account shall be forwarded

18 to the Residential Property Insurance Fund with the

19 premiums on a quarterly basis.

20 (f) REIMBURSEMENT OF INSURERS.—

21 (1) REQUIREMENT AND PROCEDURE.—The Di22 rector shall reimburse private insurers providing

23 earthquake, volcanic eruption, and hurricane insur24 ance coverage pursuant to this title from amounts

25 made available from the Insurance Fund. Reim-
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1 bursement for all claim payments up to and includ2 ing the policy limits of coverage and for all loss ad3 justment expenses paid as a result of earthquake,

4 volcanic eruption, and hurricane shall be made as

5 follows:

6 (A) The Director shall reimburse insurers

7 for all claim payments and loss adjustment ex8 pense payments made pursuant to the Federal

9 Government’s obligations. To the extent that

10 reimbursement is obtained by private insurers

11 for losses also covered under the Reinsurance

12 Program, the insurer shall reimburse the Resi13 dential Property Insurance Fund accordingly.

14 (B) If the gross reimbursements exceed

15 amounts available in the Residential Property

16 Insurance Fund, a combination of amounts bor17 rowed from the industry under subparagraph

18 (C) and amounts borrowed from the Treasury

19 of the United States under section 209 shall

20 cover the additional losses.

21 (C) The industry share under subpara22 graph (B) shall be equivalent to 10 percent of

23 the additional losses. Private insurers issuing

24 earthquake, volcanic eruption, and hurricane

25 coverage shall be assessed for the industry par-
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1 ticipation in the additional losses based upon

2 the proportion that each insurer’s written pre3 miums for this coverage in each State in which

4 the earthquake, volcanic eruption, or hurricane

5 events occurred bear to the total written pre6 miums for such coverage from all insurers in

7 each State in which the same events occurred,

8 based on the most recently published annual re9 port of the Federal Emergency Management

10 Agency. Assessments under this subparagraph

11 may be reinsured under title III.

12 (2) REGULATIONS.—The Director may issue

13 regulations establishing the general method or meth14 ods by which proved and approved claims for losses

15 may be adjusted and paid for damages covered by

16 the earthquake, volcanic eruption, and hurricane

17 coverage issued under this title. The claim practices

18 of the Insurance Fund shall be subject to and con19 form with any applicable State insurance unfair

20 trade practices statutes. Judicial review of a decision

21 of the Director regarding reimbursement of a private

22 insurer shall be available pursuant to section 201(d).

23 (g) OBLIGATIONS.—All earthquake, volcanic erup24 tion, and hurricane insurance coverage provided through

25 the Primary Insurance Program under this title shall con-
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1 stitute obligations, in accordance with the provisions of

2 this title, of the United States. The full faith and credit

3 of the United States is pledged for the full payment and

4 performance of such obligations, subject to the provisions

5 of subsection (f)(1)(C). The private insurers participating

6 in the program shall bear no risk and shall assume no

7 liability for the earthquake, volcanic eruption, and hurri8 cane coverage provided through the program except as

9 provided in subsection (f)(1)(C).

10 (h) STATUS OF FUND.—Any premiums collected for

11 deposit in the Insurance Fund shall be exempt from all

12 taxation now or hereafter imposed by the United States,

13 by any territory, dependency or possession thereof, or by

14 the State, county, municipality, or local taxing authority,

15 except that the insurance policies issued by or in conjunc16 tion with the Federal Government pursuant to this title

17 shall be subject, where applicable, to State insurance pre18 mium taxes.

19 SEC. 209. BORROWING FROM TREASURY.

20 (a) AUTHORITY.—To the extent that the accumulated

21 assets, including any return on investments, in the Resi22 dential Property Insurance Fund are insufficient to pay

23 claims and expenses, the Director shall issue, from time

24 to time, to the Secretary of the Treasury, notes and other

25 obligations to cover the insufficiency; except that the
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1 amounts of such obligations outstanding at any one time

2 shall not exceed—

3 (1) $25,000,000,000 (or such greater amount

4 as may be approved by the President); and

5 (2) such sums as the Congress may provide act6 ing upon the recommendation of the Director.

7 (b) INTEREST RATE.—Obligations under subsection

8 (a) shall bear interest at a rate determined by the Sec9 retary of the Treasury, taking into consideration the cur10 rent average market yield on outstanding marketable obli11 gations of the United States of comparable maturities.

12 (c) DEPOSITS.—Any amounts borrowed by the Direc13 tor under this section shall be deposited in the Residential

14 Property Insurance Fund.

15 (d) REPAYMENT.—Any amounts borrowed under this

16 section shall be recouped, including interest on the bor17 rowed funds, in future chargeable rates for earthquake,

18 volcanic eruption, and hurricane coverage pursuant to the

19 plan of operation. The Secretary of the Treasury shall lib20 erally grant extensions in repayment schedules that the

21 Director advises the Secretary are necessary.
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1 TITLE III—NATIONAL EARTH2 QUAKE, VOLCANIC ERUP3 TION, AND HURRICANE EX4 CESS LOSS REINSURANCE

5 PROGRAM

6 SEC. 301. REINSURANCE PROGRAM.

7 (a) AVAILABILITY.—

8 (1) INITIAL.—Upon the issuance of final regu9 lations establishing the plan of operation under sec10 tion 201, the Director shall make available, to any

11 private insurer participating in the Primary Insur12 ance Program under title II or any private reinsurer

13 which reinsures any such private insurer, excess re14 insurance coverage for direct and indirect losses that

15 are not eligible for insurance coverage under title II

16 and arise from an earthquake, a volcanic eruption,

17 or a hurricane.

18 (2) EXPANDED.—Upon the expiration of the 2-

19 year period beginning upon issuance of the regula20 tions referred to in paragraph (1), the Director shall

21 make available, to any private insurer or private re22 insurer, excess reinsurance coverage for direct and

23 indirect losses that are not eligible for insurance cov24 erage under title II and arise from an earthquake,

25 a volcanic eruption, or a hurricane. Each private in-
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1 surer or reinsurer participating in the Primary In2 surance Program under title II shall purchase the

3 excess reinsurance coverage under this title.

4 (b) LIABILITY.—Excess reinsurance under this title

5 shall be offered as follows:

6 (1) INDUSTRY.—The Reinsurance Fund shall

7 be liable with respect to such reinsurance in the

8 event of an earthquake, a volcanic eruption, or a

9 hurricane after the insurance industry has incurred

10 losses and loss adjustment expenses from the single

11 event that are covered under the lines set forth in

12 section 302(a) and that exceed 8 percent of the in13 dustry countrywide subject net written premium, as

14 determined by the Director.

15 (2) FEDERAL GOVERNMENT.—After the insur16 ance industry has sustained losses described in para17 graph (1), the Federal Government shall be liable to

18 an individual private insurer or private reinsurer for

19 95 percent of qualifying losses in excess of 8 percent

20 of the private insurer’s or private reinsurer’s coun21 trywide subject net written premium.

22 (c) QUALIFYING LOSSES.—For the purposes of sub23 section (b), the term ‘‘qualifying losses’’ means losses and

24 loss adjustment expenses incurred by a private insurer or

25 private reinsurer from an earthquake (including losses and
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1 loss adjustment expenses from foreshocks and aftershocks

2 attributable to the same event and including separate

3 earthquakes occurring within a 12-month period encom4 passing the event described in subsection (b)(1) whose in5 curred losses and loss adjustment expenses exceed 2 per6 cent of the private insurer’s or private reinsurer’s country7 wide subject net written premium), a volcanic eruption,

8 or a hurricane, reduced—

9 (1) by any collectible reinsurance recoverable;

10 and

11 (2) if the percentage of uncollectible reinsur12 ance arising from the event, as compared to total re13 insurance (other than earthquake, volcanic eruption,

14 or hurricane excess catastrophe reinsurance pur15 chased from the Federal Government) with respect

16 to the event is—

17 (A) more than 0 but not more than 5 per18 cent, by 0 percent of such uncollectible reinsur19 ance amount;

20 (B) more than 5 percent, but not more

21 than 15 percent, by 33.33 percent of the

22 uncollectible reinsurance amount above 5 per23 cent;

24 (C) more than 15 percent, but not more

25 than 25 percent, by—
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1 (i) the amount determined under sub2 paragraph (B); and

3 (ii) 66.66 percent of the uncollectible

4 reinsurance amount above 15 percent; and

5 (D) more than 25 percent, by—

6 (i) the amount determined under sub7 paragraph (C); and

8 (ii) 100 percent of the uncollectible re9 insurance amount above 25 percent.

10 (d) OTHER ELIGIBILITY.—

11 (1) IN GENERAL.—Notwithstanding the re12 quirements of subsections (b) and (c), a private in13 surer or private reinsurer shall be eligible for excess

14 reinsurance coverage and reimbursement from the

15 Federal Government if the insurer or reinsurer has

16 incurred losses, prior to any reinsurance coverage,

17 from a single event that are included in the lines

18 covered in section 302(a) and that exceed 50 percent

19 of their countrywide subject direct written premium

20 or their countrywide subject net written premium,

21 whichever is greater.

22 (2) LIABILITY.—After the private insurer or

23 private reinsurer has sustained losses described in

24 paragraph (1), the Federal Government shall be lia25 ble for 95 percent of qualifying losses, as defined in
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1 subsection (c), in excess of 20 percent of the private

2 insurer’s or the private reinsurer’s countrywide sub3 ject net written premium.

4 (3) LIMITATION ON LIABILITY.—The liability of

5 the Federal Government under this subsection shall

6 be limited to 200 percent of the private insurer’s

7 countrywide subject direct net written premium and

8 600 percent of the private reinsurer’s countrywide

9 subject assumed net written premium. In the event

10 a company is both a private insurer and a private

11 reinsurer, the liability limits shall be 200 percent of

12 their subject direct net written premium and 600

13 percent of their subject assumed net written pre14 mium. Intracompany or intragroup reinsurance ar15 rangements or contracts shall not be considered as

16 reinsurance in the calculation of insurance and rein17 surance subject direct or subject assumed net writ18 ten premium under this subsection.

19 (e) DEFINITIONS.—For purposes of this title:

20 (1) The term ‘‘subject assumed net written pre21 mium’’ means premiums received from other insur22 ance companies for reinsurance less ceded reinsur23 ance, for all lines of coverage listed in section 302.

24 (2) The term ‘‘subject direct net written pre25 mium’’ means the aggregate amount of recorded
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1 originated premiums, other than reinsurance, issued

2 during the year whether collected or not at the close

3 of the year (plus retrospective audit premium collec4 tions) after deducting all return premiums and ceded

5 reinsurance premiums, for all lines of coverage listed

6 in section 302.

7 (3) The term ‘‘subject net written premium’’

8 means direct and reinsurance premiums received by

9 private insurers and private reinsurers, less pre10 miums paid for ceded reinsurance, for all lines of

11 coverage listed in section 302.

12 (4) The term ‘‘uncollectible reinsurance’’ means

13 reinsurance proceeds due and payable in accordance

14 with the terms of the reinsurance contract which are

15 not paid within 12 months of the due date.

16 SEC. 302. LINES OF INSURANCE.

17 (a) COVERED LINES.—The Director shall provide re18 insurance coverage to private insurers for all of the follow19 ing lines of insurance appearing in the National Associa20 tion of Insurance Commissioners Fire and Casualty An21 nual Statement filed with the applicable State department

22 of insurance:

23 (1) Fire.

24 (2) Allied Lines.

25 (3) Farmowner’s Multiple Peril.
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1 (4) Homeowner’s Multiple Peril.

2 (5) Commercial Multiple Peril.

3 (6) Ocean Marine.

4 (7) Inland Marine.

5 (8) Earthquake.

6 (9) Workers Compensation.

7 (10) Other Liability.

8 (11) Aircraft (All Perils).

9 (12) Glass.

10 (13) Burglary and Theft.

11 (14) Boiler and Machinery.

12 (15) Reinsurance.

13 Reinsurance coverage must be purchased for all covered

14 lines of insurance and in all affected seismic, volcanic, and

15 hurricane rating zones in earthquake-prone, volcanic erup16 tion-prone, or hurricane-prone States with the rates for

17 such coverage set by the Director, pursuant to section

18 303.

19 (b) OTHER LINES.—The Federal Government shall

20 provide reinsurance coverage to private reinsurers for all

21 of the lines of insurance referred to in subsection (a) as

22 well as other lines of insurance appearing in the National

23 Association of Insurance Commissioners Fire and Cas24 ualty Annual Statement, as determined by the Director
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1 in the plan of operation and in consultation with the

2 Insurance and Reinsurance Advisory Committee.

3 SEC. 303. RATES.

4 (a) ESTABLISHMENT.—The Director shall establish

5 the rates for the excess reinsurance coverage and adjust

6 the rates when necessary using generally accepted actuar7 ial principles. To the maximum extent practicable, such

8 rates shall be actuarial rates which produce a minimum

9 degree of cross-subsidization over an extended period of

10 time consistent with the infrequency of catastrophic earth11 quakes, volcanic eruptions, and hurricanes. In setting and

12 adjusting the rates, the Director shall provide that, over

13 an extended period of time, expected expenditures from

14 the Reinsurance Fund under section 305(c) do not exceed

15 expected receipts of the Reinsurance Fund under section

16 305(b).

17 (b) CONSIDERATIONS.—In setting or adjusting such

18 rates, the Director shall also provide for a minimum de19 gree of cross-subsidization among classes of reinsureds by

20 reasonably reflecting the differences in risk of and vulner21 ability to loss from earthquakes, volcanic eruptions, and

22 hurricanes that would be subject to payment from the

23 Reinsurance Fund, by giving due consideration to the

24 following:
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1 (1) The premium volume of the reinsured by

2 line of insurance under section 302(a) by seismic,

3 volcanic, and hurricane zone or State in which the

4 risks insured or reinsured by the reinsurer are lo5 cated.

6 (2) The proportion of the total expected amount

7 of payments for qualifying losses and loss adjust8 ment expenses by line of insurance under section

9 302(a) by seismic, volcanic, and hurricane zone or

10 State expected for each reinsured.

11 (c) LIMITATION.—Any rate classification system used

12 by the Director under this section shall be cost-effective

13 and shall not impose costs for the initial establishment or

14 the subsequent administration of the rating plan that are

15 disproportionate to the size of the premiums.

16 (d) QUARTERLY PAYMENT.—Premiums paid to the

17 Reinsurance Fund for reinsurance coverage under this

18 title shall be paid on a quarterly basis and shall be accu19 mulated in the Reinsurance Fund, to be managed pursu20 ant to section 305.

21 SEC. 304. REINSURANCE CONTRACTS.

22 (a) TERMS.—The reinsurance contracts issued by the

23 Federal Government pursuant to this title shall contain

24 terms and conditions similar to those generally used in

25 private catastrophic reinsurance contracts.
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1 (b) JUDICIAL REVIEW.—Judicial review of a decision

2 of the Director regarding payment of claims shall be made

3 available pursuant to section 201(d).

4 (c) OBLIGATIONS.—All reinsurance contracts issued

5 under this title shall constitute obligations, in accordance

6 with the terms of such reinsurance, of the United States.

7 The full faith and credit of the United States is pledged

8 for the full payment and performance of such obligations.

9 (d) SINGLE ENTITIES.—Any private insurance and

10 reinsurance companies under the same ownership or man11 agement, as determined under the plan of operation, shall

12 be considered a single entity for purposes of this title.

13 SEC. 305. REINSURANCE FUND.

14 (a) ESTABLISHMENT.—There is established in the

15 Treasury of the United States the Reinsurance Fund for

16 the purposes of carrying out the excess loss reinsurance

17 program under this title.

18 (b) CREDITS OF FUND.—The Reinsurance Fund

19 shall be credited with—

20 (1) any reinsurance premiums received by the

21 Director under the excess loss reinsurance program;

22 (2) any amounts borrowed under section 306;

23 and

24 (3) any amounts earned under subsection (d).
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1 (c) USE OF FUND.—The Reinsurance Fund shall be

2 available to the Director for—

3 (1) payments for qualifying losses and loss ad4 justment expenses under the excess loss reinsurance

5 program under this title;

6 (2) administrative expenses of carrying out the

7 program; and

8 (3) interest payments on amounts borrowed

9 from the Treasury under section 306, if any.

10 (d) INVESTMENT.—The Director shall request the

11 Secretary of the Treasury to invest any amounts in the

12 Reinsurance Fund in obligations issued or guaranteed by

13 the United States, as the Director considers appropriate.

14 (e) STATUS OF FUNDS.—Any reinsurance premiums

15 collected for deposit in the Reinsurance Fund shall be ex16 empt from all taxation now or hereafter imposed by the

17 United States, by any territory, dependency or possession

18 thereof, or by any State, county, municipality, or local tax19 ing authority, except that the insurance policies issued by

20 or in conjunction with the Federal Government pursuant

21 to this title shall be subject, where applicable, to State

22 insurance premium taxes.

23 SEC. 306. BORROWING FROM TREASURY.

24 (a) AUTHORITY.—To the extent that the accumulated

25 assets, including any return on investments, in the Rein-
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1 surance Fund are insufficient to pay claims and expenses,

2 the Director shall issue, from time to time, to the Sec3 retary of the Treasury, notes and other obligations to

4 cover the insufficiency; except that the amounts of such

5 obligations outstanding at any one time shall not exceed—

6 (1) $25,000,000,000 (or such greater amount

7 as may be approved by the President); and

8 (2) such sums as the Congress may provide act9 ing upon the recommendation of the Director.

10 (b) INTEREST RATE.—Obligations under subsection

11 (a) shall bear interest at a rate determined by the Sec12 retary of the Treasury, taking into consideration the cur13 rent average market yield on outstanding marketable obli14 gations of the United States of comparable maturities.

15 (c) DEPOSITS.—Any amounts borrowed by the Direc16 tor under this section shall be deposited in the Reinsur17 ance Fund.

18 (d) REPAYMENT.—Any amounts borrowed pursuant

19 to this section shall be recouped, including interest on the

20 borrowed funds, in future rates for excess reinsurance cov21 erage pursuant to the plan of operation. The Secretary

22 of the Treasury shall liberally grant extensions in repay23 ment schedules that the Director advises the Secretary are

24 necessary.

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