II 

113TH CONGRESS 

1ST SESSION S. 1813 

To establish a program to provide guarantees for debt issued by or on 

behalf of State catastrophe insurance programs to assist in the financial 

recovery from earthquakes and earthquake-related events. 

IN THE SENATE OF THE UNITED STATES 

DECEMBER 12 (legislative day, DECEMBER 11), 2013 

Mrs. FEINSTEIN (for herself and Mrs. BOXER) introduced the following bill; 

which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To establish a program to provide guarantees for debt issued 

by or on behalf of State catastrophe insurance programs 

to assist in the financial recovery from earthquakes and 

earthquake-related events. 

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; TABLE OF CONTENTS. 

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

5 ‘‘Earthquake Insurance Affordability Act of 2013’’. 

6 (b) TABLE OF CONTENTS.—The table of contents for 

7 this Act is as follows: 

Sec. 1. Short title; table of contents. 


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Sec. 2. Findings and purposes. 

Sec. 3. Definitions. 

Sec. 4. Eligible State programs. 

Sec. 5. Establishment of debt-guarantee program. 

Sec. 6. Effect of guarantee. 

Sec. 7. Assessment at time of guarantee. 

Sec. 8. Payment of losses. 

Sec. 9. Full faith and credit. 

Sec. 10. Budgetary impact; costs. 

Sec. 11. Regulations. 

Sec. 12. Reports. 

1 SEC. 2. FINDINGS AND PURPOSES. 

2 (a) FINDINGS.—Congress finds the following: 

3 (1) Major earthquakes are likely in the United 

4 States. For example, the United States Geological 

5 Survey predicts that there is a 99.7 percent chance 

6 that a magnitude 6.7 earthquake will strike in Cali7 fornia in the next 30 years and that there is a 46 

8 percent chance that a magnitude 7.5 earthquake will 

9 strike in California in the next 30 years. Earth10 quakes can be caused by volcanic or tectonic events 

11 and result in destructive shaking of the earth, fires, 

12 landslides, volcanic eruptions, and tsunamis. 

13 (2) Despite the known risk of earthquakes, rel14 atively few homeowners have earthquake insurance. 

15 For example, in California, 88 percent of homes in16 sured for fire do not have earthquake insurance. In 

17 the event of a catastrophic earthquake, the lack of 

18 homeowner earthquake-insurance coverage will slow 

19 recovery, create economic hardship, and increase the 

20 risk of mortgage and other credit defaults and adVerDate Mar 15 2010 01:27 Dec 17, 2013 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1813.IS S1813

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1 versely affect the banking system of the United 

2 States. 

3 (3) It is important that States improve the af4 fordability, availability, and quality of earthquake in5 surance so that more homeowners will purchase cov6 erage. For example, California has created the Cali7 fornia Earthquake Authority to provide earthquake 

8 insurance to homeowners through private-sector in9 surers. 

10 (4) It is a proper role of the Federal Govern11 ment to help prepare and protect its citizens from 

12 catastrophes such as earthquakes and to facilitate 

13 consumer protection, victim assistance, and indi14 vidual and community recovery, including financial 

15 recovery. 

16 (b) PURPOSES.—The purposes of this Act are to es17 tablish a program— 

18 (1) to promote the availability of private capital 

19 to provide liquidity and capacity to State earthquake 

20 insurance programs; and 

21 (2) to expedite the payment of claims under 

22 State earthquake insurance programs and better as23 sist the financial recovery from significant earth24 quakes by authorizing the Secretary of the Treasury 

25 to guarantee debt for such purposes. 


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1 SEC. 3. DEFINITIONS. 

2 In this Act, the following definitions shall apply: 

3 (1) COMMITMENT TO GUARANTEE.—The term 

4 ‘‘commitment to guarantee’’ means a commitment to 

5 make debt guarantees to an eligible State program 

6 pursuant to section 5. 

7 (2) ELIGIBLE STATE PROGRAM.—The term ‘‘eli8 gible State program’’ means a State program that, 

9 pursuant to section 4, is eligible to receive a debt 

10 guarantee under this Act. 

11 (3) INSURED LOSS.—The term ‘‘insured loss’’ 

12 means any loss resulting from an earthquake or 

13 earthquake-related event that is determined by an el14 igible State program to be covered by insurance 

15 made available under that eligible State program. 

16 (4) QUALIFYING ASSETS.—The term ‘‘quali17 fying assets’’ means the policyholder surplus of the 

18 eligible State program as stated in the most recent 

19 quarterly financial statement filed by the program 

20 with the domiciliary regulator of the program in the 

21 last quarter ending prior to an insured-loss trig22 gering event or events. 

23 (5) RESIDENTIAL PROPERTY INSURANCE.—The 

24 term ‘‘residential property insurance’’ means insur25 ance coverage for— 


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1 (A) individually owned residential struc2 tures of not more than 4 dwelling units, individ3 ually owned condominium units, or individually 

4 owned mobile homes, and their contents, located 

5 in a State and used exclusively for residential 

6 purposes or a tenant’s policy written to include 

7 personal contents of a residential unit located in 

8 the State, but shall not include— 

9 (i) insurance for real property or its 

10 contents used for any commercial, indus11 trial, or business purpose, except a struc12 ture of not more than 4 dwelling units 

13 rented for individual residential purposes; 

14 or 

15 (ii) a policy that does not include any 

16 of the perils insured against in a standard 

17 fire policy or any earthquake policy; or 

18 (B) commercial residential property, which 

19 includes property owned by a condominium as20 sociation or its members, property owned by a 

21 cooperative association, or an apartment build22 ing. 

23 (6) SECRETARY.—The term ‘‘Secretary’’ means 

24 the Secretary of the Treasury. 


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1 (7) STATE.—The term ‘‘State’’ means each of 

2 the several States of the United States, the District 

3 of Columbia, the Commonwealth of Puerto Rico, the 

4 Commonwealth of the Northern Mariana Islands, 

5 Guam, the United States Virgin Islands, American 

6 Samoa, and any other territory or possession of the 

7 United States. 

8 SEC. 4. ELIGIBLE STATE PROGRAMS. 

9 (a) ELIGIBLE STATE PROGRAMS.—A State program 

10 shall be considered an eligible State program for purposes 

11 of this Act if the State program or other State entity au12 thorized to make such determinations certifies to the Sec13 retary, in accordance with the procedures established 

14 under subsection (b), that the State program complies 

15 with the following requirements: 

16 (1) STATE PROGRAM DESIGN.—The State pro17 gram— 

18 (A) shall be established and authorized by 

19 State law as an earthquake insurance program 

20 that offers residential property insurance cov21 erage for insured losses to property, contents, 

22 and additional living expenses; and 

23 (B) may not require insurers to pool re24 sources to provide property insurance coverage 

25 for earthquakes. 


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1 (2) OPERATION.— 

2 (A) PUBLIC OFFICIALS.—A majority of the 

3 members of the governing body of the State 

4 program shall be public officials or appointed 

5 by public officials. 

6 (B) STATE FINANCIAL INTEREST.—The 

7 State shall have a financial interest in the State 

8 program. 

9 (C) REPAYMENT OF APPROPRIATED

10 AMOUNTS.—If the State has at any time appro11 priated amounts from the State program’s 

12 funds for any purpose other than payments for 

13 losses insured under the State program, or pay14 ments made in connection with any of the State 

15 program’s authorized activities, the State shall 

16 have returned such amounts to the State fund, 

17 together with interest on such amounts. 

18 (3) TAX STATUS.—The State program shall 

19 have received from the Secretary (or the Secretary’s 

20 designee) a written determination, within the mean21 ing of section 6110(b) of the Internal Revenue Code 

22 of 1986, that the State program either— 

23 (A) constitutes an ‘‘integral part’’ of the 

24 State that has created it; or 


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1 (B) is otherwise exempt from Federal in2 come taxation. 

3 (4) EARNINGS.—The State program may not 

4 provide for any distribution of any part of any net 

5 profits of the State program to any insurer that par6 ticipates in the State program. 

7 (5) LOSS PREVENTION AND MITIGATION.— 

8 (A) MITIGATION OF LOSSES.—The State 

9 program shall include provisions designed to en10 courage and support programs to mitigate 

11 losses for which the State insurance program 

12 was established to provide insurance. 

13 (B) OPERATIONAL REQUIREMENTS.—The 

14 State program shall operate in a State— 

15 (i) that has in effect and enforces, or 

16 within which the appropriate local govern17 ments have in effect and enforce, nation18 ally recognized building, seismic-design, 

19 and safety codes and consensus-based 

20 standards; and 

21 (ii) that has taken actions to establish 

22 an insurance rate structure that takes into 

23 account measures to mitigate insured 

24 losses. 


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1 (6) REQUIREMENTS REGARDING COVERAGE.— 

2 The State program— 

3 (A) may not, except for charges or assess4 ments related to post-event financing or bond5 ing, involve cross-subsidization between any 

6 separate property-and-casualty insurance lines 

7 offered under the State program pursuant to 

8 paragraph (1); 

9 (B) shall be subject to a requirement 

10 under State law that for earthquake insurance 

11 coverage made available under the State insur12 ance program the premium rates charged on 

13 such insurance— 

14 (i) shall be actuarially sound; 

15 (ii) may not be excessive, inadequate, 

16 or unfairly discriminatory; 

17 (iii) shall be established based on the 

18 best available scientific information for as19 sessing the risk of earthquake frequency, 

20 severity, and loss; and 

21 (iv) shall incorporate, and may not in 

22 the aggregate be less than, the sum of the 

23 modeled expected loss, risk financing costs, 

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1 penses necessary to operate the State pro2 gram; and 

3 (C) shall make available to all qualifying 

4 policyholders insurance coverage and mitigation 

5 services on a basis that is not unfairly discrimi6 natory. 

7 (b) ANNUAL CERTIFICATION.—The Secretary shall 

8 establish procedures for initial certification and annual re9 certification of a State program as an eligible State pro10 gram. 

11 SEC. 5. ESTABLISHMENT OF DEBT-GUARANTEE PROGRAM. 

12 (a) AUTHORITY OF SECRETARY.—The Secretary is 

13 authorized and shall have the powers and authorities nec14 essary— 

15 (1) to guarantee, and to enter into commit16 ments to guarantee, holders of debt against loss of 

17 principal or interest, or both, on any debt issued by 

18 eligible State programs for purposes of this Act; and 

19 (2) to certify and recertify State catastrophe in20 surance programs that cover earthquake peril to be21 come or remain eligible for the benefits of such a 

22 debt-guarantee program. 

23 (b) LIMIT ON OUTSTANDING DEBT GUARANTEES.— 

24 The aggregate amount of debt covered by the Secretary’s 

25 guarantees and commitments to guarantee for all eligible 


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1 State programs outstanding at any time shall not exceed 

2 $3,000,000,000, including interest. 

3 (c) FUNDING.— 

4 (1) APPROPRIATION OF FEDERAL PAYMENTS.— 

5 Subject to subsection (b), there are hereby appro6 priated, out of funds in the Treasury not otherwise 

7 appropriated, such sums as may be necessary to sat8 isfy debt guarantee commitments extended to eligible 

9 State programs under this Act. 

10 (2) CERTIFICATION FEE.—Upon certification or 

11 recertification as an eligible State program under 

12 section 4, a State program shall be charged a certifi13 cation fee that the Secretary determines, at the time 

14 of certification or recertification, is sufficient to 

15 cover— 

16 (A) applicable administrative costs arising 

17 from the certification or recertification, includ18 ing all pre-certification costs and a proportional 

19 share of the costs arising from the administra20 tion of the program established under this Act, 

21 but in any event not to exceed one-half of 1 

22 percent per annum of the aggregate principal 

23 amount of the debt for which the eligible State 

24 program is issued a guarantee commitment; 

25 and 


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1 (B) any probable losses on the aggregate 

2 principal amount of the debt for which the eligi3 ble State program is issued a guarantee com4 mitment. 

5 (3) RULE OF CONSTRUCTION.—Any funds ex6 pended or obligated by the Secretary for the pay7 ment of administrative expenses for conduct of the 

8 debt-guarantee program authorized by this Act shall 

9 be deemed appropriated at the time of such expendi10 ture or obligation from the certification and recer11 tification fees collected pursuant to paragraph (2). 

12 (d) CONDITIONS FOR GUARANTEE ELIGIBILITY.—A 

13 debt guarantee under this section may be made only if 

14 the Secretary has issued a commitment to guarantee to 

15 a certified, eligible State program. The commitment to 

16 guarantee shall be in force for a period of 3 years from 

17 its initial issuance and may be extended by the Secretary 

18 for 1 year on each annual anniversary of the issuance of 

19 the commitment to guarantee. The commitment to guar20 antee and each extension of such commitment may be 

21 issued by the Secretary only if— 

22 (1) the eligible State program submits to the 

23 Secretary a report setting forth, in such form and 

24 including such information as the Secretary shall reVerDate Mar 15 2010 01:27 Dec 17, 2013 Jkt 039200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1813.IS S1813

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1 quire, how the eligible State program plans to repay 

2 guarantee-eligible debt it may incur; 

3 (2) based on the eligible State program’s report 

4 submitted pursuant to paragraph (1), the Secretary 

5 determines there is reasonable assurance that the el6 igible State program can meet its repayment obliga7 tion under such debt, by considering relevant criteria 

8 including— 

9 (A) par amount of debt to be issued; 

10 (B) use of debt proceeds; 

11 (C) proposed debt structure; 

12 (D) term of debt outstanding; 

13 (E) ratio of premium income to expected 

14 debt service; 

15 (F) review of recent quarterly financial 

16 statements; and 

17 (G) review of any recent credit rating pro18 vided by a nationally recognized statistical rat19 ing organization, as defined in section 3(a) of 

20 the Securities Exchange Act of 1934 (15 

21 U.S.C. 78c(a)); 

22 (3) the eligible State program enters into an 

23 agreement with the Secretary, as the Secretary shall 

24 require, that the eligible State program— 


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1 (A) will not use Federal funds of any kind 

2 or from any Federal source (including any dis3 aster or other financial assistance, loan pro4 ceeds, and any other assistance or subsidy) to 

5 repay the debt; 

6 (B) will, to the extent prudent, use any au7 thority or capacity to surcharge policyholders or 

8 policies of coverage to contribute to repaying 

9 the debt guaranteed under this subsection; and 

10 (C) will apply annually, except in years in 

11 which the debt is being repaid, an amount not 

12 less than 2 percent of the debt subject to the 

13 agreement toward a combination of— 

14 (i) mitigation initiatives; and 

15 (ii) public education regarding the 

16 risks of earthquakes and earthquake-re17 lated events; 

18 (4) the commitment to guarantee specifies and 

19 requires the payment of the fees for debt guarantee 

20 coverage; and 

21 (5) the maximum term of the debt specified in 

22 the commitment to guarantee does not exceed 30 

23 years. 

24 (e) MANDATORY ASSISTANCE FOR ELIGIBLE STATE

25 PROGRAMS.—The Secretary shall, upon the request of an 


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1 eligible State program and pursuant to a commitment to 

2 guarantee issued under subsection (d), provide a guar3 antee under subsection (f) for the eligible State program 

4 in the amount requested by the eligible State program. 

5 (f) CATASTROPHE DEBT GUARANTEE.—A debt guar6 antee under this subsection for an eligible State program 

7 shall be subject to the following requirements: 

8 (1) PRECONDITIONS.—The eligible State pro9 gram shall demonstrate to the satisfaction of the 

10 Secretary that insured losses to the eligible State 

11 program arising from the event or events covered by 

12 the commitment to guarantee are likely to exceed 80 

13 percent of the eligible State program’s qualifying as14 sets available to pay claims, as calculated on the 

15 date of the event and based on the eligible State 

16 program’s most recent quarterly financial statement 

17 filed with its domiciliary regulator. 

18 (2) USE OF FUNDS.—Proceeds of debt guaran19 teed under this section shall be used only to pay the 

20 costs of issuing debt and of securing or providing 

21 claim-payment capacity for paying the insured losses 

22 and loss adjustment expenses incurred by an eligible 

23 State program. Such amounts shall not be used for 

24 any other purpose. 


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1 (3) LIMIT ON GUARANTEE FOR EVENTS RELAT2 ING TO A SINGLE EARTHQUAKE.—The amount of a 

3 debt guarantee that an eligible State program re4 ceives to secure or provide claim-payment capacity 

5 for paying the insured losses and loss adjustment ex6 penses from all events relating to a single earth7 quake may not be greater than $1,500,000,000. 

8 SEC. 6. EFFECT OF GUARANTEE. 

9 The issuance of any guarantee by the Secretary 

10 under this Act shall be conclusive evidence that— 

11 (1) the guarantee has been properly obtained; 

12 (2) the underlying debt qualified for such guar13 antee; and 

14 (3) the guarantee is valid, legal, and enforce15 able. 

16 SEC. 7. ASSESSMENT AT TIME OF GUARANTEE. 

17 If the Secretary determines that the fees collected 

18 under section 5(c)(2) will not cover applicable administra19 tive costs for, and probable losses on, a guaranteed obliga20 tion, the Secretary shall charge and collect a fee for each 

21 guarantee issued in an amount that the Secretary deter22 mines, at the time of issuance of the guarantee, is suffi23 cient to cover such costs and probable losses. 

24 SEC. 8. PAYMENT OF LOSSES. 

25 (a) PAYMENT BY SECRETARY.— 


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1 (1) IN GENERAL.—The Secretary shall pay to 

2 the duly appointed paying agent or trustee (in this 

3 section referred to as the ‘‘Fiscal Agent’’) for an eli4 gible State program that portion of the principal and 

5 interest on any debt guaranteed under this Act that 

6 becomes due for payment but is unpaid by the eligi7 ble State program as a result of the eligible State 

8 program having provided insufficient funds to the 

9 Fiscal Agent to make the payment. 

10 (2) TIME OF PAYMENT.—The Secretary shall 

11 make a payment described in paragraph (1) on the 

12 later of— 

13 (A) the date on which the principal or in14 terest becomes due for payment; or 

15 (B) the first business day after the date on 

16 which the Secretary receives notice that the eli17 gible State program has failed to provide suffi18 cient funds to the Fiscal Agent to make the 

19 payment. 

20 (3) SUBROGATION OF RIGHTS.—Upon making a 

21 payment under this subsection, the Secretary shall 

22 be subrogated to all the rights of the ultimate recipi23 ent of the payment. 

24 (4) RECOVERY FROM ELIGIBLE STATE PRO25 GRAM.—The Secretary shall be entitled to recover 


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1 from an eligible State program the amount of any 

2 payments made by the Secretary pursuant to any 

3 guarantee entered into under this Act. 

4 (b) ROLE OF THE ATTORNEY GENERAL.—The Attor5 ney General shall take such action as may be appropriate 

6 to enforce any right accruing, and to collect any and all 

7 sums owing, to the United States as a result of the 

8 issuance of any guarantee under this Act. 

9 (c) RULE OF CONSTRUCTION.—Nothing in this sec10 tion shall be construed to preclude any forbearance for the 

11 benefit of the eligible State program which may be agreed 

12 upon by the parties to the guaranteed debt and approved 

13 by the Secretary, provided that budget authority for any 

14 resulting cost, as such term is defined under the Federal 

15 Credit Reform Act of 1990 (2 U.S.C. 661 et seq.), is avail16 able. 

17 (d) RIGHT OF THE SECRETARY.—Notwithstanding 

18 any other provision of law relating to the acquisition, han19 dling, or disposal of property by the United States, the 

20 Secretary shall have the right in the discretion of the Sec21 retary to complete, recondition, reconstruct, renovate, re22 pair, maintain, operate, or sell any property acquired by 

23 the Secretary pursuant to the provisions of this Act. 


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1 SEC. 9. FULL FAITH AND CREDIT. 

2 The full faith and credit of the United States is 

3 pledged to the payment of all guarantees issued under this 

4 Act with respect to principal and interest. 

5 SEC. 10. BUDGETARY IMPACT; COSTS. 

6 For purposes of section 502(5) of the Federal Credit 

7 Reform Act of 1990 (2 U.S.C. 661a(5)), the cost of guar8 antees to be issued under this Act shall be calculated by 

9 adjusting the discount rate in section 502(5)(E) of such 

10 Act for market risk. 

11 SEC. 11. REGULATIONS. 

12 The Secretary shall issue any regulations necessary 

13 to carry out the debt-guarantee program established under 

14 this Act. 

15 SEC. 12. REPORTS. 

16 (a) IN GENERAL.—Not later than 12 months after 

17 the date on which the Secretary issues a guarantee under 

18 section 5 for debt issued by an eligible State program, and 

19 annually thereafter, the eligible State program shall sub20 mit to the Secretary and to Congress a report, in a form 

21 prescribed by the Secretary, that contains the information 

22 required under subsection (b). 

23 (b) CONTENTS.—A report under this section shall de24 scribe, with respect to the reporting year— 

25 (1) the benefits that the eligible State program 

26 derived from the debt-guarantee; and 


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1 (2) the manner in which the eligible State pro2 gram applied 2 percent of the guarantee amount for 

3 the purposes described in section 5(d)(3)(C). 

4 (c) LIMITATION.—To the extent practicable, the Sec5 retary shall limit the information required to be included 

6 in a report under this section to information that is other7 wise publicly available. 

Æ 


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